PRIVATE EQUITY SHARED OWNERSHIP INITIATIVES
Higher interest rates and a still sluggish new listings markets have made it harder to sell holdings and return cash to investors. That in turn has made it more difficult to raise new funds because pension funds, endowments and family offices have less money to allocate and a growing array of other options. One way to tell that the squeeze is starting to bite is the recent announcement by @Blackstone, the biggest and best-known PE firm, that it has launched a “shared ownership initiative” to give workers at its portfolio companies an equity stake. @KKR began offering ownership stakes in 2012, and a charity founded by firm executive @PeteStavros has signed up nearly 30 PE firms. @OwnershipWorks has helped organise employee share schemes worth nearly $400mn at 88 companies and is targeting $20bn within a decade. For private equity firms struggling to woo new investors, these plans have multiple attractions. First, they allow PE sponsors to argue that they are helping address social inequality, unlike the private credit and hedge funds with whom they compete for allocations to “alternative investments”. Such claims are likely to resonate with investors who are concerned about PE’s role in directing most of the profits from productivity gains to investors rather than workers over the past couple of decades. The outgoing investment chief at @Calstrs, the second-largest US pension fund, has explicitly called for increased profit-sharing by PE firms.
In the past, PE ownership’s main interest in rank-and-file workers has too often been on eliminating them to cut costs. The new focus on employee profit-sharing suggests that is about to change. Profit sharing could help harness positive energy. Who knows better than current workers where money is wasted, sales opportunities squandered or processes need improvement. Employee ownership cannot guarantee success, as the recent woes of UK retail chain John Lewis demonstrate. But if investors really believe that top executives are motivated by share grants and options, they should reward PE firms who expand that principle beyond the elite few.
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