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The head of one of Europe’s largest private equity groups has added his voice to warnings that a looming UK shake-up of the industry’s tax treatment could push dealmakers to leave the country.
“Will it influence where some people want to be based? Probably,” said Rob Lucas, chief executive of CVC Capital Partners. “We know our people are very flexible. They can operate out of any jurisdiction pretty effectively.”
The newly elected Labour government has put the industry on notice with plans to change the tax treatment of carried interest, the share of profits that private equity fund managers receive.
A long-standing arrangement means carried interest is taxed as a capital gain at a rate of 28 per cent, rather than the highest bracket of income tax, which is 45 per cent plus national insurance. Critics of the industry’s treatment argue that carry is more akin to a performance-related bonus and should be taxed as income.
Speaking alongside Lucas on a call with reporters on Thursday after the Luxembourg-based firm’s first results since its initial public offering in April, chief financial officer Fred Watt echoed his sentiments.
“I’m assuming the government doesn’t want the UK to be uncompetitive going forward,” he said. “And I’m assuming that they don’t want to provide any disincentive for investment, whether it’s PE or business builders generally.”
He added that he hoped the government would take into account a recent consultation with the industry on the subject “to make sure that Britain doesn’t become less competitive or a place where people don’t want to invest”.
However, Lucas also noted that the group’s international professionals often moved around and that taxes were just one of multiple influences on decisions over where to be based, which also included where dealmaking activity was hottest.
The executives’ comments add to a chorus of warnings from buyout firms, some of which have made contingency plans to shift staff out of London if the tax changes are severe.
They came as CVC reported a jump in activity, with new investments in the first half of 2024 up 63 per cent on a year earlier to €13.4bn, while the amount generated from investment exits surged 108 per cent to €9.4bn.
“The realisations in the first half have been very strong,” Lucas said. “But realisations are generally quite lumpy in the way that they can come through. And so we aren’t anticipating the same level of realisations in the second half.”
Shares in the group rose 2.4 per cent in morning trading in Amsterdam on Thursday.
CVC’s results are the latest sign that the private equity industry is emerging from a two-year downturn in which higher interest rates made buying and selling companies harder.
In the second quarter, Apollo, Blackstone, KKR and Ares invested a combined $162bn, as conditions for the industry began to brighten.
CVC, which manages €193bn across investment strategies ranging from buyout to credit, twice postponed its listing before going public in April. Its shares have climbed 17.5 per cent since the IPO.
The group reported a 27 per cent increase in total revenue in the first half of 2024 to €638mn and a 45 per cent rise in fee-paying assets under management, driven in part by the €1bn purchase in July of Dutch infrastructure investor DIF Capital Partners, part of a trend of private equity groups moving into other asset classes.
The firm said fundraising was “progressing according to plan”, having raised €7.4bn of capital across all strategies in the first half of 2024.
Established more than three decades ago by a group of former Citibank executives, CVC’s portfolio of investments includes Lipton Teas, the Six Nations rugby tournament and Spanish football league La Liga.
The firm was part of a consortium that agreed last month to buy UK investment platform Hargreaves Lansdown for £5.4bn.
Despite the pick-up in activity, the buyout industry is sitting on more than $2tn of dry powder — capital that has been committed by investors but not yet deployed by private equity groups, according to data provider Preqin.
