Private equity

There has been much press recently about the private equity sector as the GMB has been lobbying Gordon Brown to prevent private equity companies from being able to offset the interest charges on loans they take out to buy companies, against tax. The GMB objects to the corporate ethics of the sector which buys badly managed companies, sells off the unprofitable assets, very often causing redundancies, improves the remaining business and returns the profits to its shareholders. The union believes that this creates unnecessary unemployment and distress and that the Government should do more to protect workers' rights by making such deals more expensive and therefore less attractive to the private equity companies. Jon Moulton, Managing Partner of Alchemy, thinks that the level of debt in the private equity sector is worryingly high. Banks are eager to lend to them, looking at the forecasts of improved cashflow and apparently easy repayment of the loans. However, in an environment of rising interest rates, not only does the cost of capital rise but the slower economy may mean that cashflow forecasts are too optimistic so there is a double squeeze. The GMB has been conducting a personal vendetta against the Managing Partner of Permira, Damon Buffini, an alumnus of my old college at Cambridge, and they sent a camel to his local church. I'm trying to find out if they sent a needle as well.