Bridgepoint’s loss of trust

PRIVATE equity has done irreparable damage to the British economy and social structure. Nevertheless, it has always been possible to identify positive interventions where it has stepped in, invested and improved underlying enterprises.

Worldpay, funded by Advent (the destroyer of Cobham), and food chain Pret A Manger, backed by Bridgepoint, are cases in point.

What has really rankled is the cavalier use by private equity of debt financing models, the key to the bids for grocer Morrisons, and a lack of transparency. Tracking employment conditions, finances and remuneration at underlying businesses is impossible.

Fans of private equity would say that is what the whole concept is about. The ability to make bold decisions behind closed doors enables difficult judgements to be made without the constant scrutiny of public shareholders. It has also resulted in investment being curtailed, employees done down, pension funds raided, tax domiciles being switched overseas and blatant neglect of the public interest.

The flight from public to private, for investors and executives, has proved highly remunerative in the short term.

When deals are completed, bosses invariably receive a premium for their shares and incentive plans are paid up. If they hang around, there is the added attraction of socalled ‘carried interest’, the 20pc or so of profits which accrue to private equity barons that qualifies for favourable tax treatment.

When the UK private equity firm Bridgepoint, run by William Jackson, went public this year it broadly seemed a good thing. After all, public companies are required to tell all. We know a lot more about those with less-than-standard governance – such as The Hut Group (THG) and Boohoo – than if they were hidden away in offshore centres.

At the time of the Bridgepoint float, it was evident that in building his board Jackson, who is executive chairman (itself a breach of governance rules), was willing to engage in unusual strategies. Archie Norman, chairman of M&S, accepted a signing on fee of £1.75m to become a non-executive director. Golden hellos are not unknown.

But Norman’s at six times the norm of around £250,000 was extraordinary. As good as it was for Bridgepoint to capture a respected retailer, it essentially meant Norman’s independence was compromised.

Thanks to the FT and research conducted by a scholar at the Said Business School at Oxford, we now know that incentives for independent directors are not the only unusual aspect of the Bridgepoint float.

The published pay levels for executive directors show only a fraction of income.

FAR from the transparency advertised prior to the £4bn outfit hitting the stock market, the real incomes of the bosses are several steps removed in the accounts of the companies in which they are invested.

London likes to think of itself as maintaining higher standards of governance than New York. Yet in the US it is a requirement that SEC filings are made of the ‘carried interest’ of the bosses of quoted private equity firms. Indeed, it is a matter of pride for Steve Schwarzman of Blackstone and Henry Kravis of KKR to be the highest earner in any one year. That buys them maximum cred as fundraisers for the Metropolitan Opera.

Here in Britain there is disdain for new money. The possibility that Michael Murray, newly appointed chief executive of Sports Direct-owner Frasers, could earn a £100m bonus package, has already attracted unfavourable attention, even though his fatherin-law Mike Ashley owns 60pc of the stock.

At least Sports Direct was up front. As a result of the surreptitious way in which Bridgepoint reports pay, excluding ‘carried interest’, it is impossible to know precisely how much Jackson earns. It is estimated that it was as much as £32.6m in 2019. Bridgepoint regards companies in which it has invested as separate entities so there is no need to declare income.

That is a peculiar form of accounting. It circumvents clear audit rules about interests in associated, connected and related companies. We learned, for instance, of Matthew Moulding’s dual role as executive chairman of THG, and the company’s private landlord through such disclosures.

At the very least, Bridgepoint’s circumvention ought to be a matter for regulators at the Financial Conduct Authority and Financial Reporting Council.

Even better, Jackson should admit an error and demonstrate the openness the City should be able to count upon.