Buyout firms tout record in UK political showdown

LONDON (Reuters) - Four top private equity executives defended the way the industry operates to a Parliamentary committee on Wednesday and welcomed a review of controversial UK tax rules that benefit them.

Pressed about any negative effects of the leveraged buyout industry, representatives of Carlyle Group CYL.UL, Kohlberg Kravis Roberts & Co. KKR.UL, Permira PERM.UL and 3i Group (III.L) were universal in saying they could think of none.

"Private equity is a force for good," KKR managing partner Dominic Murphy told a Treasury Committee, while Carlyle managing director Robert Easton said: "My own experience in private equity in this country has only been positive ... It's been positive for the companies I've been involved with."

Easton conceded about 10 of the 150 companies in which the firm has invested during his tenure in the industry had lost money.

The four men said their firms had been net creators of jobs in Britain, rejecting allegations by unions and some politicians that they slash them.

Private equity firms borrow heavily against pools of money from pension funds and other large investors to buy companies. They raised $430 billion globally last year.

All four firms repeatedly said they had generated strong returns for millions of individuals through their pension funds.

Some committee members nonetheless accused the firms of everything from colluding with one another to borrowing so much as to possibly threaten the broader financial markets.

The committee's chairman, John McFall, a member of the ruling Labor Party, expressed surprise that none of the four knew how much capital gains tax their firms had paid.

"You're supposed to be the bright ones," he said. "You're the masters of the universe."

Top executives pay 10 percent or less tax for much of their profits because of a system that was put in place less than a decade ago to spur investment.

WIDE-RANGING REVIEW

Instead of paying the 40 percent income tax, buyout executives domiciled in Britain pay the lower rate applied to capital gains for business investments owned for at least two years.

"I think government should always review its fiscal policy," Murphy said, though he declined to say whether the tax rate should be hiked.

That aspect has become the centerpiece of a wide-ranging Treasury select committee investigation that also includes questions about the secretive nature of private equity and the amount of leverage they use in deals.

Jack Dromey, deputy general secretary of Britain's largest union, Unite, earlier told the committee private equity firms are "taking advantage of what is undoubtedly a loophole."

Dromey also said private equity ought to be held to the same standards of disclosure as publicly listed companies.

"There is no reason why public companies and private equity should have different rules apply to them," Dromey said.

Prime Minister Tony Blair said on Wednesday there were "real issues" over the level of tax paid by private equity firms.

"They've been raised right across the political spectrum. They've been raised by sensible people within the private equity field itself," he told parliament.

"The serious way of approaching this is to examine these claims, to look at them carefully and to deal with it in the pre-budget report and that is what, very sensibly, the Chancellor (finance minister Gordon Brown) is doing," he said.

Private equity firms have stayed out of the spotlight for most of the last 25 years, but were pushed in front of it this year following union protests and ever-larger acquisitions of household names such as pharmacy chain Alliance Boots AB.L.

In a memorandum filed with the committee, the GMB union said the Treasury should "consider the fact that too much private equity investment is now a potential burden on the British economy.

"The special advantages that the Treasury has offered have been too attractive and private equity funds now control a substantial part of the British economy," it said.

Blackstone Group BG.UL had agreed to send a representative to the meeting, but withdrew because of the firm's looming IPO, and said it would appear at a later date.