Private equity good for investment markets: Stammer

A former chief economist for the financial services industry believes private equity deals are positive for investment markets, as they can provide the necessary change to managerial operations and structures that can lift the performance of organisations on the wane.

Speaking at an ING adviser briefing, Dr Don Stammer, now Praemium Portfolio Services chair, said: “People often criticise private equity firms, but if you look at the way Myer has been recast as a department store since private equity moved in, you can see every now and then it’s good to have private equity to shake up management that is not delivering.”

According to Stammer, another positive result for investment markets stemming from private equity transactions was the emergence of new, middle-sized companies into the investing landscape.

He identified the increased debt levels held by the Australian corporate sector as a third benefit from private equity deals, as he felt the sector had under-borrowed in recent years.

While Stammer welcomed the increase in corporate debt, he said it was important that the levels employed remained sensible.

“Obviously, things could go too far, and in three or four or five year’s time the pendulum towards debt in the corporate sector could run too far,” he explained.

“But for the present, I’m a big fan of private equity and what it is doing for the Australian economy and investment markets,” Stammer said.