“What do you reckon has been the most depressing financial headline of the summer?” I asked the chairman of the insignificantly sized investment company TwoHoots Asset Management when we caught up the other day. “It’s a crowded field, for sure, but I believe there is a clear winner – and, if you can guess it, I may even buy the next round.”
“Easy, tiger – no need to go breaking the habit of a lifetime,” laughed the chairman. “Still, challenge accepted – and presumably it was something Woodford-related that caught your eye?” “Oddly enough, no,” I replied. “From what I read, most of His Majesty’s financial press played the fines pretty straight while the few outliers I did spot seemed to average themselves out.” “Outliers?” the chairman prompted helpfully.
“To represent different ends of the spectrum,” I said, “I can offer you the classically vengeful ‘Neil Woodford cost me £100,000. His £6m fine is an insult’, in the Times; and Jeff Prestridge’s classically downbeat marker for a potential future ‘told-you-so’ piece, ‘I fear Neil Woodford will find a way to skip his £46m fine’, in the Mail on Sunday.” “Fair enough,” nodded the chairman.
“In that case, the answer must lurk in your ongoing downer on all things private equity.” “Strike two,” I replied. “I’m not saying I’ve changed my view on the sector or that there weren’t a whole bunch of depressing headlines – from the excellent ‘Soul suckers – how private equity ruined Britain’, in the Spectator, to the FT’s ominous ‘Private equity’s 401k dream comes true’ – but nothing to knock my winner off its perch.”
Shudder-inducing creatures
“Keen as I am to hear what you deem even gloomier than the Speccie’s offering – and the suspense is almost tangible,” the chairman deadpanned, “I feel we need to examine your phobia of private equity and …” “It’s not a phobia,” I interrupted. “Phobias are for spiders and snakes and other shudder-inducing creatures … ah … my mistake – phobia it is. Please, do continue.” “Much obliged,” nodded the chairman.
“In The Psychology of Money …” “Don’t you dare use Morgan Hounsel against me,” I hissed. “Remember his chapter on not viewing people who invest differently from you as irrational but as playing a different game?” the chairman pressed on. “Can’t you see that also holds true for private equity investors?” “Doesn’t make it right,” I grumped. “Actually, that may depend on where you’re standing,” said the chairman.
“Sure I can see how, from some angles, taking advantage of the UK’s inviting valuations, currency, regulatory environment and so forth to buy out-of-favour businesses and then raise prices, slash costs, lay off staff, dodge pension obligations, pare back services, beat up suppliers and insert a whole roster of your favoured consultants – all to ramp up shareholder dividends before eventually offloading the shell to some mug – may look iffy.
Emotional element
“And sure I can see how, from one or two other angles, it may look iffier still if the out-of-favour businesses are somehow vital to the country’s infrastructure or have some emotional element that forces customers to stick with you no matter how shabbily you treat them – care facilities, children’s homes and vets spring to mind …” “Last summer, in France, I watched a hornet attack a spider with a body the size of a golf ball,” I interjected.
“The hornet stung the spider, dragged it 20 yards to its nest and, I rather fear, laid its eggs in the paralysed body.” “You see!” exclaimed the chairman. “You do get it!” “Actually, I regret not stamping on the hornet,” I said. “No, no,” said the chairman. “What seemed wrong to you was natural to the hornet. And the same goes for us – I mean, those – dreadful private equity types. Yuck! As the man said, don’t hate the player – hate the game.
“Or, just possibly, the people who have allowed the rules to evolve so this sort of game can now be played.” “Amoral ‘crapitalism’ rather than more high-minded capitalism?” I said. “We really do need to write that book, don’t we?” the chairman nodded. “Now, why don’t you cheer yourself up by revealing your ‘Summer’s most depressing headline’? “Artemis closes Positive Future fund,” I said. “Sounds about right,” sighed the chairman.
“As the man said, don’t hate the player – hate the game. Or, just possibly, the people who have allowed the rules to evolve so this sort of game can now be played
