Understanding Washington

In January, former US senator and vice presidential candidate Joseph Lieberman joined Chicago-based Victory Park Capital as chairman of the executive board.

Victory Park provides debt and equity financing to small and mid-market companies – and before retiring from the Senate at the start of 2013, Lieberman served on the US Senate Committee on Small Business & Entrepreneurship, which investigates the issues of small businesses and manages the Small Business Administration.

Lieberman’s addition to the private equity ranks should be good news for the industry.

“The fact that he’s joined a private equity fund speaks very well of the industry,” says Brett Palmer, president of the Small Business Investor Alliance, an organisation of lower middle market private equity investors.

At Victory Park, Lieberman will work in an advisory role, helping the firm deal with regulation issues and provide portfolio guidance.

“We have a number of businesses that touch the government in some shape or form, whether it’s the oil and gas or aviation industry,” says Victory Park co-founder Brendan Carroll, who previously worked in Lieberman’s office and for his 2000 vice-presidential campaign. “[Lieberman] has an understanding of the federal government that is much better than our own.”

Lieberman’s appointment by Victory Park is not the only recent example of a former policymaker joining a private equity firm. Former treasury secretary Timothy Geithner became president of Warburg Pincus in November, while former chief intelligence agency director and military commander General David Petraeus joined Kohlberg Kravis Roberts in May. Former presidential candidate Mitt Romney also returned to private equity in March, to work for his son’s investment firm, Solamere Capital, as executive partner and group chairman.

“By adding [former politicians] who bring a global perspective to the table, private equity firms are likely to better understand the stakeholders impacted by these significant investments,” says Ken Spain, a vice president at industry trade group Private Equity Growth Capital Council.

SBIA’s Palmer agrees. “They can do nothing but help Washington understand what [private equity executives] are up to”, he says, adding that Lieberman’s appointment gives his former colleagues a channel to better understand the industry.

The way in which a former politician can add value to a private equity firm depends largely on whether the fund manager invests globally or purely domestically. While larger firms benefit from hiring someone who knows about global issues and understands how the world is changing on a macro level, Palmer says, it’s more important for middle market firms that invest domestically to understand how the US government works.

“From an industry standpoint, people have learned that what’s going on in Washington can genuinely affect portfolio companies and operating ability,” says Palmer. “Understanding Washington is a smart thing to do. Ignoring it is dangerous”.

While Romney received plenty of brickbats about his past career as an ‘asset stripper’ during his 2012 presidential campaign, his time in the spotlight arguably helped better educate politicians and the general public about the economic impact of private equity. So more links between the industry and the legislature can only be a good thing.

One private equity professional hoping to follow Romney into politics is John McCallum, founder of JAM Capital Partners, who’s decided to run for Congress – in part to help Washington better understand the issues of small businesses.

As he (quite rightly) puts it: “We need more business people in [Washington]. We need more people at the intersection where businesses are started. America has to stay on the forefront of investing in the industries of the future”.