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 Are you now, or have you ever been, a private equity dealmaker?
These days, those 10 or so little words have the power to instill fear and shame in the hearts of men, or at least of presidential candidates. (Course it doesn't take much.) Take Republican hopeful Mitt Romney, who was recently exposed to be a — gasp! — private equity player on page 1 of The New York Times. "He made his money mainly through leveraged buyouts — essentially, mortgaging companies to take them over in the hope of reselling them at big profits in just a few years," explains an obviously offended Times. "It is a bare-knuckle form of investing that is in the spotlight because of the exploding profits of buyout giants like Bain, Blackstone and the Carlyle Group."
Oh, brother. The story notes that Romney's supporters contend that his experience running Bain Capital LLC has prepared him well for public office — honing his skills of persuasion, for instance. But it lays out the case of the other side: Those who believe — including not only the Times, but weirdly enough, the candidate himself apparently — that Romney's buyout career "exposes him to criticism that he enriched himself excessively, sometimes by cutting jobs to increase profits." Indeed, on the campaign trail, Romney, the Times says, refers to Bain Capital not as a private equity firm, but as a "venture capital" firm — "a phrase that evokes innovation and entrepreneurship." So what does the phrase "private equity" invoke? Well, for one thing, we're told that no less a god than "legendary investor" Warren Buffett has derided the buyout guys as "deal flippers" who make money by charging their targets "fees, fees, fees." We also learn that Democrats and labor unions are stepping up charges that firms like Bain make their fat profits at the expense of ordinary workers. And we hear about how Bain extracted plump dividends from two of its portfolio companies, only to see both go bankrupt and lay off thousands of workers. Notorious for flip-flopping on issues like abortion, gun control and gay marriage, Romney the politician has been quick to distance himself from Romney the private equity dealmeister. He makes no attempt to defend the industry in which he made his nearly $400 million fortune, no matter how cartoonishly it is being portrayed. ("Bare-knuckled?" What exactly does that mean?) Instead, Romney dons his hair shirt for the Times, telling the paper of record, "The experience of the last eight years, running the Olympics and being a governor, would make me take an even more sensitive look at the impact of business decisions on the lives of suppliers and employees and others who are involved." Later on in the piece, while discussing dividend recaps, he says this: "It is one thing that if I had a chance to go back I would be more sensitive to. Great care has got to be taken not to take a dividend or a distribution from a company that puts that company at risk." He adds that taking a big payment from a company that later failed 'would make me sick, sick at heart.'" Cue the violins. But seriously, the story is a good barometer of where the Zeitgeist is lurching these days, and it's clearly going against the PE crowd. The only group that seems to be more loathed than the PE guys right now are the hedge funders, and for many in the media, these two groups are synonymous — and evil. A recent case in point was a blog posting by the editors of The New Republic on the magazine's Web site calling for carried interest to be taxed as income rather than as a capital gain. The piece, entitled "Hedge hogs," blithely treats "hedge funds" and "private equity funds" as the same phenomenon, throwing around the terms as if they are wholly interchangeable. It's a strange mistake to make, since the congressmen leading the charge to raise taxes on carries have specifically targeted the PE crowd (although many investment partnerships, including hedge funds, could be affected). As one respondent posted: "This is another one of those simplistic views of hedge funds that prove even mostly rational editors 'love to hate' them. Hedge funds are NOT the same as private equity funds... I would have thought that you would have considered the issue a little more closely. Pretty disappointing!" —Yvette Kantrow Categories Deal Video
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