ALEX BRUMMER: Private equity faces peril

The rewards to quoted company executives face intense scrutiny – especially if firms are in the spotlight. The £4.4million pay of Tesco’s chief executive Ken Murphy is being targeted at a time when soaring supermarket food prices are being probed.

At ITV, Carolyn McCall’s £3.5million of rewards have been highlighted as a result of the Phillip Schofield affair.

Among the reasons for being sceptical about private equity, which has spent £80billion taking British companies private over the last five years, is lack of transparency.

The most recent deal, Asda’s £2.3billion takeover of EG Group’s UK and Irish petrol stations, is bathed in secrecy. 

Private equity industry: Large parts of Mayfair are colonised by the fraternity, which works closely with brokers, investment banks and lawyers in the City

If EG were a public company there would be all manner of questions about whether the brothers Mohsin and Zuber Issa were paying a fair price and if there was an equitable division of spoils in an inter-company transaction.

It is not just the opaque nature of private equity which causes concern. It relies almost exclusively on debt, which makes the businesses vulnerable at times like the present when interest rates are surging.

The disclosure that private equity kingpins collected £2.7billion in carried interest, the share of profits from successful deals in 2020/21, is unlikely to escape the scrutiny of Labour as it looks for easy targets.

As much as one abhors the party’s distrust of wealth, one cannot but have sympathy for efforts to clamp down on private equity. The earnings made are obscene.

It seems preposterous that the incomes of FTSE 100 executives are taxed at 45 per cent whereas carried income is liable for capital gains tax of 28 per cent.

The fear is that this disparity could lead Labour to the wrong conclusion – raising capital gains taxes to the same level as income tax. That would kill Britain’s start-up entrepreneurial culture stone dead.

One deplores some of the stuff that private equity does. Who can forget the defenestration of aerospace pioneer Cobham?

But the industry is part of the UK’s financial infrastructure. Large parts of Mayfair are colonised by the fraternity, which works closely with brokers, investment banks and lawyers in the City. 

Onerous tax changes could drive a valuable industry back to New York or across the channel.

Turkish delight

The loss of Arm Holdings’ float to the US is a tragic blow, but the seeds of that were sown when the May/Hammond government was panicked into selling to SoftBank in 2016.

Retrieving it from the mercurial hands of Masayoshi Son was never going to be easy.

A decision by UK group WE Soda, controlled by Turkish tycoon Turgay Ciner, to bring his £6billion float to London’s premium market is a boost after a poor start to the year for initial public offerings.

The problem is that the UK lacks active pension fund managers ready to put faith in UK equities and infrastructure.

The decision by engineers Melrose to refloat GKN’s automotive arm Dowlais in the City was a useful start.

Both the Financial Conduct Authority and the London Stock Exchange are looking at ways to make listing in London more attractive. Among ideas to be unveiled is better access to liquidity for private firms.

There are a couple of health warnings about WE Soda. Its main product, Soda Ash, is disfavoured by the green lobby. But what firms aren’t?

Ciner, who has made his home in Britain, might think differently should the next government frighten off wealth creators.

Blame game

Anyone tuning in to Radio 4’s debate on food price profiteering could not but be struck by the fact that the bosses of Britain’s biggest grocery chains and challengers, such as Lidl and Aldi, all refused to appear.

Here was an opportunity to explain how the UK has one of the most competitive food retail markets in the world.

There are myriad reasons, ranging from poor policy-making in Whitehall to high energy prices, for the food cost bubble.

As a result of a kink in the supply chain, from farmer (60 per cent of UK food is home-produced) to manufacturers and retailers, the consumer is being harmed.

The tough talking head of the Competition and Markets Authority Sarah Cardell has bravely taken on the might of Microsoft. Now she needs to make UK food prices and poverty an urgent priority.

This post first appeared on Dailymail.co.uk