Friday Letter Will the real LP's please stand up?

As the private equity industry continues to suffer from an image problem on both sides of the Atlantic, one influential US investor took us on a tour of a company that has benefitted from its private equity investments.  

We’ve noted before that there’s been, for the most part, a disappointing silence on the part of the investor community to come out in defense of private equity.

And that’s a shame, because no story is as compelling as the one about how private equity benefits regular people – known these days as the ‘99 percent’ – by helping pensions meet their obligations and stimulating economic growth.

So we were pleased and intrigued when an invite arrived from New York Comptroller Thomas DiNapoli – who oversees the state’s $147 billion pension system – to tour some of the companies that have benefitted from the state’s private equity commitments.

We accompanied DiNapoli to one of the businesses in the system’s in-state private equity portfolio, Truveris, a healthcare-focused company that negotiates with prescription drug benefit managers and validates claim payments. Via venture firm Tribeca Venture Partners, which the system committed to through its in-state programme, it has invested $1.7 million in Truveris. Founded in 2009, the company has grown to 25 employees from just six and earlier this year closed an oversubscribed Series B round of financing.

The comptroller’s intent was to showcase the economic growth the pension system was helping to spur in New York through its in-state private equity programme. New York has committed $987 million to the fund of funds programme since its launch in 2000. So far, that’s translated into about $608 million invested in 218 companies, which have as a result grown total employment to 13,817 from 10,809, according to the comptroller’s office. In terms of returns, as of end of March 2012, the programme was reflecting an internal rate of return on exited investments of more than 30 percent.

While the Truveris example doesn’t do much to help improve the image of the industry segment that tends to come under fire – i.e. private equity firms doing large LBOs – DiNapoli also took time during the tour to discuss the benefits of private equity in general both to the pension system and the broader economy.

“Over the long haul, private equity has been a good and strong diversifier for us,” DiNapoli said. He stressed that private equity provided a double bonus, by way of delivering solid returns while also helping to drive job creation and strengthen economic activity.

Despite the fact that DiNapoli is a politician and was clearly looking for some positive press, his words – and his proactive efforts to demonstrate private equity’s double bonus – should certainly be welcomed by an industry that continues to battle an image problem with regulators, politicians and the public.