KKR adviser Sir Roger Carr says private equity are the good guys

The chairman of UK giant BAE Systems says defence spending will keep rising around the world, as he also defends the reputation of private equity.

One of private equity giant KKR’s senior global advisers says it’s wrong to besmirch the reputation of private equity as something to be wary of when businesses it has owned are floated onto the stock exchange.

Sir Roger Carr is chairman of the $19 billion global defence and aerospace giant BAE Systems which last year won the $35 billion contract to build nine frigates for the Australian Navy, and also acts as an adviser to KKR, one of the world’s largest private equity firms.

He said private equity generally injects new spark into businesses which have lost their way.

“Private equity has delivered value in many areas for businesses that were moribund and under-managed,” he said in an interview with The Australian Financial Review on Thursday.

“That value has been created for private equity where they’ve earned it, and it’s then been earned further beyond, by the public market who have bought into it”.

He said there were of course examples where that hadn’t been the case and there had been some flops.

“Not every time a win,” Sir Roger said.

But on balance the presence of private equity was a big plus for the corporate world, because of the sharper focus, new ideas and stronger balance sheets it brought. He used the example of United Kingdom firm Trainline, an online retailer for European rail tickets which had been owned by KKR for five years, and which has just been listed on the London Stock Exchange.

“This was a win, win”.

Each situation is different, but to caution investors against buying into initial public offerings from private equity vendors was unfair.

“I think it’s wrong to label any business and say you know this is by definition a judgement that we make on this business community”.

He said it was difficult to pinpoint what the next ”hot” sectors might be for private equity investment around the world.

“I think private equity will focus on wherever the greatest returns are achieved,” Sir Roger said. “That’s what it does.

“There is no one-size-fits-all in private equity. I mean the large private equity companies, you know, have different views about where they can apply their funds effectively than the small ones”.

Sir Roger on Thursday visited the manufacturing site at Osborne near Port Adelaide where nine Hunter-class anti-submarine Type 26 frigates will be constructed for the Royal Australian Navy over the next 15 to 20 years in a big contract win for BAE Systems.

Defence Budgets Rising

He said the geo-political tensions around the world would mean a corresponding rise in defence budgets in most countries. That was in turn a big plus for companies like BAE Systems, which is listed on the London Stock Exchange.

“There’s no doubt that wherever you look at the moment in the world it’s quite turbulent. I think all countries are looking more thoughtfully at the amount they commit to defence,” Sir Roger said.

“There is a recognition that we’re in a more dangerous place than we have been for some time,” he said.

Australia was in a region which was now being ”contested”.

Asked what he thought the outcome of the volatile situation in Hong Kong might be, he said it was likely that Chinese cities like Shanghai and Shenzhen would overtake Hong Kong as financial hubs in the region.

“Other parts of China will become stronger and we will see I think the development of Shanghai, Shenzen as stronger, more competitive communities,” he said.

“And Hong Kong will need to compete against those growing communities in the long term”.

But overall, it was a sad situation to see what was occurring in Hong Kong.

The company is also upgrading the substantial surveillance system in northern Australia known as the Jindalee Operational Radar Network, an over-the-horizon radar system in northern Western Australia, the Northern Territory and Queensland.

Source: Australian Financial Review

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