Private equity has always been a lightning rod for criticism from politicians and unions, which repeatedly accuse the industry of asset stripping. The accusation by Franz Müntefering, chairman of Germany’s Social Democrats, that private equity funds were "swarms of locusts sucking the substance" from German companies has dogged the industry ever since. But since 2007 it has not only been the targets of leveraged buyouts that have questioned their benefit but also investors in the buyout funds financing them.
The two and 20 fee structure applied with such success to the hedge fund industry has also reaped enormous rewards for private equity. But in the fallout from the financial crisis the industry has been beset by increasingly vocal debate as to whether this fee structure is fair. "The market went into the mega funds without looking at the arithmetic," said Better Capital chairman Jon Moulton at a roundtable discussion in London in September. "If you have a $100 million fund a 1.5% to 2% fee gets you £2 million. But applying the same fee structure to multi-billion-dollar funds creates excessive returns." He added: "There was abuse. People were taking fees for things like refinancing and exits.
