Morning:
10°c
A lot of academic work over the years has shown that the well-off don't really have much of an idea how the rest of the world lives. They grossly overestimate how many earn as much as they do. They have no idea how little you need to get to be one of Britain's top 10% of earners. They think the average wage is two to three times what it actually is.
This matters because one of the increasingly obvious things about the row over bonuses is how few of those receiving them genuinely understand the depth of the fury of those outside their circle.
It was pointed out at an Editorial Intelligence debate yesterday that, according to data from the Office for National Statistics, half the people in the country had no increase in their net income in the last five years, and a third had seen a drop. But people by and large failed to pick up on the fact they were not getting any better off. This was because low interest rates, the housing boom and the ability to borrow allowed many to live beyond their means without any apparent downside. They felt more prosperous because they were able to spend much more. They had read about globalisation and thought this was their dividend.
They know better now. The cruellest trick of globalisation was that it spread its rewards among the lower-paid not by paying them more but by increasing their ability to take on debt — which now has to be repaid. In contrast, the profits — the bonuses that are not repaid — were creamed off by a very few. It was not envy that drove people to trash Sir Fred Goodwin's car. It was the fury that comes with the realisation they have been duped.
That is why this banker-bashing may not just blow over. Long before this storm, an investment banker told me he thought that in 20 years people would look back in disbelief at the amount he and those like him were allowed to earn. He had no doubt at all society would eventually put a stop to it.
Buyout figures are a cop-out
Private-equity trade body the BVCA has been fond of saying that companies in its members' portfolios invested more than the average British company, grew employment faster, exported more and had a faster rate of growth.
All the good things, in fact, to prove that it was a superior business model deserving of its generous tax treatment. The criticism of such statistics was that they suffered from survivor bias — meaning that while the companies that survived the private-equity treatment might well have performed better than the average for all companies, these overall statistics took no account of the businesses which had fallen by the wayside.
If those that were killed rather than cured by the private-equity medicine were included, it would paint a less flattering picture of the merits of the treatment. The argument never got anywhere because no one knew or was prepared to find out how many failures there have been over the years, and that broadly remains the position.
But figures this week from the Centre for Management Buyout Research at Nottingham University suggest that the number of casualties could be material — particularly in times like this, where high levels of debt can so easily become insupportable. The centre has published an analysis of the number and value of exits — companies breaking their links with private equity — in the first three months of this year.
It found there were 51, worth in total about £250 million. This was the lowest since 1992, the trough of the last recession, an indication of the bleak conditions in the sector. Just to rub it in, at the peak of the boom in the third quarter of 2007, there were 109 exits worth £8.78 billion.
However, the most dramatic aspect of the 51 exits is where they went, and why they exited. None were floated on the stock market, four were secondary buyouts, in which the business is sold to another private-equity firm, and 15 were trade sales, in which they are sold to another firm in the industry. Together they only account for a third of the total, with 32 remaining.
And what happened to them? Sadly, they all went into receivership.
