UK Private Equity Firm's Ethics High Despite Lack of Policy

August 20, 2007 ( - In a survey of 100 U.K. private equity (PE) fund directors and managers, 73% of respondents said they regarded the industry's ethical standards as high, though the study found formalized codes of ethics are only in place within 24% of organizations.

The results of Grant Thornton Corporate Finance’s quarterly private equity barometer indicated less than a quarter (23%) of respondents believed ethical standards to be mixed and 3% branded them as poor, according to a Grant Thornton press release. Two thirds of respondents (66%) claimed their organization has an informal ethical code, while 7% admitted to having no written ethical rules.

When asked which sectors they would not invest in for ethical reasons, PE houses ranked pornography as number one (50%), followed by firearms/military (48%) and gambling investments (28%). Tobacco investments were cited by 22% of PE houses as being avoided, while 10% said they would not invest in companies dealing with alcohol, the press release said.

In addition, 63% of PE houses said they would avoid investing in any company with exploitative labor practices; 37% would not invest in a company with no social responsibility initiatives; nearly a third (32%) would be put off by firms with negative environmental effects; and 29% would avoid investing in a firm with negative health effects.

The PE survey also rebuffed the supposed notion that private equity houses only hold onto companies for as long as it takes to make a quick profit. The large majority of private equity firms (81%) now hold onto their investments for at least three years, while 40% retain their investments for four years or more. When asked directly whether they were “unethical asset strippers in for a quick buck”, more than half (52%) of PE executives said that was completely false, while a further 32% believed a handful of PE firms gave the industry a bad name.

In addition, 49% attacked the left wing press for pursuing its own agenda and criticizing the industry by focusing on too few examples.