US President Barack Obama this week took his first shots at Mitt Romney’s private equity past – something the industry has been expecting for some time.
Obama’s campaign, which released video ads and a website this week highlighting past Bain Capital flops, made a half-hearted attempt to differentiate between the Romney-led Bain it wants to single out and the private equity industry in general. In one of the ads, a steel union official (who represented employees at a Bain portfolio company that went bankrupt in 2001) says private equity was not “per se, bad” and goes on to note “what Bain Capital did was not capitalism, it was bad management”. Bill Burton, who leads a powerful super PAC, or political action committee, that is funding the production of another anti-Romney ad, told Reuters the President “isn’t running against the private equity industry”.
The problem for private equity is that the general public doesn’t really know the difference between a hedge fund and a private equity fund, couldn’t care less and in reality sees the whole lot as “Wall Street”, which is not regarded favourably these days. So the attacks against Romney and Bain, regardless of their veracity, paint the entire industry with the same negative brush.
Some industry types are coming out fighting: Steven Rattner, a former high level Obama advisor, and ex-head of The Quadrangle Group, went on MSNBC and called the ads “unfair”. In the TV interview, Rattner did chide Romney for saying he helped create 100,000 jobs during his time at Bain – a claim that has come under fire – but followed up by saying that Bain’s fiduciary duty hadn’t been to create thousands of jobs but to generate profits for its limited partners – pension funds, endowments and foundations.
Meanwhile, many lobbying and trade groups are taking an offensive stance and working to emphasise private equity’s significance to the economy. Earlier this week, for example, the Private Equity Growth Capital Council released data showing $144 billion was invested across 1,702 deals in the US by private equity firms last year, the most out of any country.
Speaking out on behalf of the industry and its relevance, defending it when appropriate and explaining its successes and failures are all measures to be applauded. Indeed, we’ve used this space a number of times to stress their importance. But, as CalPERS’ CIO told PEI previously, while they may help inform the debate, such actions aren’t likely to end one political party from attacking another’s presidential candidate on what it perceives as a weakness.
This week’s video was just the start. If they haven’t already, fund managers should steel themselves for a difficult campaign season, ready to field queries from concerned investors and policymakers as well as in social settings.
Unfortunately, the likelihood is the political attacks will continue all the way to the general election in November, after which – hopefully – the rhetoric will die down.