Guy Hands, founder of Terra Firma Capital Partners Ltd., said he personally funded 20 million pounds ($30 million) of bonuses at his private equity firm last year, and will do the same again this year.
“You want your deal-doers to really be aligned, and clearly if the deal-doer does not feel that alignment that is not good,” he said in an interview with Bloomberg Television’s Cristina Alesci. “That is the reason why I have put 20 million of my own money in providing a bonus pool for last year, and will do a similar bonus pool this year.”
Hands lost about 30 percent of a 5.4 billion-euro ($7.2 billion) fund he raised in 2007 on a 4 billion-pound buyout of U.K. music giant EMI Group Ltd. that failed. The loss pushed the fund’s return to a negative 19 percent annually as of Sept. 30, according to the Oregon state pension fund. While Hands has dropped efforts to raise a successor fund, he is continuing to invest. In November, he acquired Annington Homes Ltd., a provider of army housing, for 3.2 billion pounds.
Hands said he expects future returns from private equity investments in Europe to increase as the need for capital is greater and the crisis is yielding investment opportunities.
“We have to get used to Europe going through one mini-crisis after the other, which doesn’t mean you cannot invest,” Hands said. “You have to get used to just a continual of excitement and variation.”
Italy’s election stalemate shook European bond markets, with investors moving money from crisis-hit Spain, Portugal, Greece and Italy itself to the perceived haven of Germany. That’s adding to uncertainty about the region’s economic recovery. Services and manufacturing both contracted and the European Commission last week forecast the bloc’s first-ever back-to-back recession in 2013.
“If anyone in August of last year had predicted that Silvio Berlusconi would have come back the way he has, or a comedian would get 25 percent plus of the vote in Italy, you would have been regarded as a member of the U.K. Monster Raving Loony Party,” Hands said, referring to Britain’s longest-running joke political party. “But that what has happened.”
Hands said he considers Germany and the U.K. to be the most attractive European markets to invest in as both countries have a very similar economic agenda.
“The sad thing is they both have very similar economic agenda but they don’t work together,” Hands said. “Logically, Britain and Germany should be working to make Europe much more free-market, much more efficient,” he said. “But, instead, you have Britain on the outside of Europe, and you have the Germans with no one supporting them, which is rather sad.”
Terra Firma may sell a stake in Deutsche Annington Immobilien AG, Germany’s largest residential landlord, in an initial public offering slated for 2013, Hands said.
Hands said Prime Minister David Cameron’s pledge to hold a referendum on continued membership of the European Union is a “dangerous” move to win votes in the short term, that may put the U.K.’s long-term economic interest at risk. Cameron said in January that, if he wins the 2015 election, he will begin a renegotiation of Britain’s membership of the 27-nation bloc, seeking to repatriate unspecified powers. He would then hold a referendum on a potential EU exit by the end of 2017.
“I was a die-hard euro-skeptic, but over the last ten years, just looking at way world trade is, and looking at the position of Europe and the U.K., there is no rational choice,” Hands said. “I don’t think Cameron thinks there is a rational choice either. He was just purely playing a political card which he hopes he will be able to win the next election on, and then claim a great victory in Europe and go back to the public and get the right vote. That’s a very dangerous strategy. We’ve seen how much voters are willing to turn on politicians these days.”