Private equity has long shown a preference for operating below the mainstream media’s radar. So when recent political attacks on the industry’s job-creation credentials contributed to broad public scepticism of the investment strategy, the responsibility of responding for the industry fell to Private Equity Growth Capital Council president Steve Judge.
Judge, who oversees the Council and serves as a public policy megaphone for the organisation’s 36 member firms, is tasked with pushing back on assertions that private equity generates returns at the expense of US jobs and the economy. And that’s a tough sell in the current political climate.
“It’s a good opportunity,” Judge said. “I don’t mean this to be a sort of Pollyanna, but the attention on private equity has really made people more interested in learning about us – even more so than before. And there’s a positive aspect to that … The challenge is that it’s a political year, and there’s always some misrepresentation, bumper stickers, which seek to describe an industry in far too limited and narrow a way.”
In that respect, Mitt Romney’s presidential campaign hasn’t been doing private equity any favors. Several sources have expressed their displeasure with the erstwhile Bain Capital chief’s (lack of) defense for the industry, pointing instead to the PEGCC’s “Private Equity at Work” campaign as a better example of combatting negative hype.
While the PEGCC long anticipated Romney’s opponents would go after his private equity background – in turn bringing the industry itself under scrutiny – they had not expected the onslaught to begin until after he had secured Republican nomination. When Texas Governor Rick Perry and former Speaker of the House Newt Gingrich began firing salvos at Bain Capital during the primary season, the group was spurred to get its message out ahead of schedule.
“We were really surprised to see it that early, and I don’t think anybody anticipated the level of attention on private equity or the criticism of Romney’s career in private equity to occur during the Republican primary,” Judge said. “I think we responded very quickly. Luckily, or maybe not luckily, we had the foresight to try to make some plans for how to respond later in the year. And we accelerated those quicker than we’d thought we’d [have] to.”
Even though Bain is no longer a member of the organisation, key elements of the attacks struck at the general framework of the private equity model and required a response. That included the release of the “Private Equity at Work” website, which regularly releases videos portraying specific private equity investments in a more positive light.
Although the organisation is not endorsing either Romney or President Barack Obama in the election, it has
We were really surprised to see it that early, and I don't think anybody anticipated the level of attention on private equity … during the Republican primary
focused its educational efforts on swing states that have been inundated with ads assaulting Romney’s private equity credentials.
“Our purpose is to try to engage in debates in precisely those states where we think there’s going to be the most attention placed on private equity through the campaign ads; and those would be the battleground states,” Judge said.
Help on the Hill
The educational benefits of the “Private Equity at Work” series also extend to the halls of Congress, where the PEGCC is responsible for advocating for industry in regards to financial regulation and oversight.
Providing more information about the industry, and delivering success stories for growth investments, has assisted the PEGCC in its lobbying efforts. Right now, those efforts are largely focused on the ways in which the industry could be targeted as a source for tax revenues.
With concerns over the US debt growing, changing the tax treatment of carried interest (which is currently taxed as a capital gain, rather than income) or portfolio company debt have been cited by Obama as ways to raise revenue. Judge, along with many in the industry, assert that changing the tax treatment on these components of the strategy would eliminate incentives for investors to take out debt to grow companies or, in the case of carry, invest in the first place.
“There is a real desire on the part of many politicians to eliminate the preferences and loopholes in the tax code which cause people to make decisions … based on tax reasons rather than economic reasons,” Judge said. “It’s easy to label [debt and carry] as a loophole or an expenditure, but it’s not the case. And it’s our job at the PEGCC to educate members of congress about that.”