In the end, it decided that investors in UK private equity funds should pay tax in their own country, with neither me nor the fund responsible for such profits or the revenues produced.
However, by then, I had already left, along with a number of others from the private equity and hedge fund communities. Uncertainty is one of the most unattractive things that a government can offer businesses, which is exactly the pattern that any prospective UK government needs to avoid.
Moving to Guernsey greatly impacted my ability to build and maintain strong relationships with contacts, on which my success in business relied. I lost the flow of the market and ultimately I was never able to raise a blind fund again. Dealmaking and fundraising is best done face to face and that was certainly the case even in those pre-Zoom days.
I also lost connection with my team in London, relying on fractured phone calls and occasional in-person meetings which did not make up for the day-to-day touchpoints that are required when you run a business.
So, for me it was a disaster. It was also not good for the UK. At the time when I left, Terra Firma was the ninth-biggest private equity firm in the world, contributing around 30pc of our funds under management to the local economy through direct employment and our local ecosystem of consultants and advisers. All of this wider activity was taxed on average at around 50pc if you include national insurance.
In 2009, it was just me and a few others who left the UK from Terra Firma. However, we are now in a situation where whole teams at private equity firms are looking at relocating abroad, which of course will have an even greater financial impact on the UK.
Whatever one’s views are on the private equity industry, it is hard to argue that it’s not hugely important for the UK economy. Indeed, according to a study this year from EY and the British Private Equity & Venture Capital Association, private equity and venture capital-backed businesses are estimated to directly generate £137bn of GDP in 2023, equivalent to 6pc of the UK’s GDP.
This is without taking into account the financial contribution of the suppliers and wider ecosystem that service the industry: lawyers, accountants and consultants. These businesses depend on the UK, and in particular London, maintaining its position as a leading hub for private equity in Europe.
Private equity firms can relocate extremely quickly. Although by some miracle the UK has largely retained the industry post-Brexit, cities such as Paris, Amsterdam, Milan and Frankfurt are actively vying to tempt people away from London, with favourable tax regimes. Once a centre starts to lose grip, the unwinding quickly becomes a vicious cycle. Most dangerous of all is the risk that large parts of the associated business and advisory community would follow the industry and its deal flow out of the UK.
The talk of the Labour Party’s plans to reform tax on private equity, while undeniably satisfying for some, risks losing far more than just high-paid private equity executives and would likely lead to an overall reduction rather than an increase in tax revenue.
Although private equity gets a lot of bad press, and increasing tax on it might win some votes, the industry and its advisers do pay a lot of tax, are a significant driver for the UK economy and can easily leave. On the other hand, if tax goes up, while private equity executives may see themselves better off elsewhere on paper, they risk becoming estranged from their business ecosystem.
Governments must have a good understanding of the message they want to send to the business community and stick to it if they want to encourage growth.
For tax, this means clear rules that are changed as little as possible. Chancellors and shadow chancellors should consider this carefully when thinking about their approach to future taxation in all areas and not just private equity.