Terra Firma Chief Takes Shots At Hedge Funds

Feb 24 2012 | 8:40am ET

Private equity honcho Guy Hands doesn't think much of the other side of the alternative investments industry.

The Terra Firma chairman told the Harvard Business School Venture Capital and Private Equity Conference that unless students "love making businesses better," they should join a hedge fund and leave "the creation of long-term value" to p.e.

"If you are looking for a career just focusing on making money, please don't come in to the private-equity industry," he said. "If just making money is what motivates you then focus instead on the banking industry or the hedge fund industry."

Hands went further, noting that the p.e. business is harder than most others, where small mistake can get swept away. "In private equity," Hands warned, "one mistake can be fatal."

Hands spoke in more depth of his 40 years in p.e., calling himself the "father of securitization" and calling the glory days of 2002 through 2007 the "Woodstock years" for private equity. The end of that period, and the beginning of the "wilderness years," were marked by Terra Firma's purchase of record label EMI. The firm eventually lost control of EMI to Citigroup last year.

"As with all private-equity firms we suffered from the collapse of the credit markets in 2008," Hands said. "While most of our businesses survived the downturn and are continuing to do well, unfortunately we lost control of EMI, the company on which we did our most successful turnaround but also suffered our most major loss."

"With EMI our business plan was right and we more than doubled earnings over three years. But the securitization of the receivables we planned was never possible and the debt proved unrefinanceable, hence Citibank seized the company and sold it."

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