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Mandelson: Private equity is vital to UK recovery

The UK’s secretary of state for business, Peter Mandelson, last night urged BVCA members to help drive UK economic growth by backing entrepreneurial start-ups and growing SMEs ‘into world beaters’. He also addressed the industry’s efforts to battle negative public perception, noting it had surpassed its ‘pain threshold’.

Private equity and venture capital is crucial for stimulating UK economic growth, according to Peter Mandelson, the UK’s secretary of state for business.

“This industry helped drive growth in our economy in the good times,” he said at the British Venture Capital Association’s annual black tie gala in London last night. “Now we need to call on that strength and capacity as part of our solution to this downturn.”

He challenged the crowd of 150 or so to help finance the UK’s future by “putting our money as a country where our mouth is on innovation, on financing entrepreneurial start-ups, on the value of growing medium sized firms into world beaters”.

Peter Mandelson

It’s a particularly exigent task given the closure of corporate credit and initial public offering markets, he added. 

“The credit crunch will exacerbate a long term problem in the UK, which is that about 4 percent of UK investment goes to venture capital compared to about 33 percent in the US,” he said. “That's part of the reason there is no British Google, or Amazon or Microsoft or Apple.”

Mandelson also touched on the controversies that have surrounded private equity’s business model in recent years, referencing its grilling by the UK’s Treasury Select Committee in 2007 and lauding establishment of the Walker Guidelines in response to calls for greater transparency and accountability.

You have to demonstrate that you are indeed the people of long-term investment.

Peter Mandelson

“You’ve gone past the pain threshold,” he said, though noted the public debate on private equity, and demands for transparency and accountability, will continue as major buyouts can reshape industries as well as communities.

“The promotion of long term growth, value and employment is a public expectation, and your industry has to work with that,” he said. “You have to demonstrate that you are indeed the people of long-term investment.”

BVCA chairman Jeremy Hand, a managing partner at mid-market firm Lyceum Capital, light-heartedly highlighted that Mandelson is no stranger to controversy himself and has often been the subject of “irrational hatred”. Mandelson is currently under fire from trade unions, as well as some politicians and mainstream press outlets, for his support of the plan to partly privatise the Royal Mail. CVC Capital Partners, voted European LBO firm of the year in the Private Equity International Awards 2008, has been singled out as a potential buyer of a minority stake in the postal service.