The leaders of several private equity firms vehemently defended the industry’s practices yesterday, on the second day of the American Enterprise Institute's private equity conference taking place in Washington DC.
The notion that we have to justify ourselves by doing some higher good strikes me as bizarre in a free market economy.
Brian Simmons of Code Hennessy & Simmons, Tully Friedman of Friedman Fleischer & Lowe, Thomas Putter of Allianz and Rick Rickertsen of Pine Creek Partners were pressed by audience members on issues including accounting guidelines and employment practices at their respective portfolio companies.
All four GPs said they feel private equity is being held to higher standards than other industries because of its extreme profitability in recent years. Regarding taxation issues, Simmons said all kinds of businesses make a common practice of structuring themselves “in the most tax efficient manner possible”.
Friedman showed disdain for the idea that private equity firms have any sort of unique obligation among members of the business community to preserve jobs or increase social welfare.
“The notion that we have to justify ourselves by doing some higher good strikes me as bizarre in a free market economy,” he said.
But all four stressed that in today's competitive industry financial engineering is no longer enough to guarantee profits; only firms that truly add value to their portfolio companies will survive.
The conference took place during a period in which private equity has come under Congressional scrutiny on a number of issues, from the taxation of carried interest and partnership structures to the regulation of private equity-owned nursing homes and telecom companies. The audience at AEI included several members of the US Treasury Department and the Federal Communications Commission.