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July 2024
By Camille Middleditch, Deputy General Manager, Sandpiper New Zealand. Camille specialises in Environmental, Social, Governance (ESG) advisory and investor communications, she works across a range of sectors including energy and environment, healthcare, infrastructure, technology, and financial services.
For as long as they have operated in the public eye, private equity firms have faced reputational issues. A high-profile story about a multi-million or multibillion-dollar deal gone wrong always grabs headlines, as press attention routinely focuses on the financiers behind the company.
Private equity firms have struggled with reputation management since they became prominent players in the early 2000s, with little mainstream understanding of their processes, how they execute investment strategies — and their many successes.
They say any publicity is good publicity, but this certainly isn’t the case for PE. One story about an overambitious dealmaker can cloud the view of the entire market, overshadowing the array of successful PE firms, from large-cap buyout teams to turnaround and sector specialists.
During the recent economic downturn, high-profile stories involving private equity-backed companies have reignited the debate over the merits of PE ownership and the role played by buyout firms in the global economy.
This reputational challenge is, in many ways, the industry’s own making. Historically, many PE firms have been reluctant to engage with the media, preferring to fly beneath the radar. Several choose to ignore the media and public scrutiny completely.
Private equity doesn’t have to be ‘private’
Financial sponsors often believe they can operate behind the scenes and let their portfolio companies do the talking. They tend to be more reactive than proactive, only springing into action when a media storm comes their way.
Often, only journalists with specialist knowledge can articulate how PE works. There are countless examples of media coverage missing the point about struggling companies, particularly when specialist turnaround or distressed investors are involved.
The industry’s reticence to engage with the media and other stakeholders inevitably creates problems. By the time an under-fire firm is ready to engage with the media — usually in the middle of a crisis — the war of public opinion is all but lost and blame is aimed at the PE owner.
A lack of communication from PE creates an information vacuum, which is all too readily filled by critics. The onus is on PE firms to get out there, tell their stories, and rewrite the narrative.
Embracing change
While private equity is private, it doesn’t have to be secretive. Firms in the world’s most mature PE markets, including the US and UK, have begun to embrace communications strategies and build relationships with the media and other stakeholders beyond news crises.
According to the British Private Equity and Venture Capital Association, 2.2 million people are employed by companies backed by PE or venture firms, while the Australian Investment Council estimates 475,000 jobs are supported by a form of private capital. PE has a huge societal responsibility, and this should be reflected in public engagement.
Over the past decade, there has been a noticeable change in approach as leading private equity firms recognise they can no longer be 100% private. Many have learned lessons from the past and seen firsthand how poor reputation management can impact public opinion and investor appetite.
The industry’s big names are keen to protect their brands, knowing they will be in a stronger position to compete for investment opportunities, and more attractive to potential investors, particularly those with a strong environmental, social, and governance (ESG) focus.
This is a step in the right direction. More financial sponsors are contacting media to explain their investment approach, why they invest, and share insights and thought leadership on different sectors.
Some of the world’s biggest PE firms are even enjoying the spotlight. One industry forerunner, KKR, has appeared on the news to explain the benefits of employee co-ownership models, giving portfolio company workers some ‘skin in the game’. Blackstone, another PE giant, is following suit., generating a wave of positive press coverage.
Not every PE firm has to go to these lengths, yet every investor has interesting, positive tales to tell. A successful private equity house knows how to accelerate growth, build industry leaders, and create jobs. These are the stories the media, public, and potential investors want to hear.
Building PE’s reputation
Media training and engagement can be a valuable investment for PE. Getting key partners and executives comfortable with the media, holding background briefings to discuss key issues with journalists, or speaking at public events can pay dividends in the long term.
Consider your portfolio companies, the exciting management teams you work with, and their individual growth stories. Communicate how you turn small caps into mid-caps, and mid-caps into large-cap businesses. Build a credible story supported by messaging choreography to articulate what makes you different on your website, your investor memorandums, and at speaking opportunities. Tell positive stories instead of reacting to negative ones.
There is vast opportunity to communicate your value creation story.
As many of the world’s top private equity firms list their shares on the public markets, further removing the sector’s shroud of secrecy, there is a significant opportunity for firms to highlight the industry, and their own credentials on ESG matters.
Through well-crafted strategic communications that highlight their insights on driving growth, developing leaders, creating jobs, and ESG commitment, PE firms can enhance their reputation and position Private Equity as a force for good.
Many Limited Partners require stringent ESG standards from their private equity firms. Failure to demonstrate a credible ESG story can prevent future investment.
Leading large-cap PE firms already publish information on how they improve governance, make a social impact, or address environmental issues across their portfolios. Smaller firms have also begun to embrace this approach, driven by regulatory requirements in some jurisdictions.
A proactive approach to ESG can demonstrate the difference PE firms make across our economy, improve public perceptions of the sector, and demonstrate value creation to institutional investors during fundraising efforts.
Private equity firms are renowned for their ability to professionalise companies and improve corporate governance, laying the foundations for future growth. The PE industry should speak more loudly about its role promoting diversity and driving the environmental and social initiatives that enrich our communities. This can help to attract investment, widen the pipeline of future deal opportunities, and resonate with portfolio company employees.
Through planned communications strategies, PE firms can build more positive relationships with the public, media, and other stakeholders, and position the industry as a force for good . ESG can further enhance private equity’s reputation and demonstrate its significant contribution to the global economy.
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