Buyout firms highlight pension fund beneficiaries in defence

The five firms giving evidence to the UK Parliament’s investigation hope a mixture of hard fact about successful deals and plain talking about tax among other issues will make a stronger case than the BVCA managed with its lamentable performance last week.

The five buyout firms giving evidence tomorrow before the UK Parliament’s Select Treasury Committee are planning to take a firm line with the MPs, who roasted UK industry association the BVCA last week.

The committee has called 3i’s Philip Yea, Permira’s Damon Buffini, KKR’s Dominic Murphy, The Carlyle Group’s Robert Easton and The Blackstone Group’s David Blitzer to answer questions.

A source close to one of the firms said: “We will be using the opportunity to outline the considerable benefit private equity offers to millions of pensioners, our investors, and to the wider economy.” He said the firm would give a straight answer on the issue of tax, which so inflamed MPs last week.

The partners at the firm paid tax in the jurisdiction in which they resided, whether that was in the UK, Germany or France, he said. There were no off-shore structures to shelter partners’ tax liabilities, he added.

Yea is also in the clear on his personal tax contribution, paying UK tax on his £2.1 million remuneration package, according to 3i’s latest group accounts.

It is hoped that some straight responses to MPs will avoid the frustration that caused the Committee to become increasingly aggressive last week, when it felt the BVCA was being obstructive.

The tax debate reached flash point thanks to SVG Capital’s Nick Ferguson, who said in a now notorious interview with the Financial Times: “Any common sense person would say that a highly-paid private equity executive paying less tax than a cleaning lady […] can’t be right.” The Committee drew on his comparison when it challenged the BVCA to defend the use of capital gains tax taper relief, which can diminish the tax rate to as low as ten percent in the UK.

The BVCA was backed into a corner and forced to admit its members were exploiting a tax concession never intended to benefit buyout funds.

However, many in the industry, including heavyweights Guy Hands and Jon Moulton, believe the criticism is unfair as they did not devise the tax regime within which they are operating. Both Hands and Moulton have called for the industry to stop attacking itself.

But another source familiar with the witnesses’ plans said the industry may find it difficult to take a stand in the febrile bear pit of the treasury committee. She said: “You have to prepare; be in command of the facts and if you get a chance, make your case. But be prepared: the nature of the committee is to ask a question and not to let you answer.”

Both sources said the firms would endeavour to give solid examples of private equity’s successes; this would put them in a stronger position than the BVCA, which was left to defend the industry with abstract generalisations.