PE industry associations: The advocates

From Taylor Swift taking aim at The Carlyle Group for backing the acquisition of her former music label – which she accuses of barring her from singing certain songs – to Senator Elizabeth Warren promising draconian legislation while on the road campaigning for the Democratic presidential nomination, private equity has been thrust into the public spotlight once again.

Little wonder Coller Capital picked up on the issue in the latest installment of its private equity barometer. Asked if political and media criticism of the asset class has grown stronger, 69% of North American LP respondents answered in the affirmative, compared to 57% of Asia Pacific-based investors and 36% of their European counterparts. There appears to be less dissension as to whether private equity industry associations should do more to defend the industry: three-quarters of respondents across all markets think they should.

The American Investment Council responded to intensifying barbs emanating from the campaign trail by commissioning EY to calculate private equity’s contribution to the US economy in 2018. It considered employment, share of commercial activity, and tax contribution, as well as the indirect impact on areas like supply chains and related consumer spending. Nine Democratic members of Congress questioned the methodology and results of the report, denouncing it as a “sham study.”

Asia is by no means immune to politically motivated criticisms of private equity in the US, but neither does it sit at the epicenter. Having said that, the question raised in the Coller survey about the role of industry associations does resonate in Asia, even though the issues at stake are locally oriented rather than driven by a US or global agenda. How many industry associations in the region have the resources or remit to publish a version of the American Investment Council study?

The answer is probably one: the Australian Investment Council (AIC) is by some distance the most active lobbyist among Asia’s industry associations. Advocacy efforts include private equity teach-in seminars for policy makers, case studies that illustrate how investors are helping to build sustainable businesses and reports not dissimilar to that produced by the American Investment Council and EY.

There are three reasons why AIC differs from its regional peers. First, Australia’s political system and its prevailing approach to private equity are like those in the West, which arguably means direct advocacy is easier. Second, the public perception and media portrayal of the industry has been harsher, for longer. Third, AIC is funded differently – membership fees for PE firms are based on assets under management – which appears to translate into greater financial resources.

Yet the growing prominence of private equity necessitates a unified response, whether that involves lobbying on specific issues or simply explaining what the industry does. From Japan to Taiwan to India to Singapore, there are examples of industry associations proactively addressing local issues such as performance tracking, tax and standardized documentation. However, the standout example is perhaps Hong Kong.

It wasn’t until about eight years ago that the Hong Kong Venture Capital & Private Equity Association (HKVCA) first sought to influence policy when it helped the helped the government shape its response to the EU’s Alternative Investment Fund Managers Directive. The association’s technical committee is now its largest, with separate working groups dedicated to issues such as carried interest and the local regulation of the industry – both hot button topics.

Broadening the remit of an industry association from primarily networking to advocacy and engagement with multiple stakeholders is not easy. If more associations are to achieve this in Asia – and, given how private equity differs across markets within the region, not all will want to – more thought must be given to how they are funded, mandated, staffed and held accountable. But as the asset class becomes more mainstream, there may be no turning back.

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• Topics
• GPs
• LPs
• Asia
• USA
• Australian Investment Council (AIC)
• HKVCA