Over the next several months, many US private equity general partners will be paid a visit by Doug Lowenstein and the staff of the Private Equity Council. The mission of Lowenstein and team is to find many more members for the PEC, a trade association that lobbies for the private equity industry on Capitol Hill.
Those GPs who think they can shrug off membership with a few mumbled excuses will be met with the counter-arguments of a man who whose last job was founding and building a highly effective lobbying organisation. The first excuse that Lowenstein wants to bat away is that the most potentially impactful legislative challenges to private equity have been neutralised or watered down.
“I’m trying to make sure people understand that to the extent there’s a perception that we’re in the clear. . . that’s a very dangerous way to speak,” says Lowenstein.
He also will argue that the best time to communicate the important role of private equity in the economy is now, when there is somewhat of a lull in the congressional battle. “Now is the best time to be visible, not when you’re in the midst of an attack,” says Lowenstein, explaining that lawmakers tend to be much more receptive to a broader message if they don’t assume the messenger is, for example, simply trying to kill a tax increase on carry.
It is not surprising that the PEC is looking for more members beyond the 12 super-firms that currently are its sole backers. While these firms can certainly argue that their impact on the US economy is significant given the amount of capital they collectively control, the story they have to tell will not always connect with lawmakers who want to support policies that favour everyday people, small business owners and historically disadvantaged participants in the economy. Crucially, lawmakers are especially receptive to messages that emanate from their own voting districts, not Wall Street.
Ideally, the PEC wants to become something that the US private equity industry sorely needs – the official advocacy body for all growth equity and buyout firms, with the National Venture Capital Association speaking for VC firms. Such a status would allow the PEC to unleash private equity firms of all sizes and strategies to argue for a more benevolent regulatory regime, and to illustrate how laws intended to fetter Wall Street titans may unintentionally end up damaging medium-sized firms that invest in medium-sized businesses.
Convincing the hundreds of firms scattered across the US that they should join the effort may prove to be a challenge, however. Buyout firm GPs in particular have spent the last several decades getting on just fine without paying dues to a Washington lobbying outfit. Many still don’t accept that their years of benign regulatory neglect are over. Furthermore, many of them are used to interacting with their rivals only in auction settings. A person in the venture market noted that the very nature of venture capital investing requires GPs to frequently band together on deals, despite the fact that they may compete at other times. It is a more collaborative culture than what is often found among buyout guys.
Then there is the matter of the origin of the PEC in 2007. Some GPs who were not invited to the launch of the association were bemused by what they perceived to be an elite cabal trying to effect change without bothering to include the little guys.
Lowenstein explains that the PEC has long known it would eventually want to expand membership, but this decision was delayed because his group was “in crisis management mode from day one”, starting with the proposed tax hike on carried interest and the souring opinion of buyout deals around the world.
If middle-market buyout GPs ever believed there was a better way to educate lawmakers about what they do, none of them were ever sufficiently inspired to get together and act. Instead the private equity industry today is where it is on Capitol Hill – underrepresented, underappreciated and often misperceived.
Membership in the PEC costs $25,000 per year for firms with $8 billion or less in assets under management. Numerous regulatory proposals currently under review in Congress would cost private equity firms a lot more than that. The PEC needs smaller GPs and these smaller GPs may discover that they do indeed need the PEC.