The American Investment Council has hit back at claims in the New York Times that the private equity industry is focused on reaping profits through financial engineering.
In a response to a NYT article published over the weekend, the trade body said private equity benefited the economy, created jobs and boosted pensions.
The NYT story, ‘How the Twinkie made the superrich even richer’, focused on the high salaries of some heads of global asset management companies. It took Apollo Global Management’s investment in Hostess Brands, which owns Twinkie, and the financial engineering involved in the deal as the blueprint for “how private equity executives have amassed some of the greatest fortunes of the modern era”.
The AIC, which is cited in the article, has now responded to several of the points, which it considered required additional context.
“Far from demonstrating excessive compensation, the Hostess Brands comeback story underscores the value private equity brings to pensioners, businesses and communities across the country,” the AIC wrote in its response.
“The Times portrays private equity as an industry focused on reaping profits for fund managers through ‘financial engineering’. This interpretation is off the mark. It underplays the significance of operational improvements and long-term growth, and it misses the essential element that makes the partnership between private equity and pensioners so powerful – alignment of interests.”
The AIC adds that fund investors receive the lion’s share of profits in successful investments, and that dividend recapitalisations, which the NYT said PE executives employ to enrich themselves, are only possible by operational improvements that increase the creditworthiness of a portfolio company and its ability to operate efficiently with a higher level of debt.
The AIC has made it part of its mission to demonstrate the economic growth and job creation across the United States that come with private equity. Private equity-backed companies employ millions of people at 7,500 companies in all 50 states, according to the organisation.