Private equity updates
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The fair and efficient functioning of markets is achieved through transparency. A basic tenet of capitalism is that shareholders make informed decisions about the true performance of a public company, and the incentives of its executives, only if they have all material information. The ability of Bridgepoint — which this summer became the first private equity firm to list on the London Stock Exchange since 1994 — to not disclose the total amount of money its executives take home makes a mockery of the system. Bridgepoint has flouted no rules, and indeed its prospectus was approved by the financial regulator. But that points to a systemic flaw that needs fixing if the UK’s markets are not to attract companies that want to reap all of the benefits of a listing without its obligations.
At the heart of the problem is carried interest, the “20” in private equity’s “2 and 20” fee structure: management fees of 2 per cent, plus 20 per cent of any profits from…