Private equity becomes public in debate
By Paul Mackintosh - 06/02/12
Private equity is no stranger by now to unwelcome media attention and accusations of vulture capitalism. Indeed, as Stephen Pagliuca, managing director of Bain Capital Partners, said on Bloomberg Television at the World Economic Forum in Davos recently, “it may be called very public equity now, given all the press.” But the political colour of the recent spate of criticisms out of Newt Gingrich’s camp in his Republican presidential nomination campaign against rival and Bain Capital co-founder Mitt Romney certainly added an extra dimension.
After airing a video on the evils of Bain-style corporate predation, Mr. Gingrich wavered in the intensity and commitment of his assault on private equity, emphasizing that he supported true entrepreneurship. But in front of one business audience, in Columbia, he let rip, describing Bain’s approach as: “leverage the game, borrow the money, leave the debt behind and walk off with all the profits … Now, I'll let you decide if that's really good capitalism. I think it's exploitive. I think it's not defensible."
Harsh words, but their sting was soon drawn. Paul Levy, managing partner at JLL Partners Inc., was just one of the industry pros who countered by pointing out that Mr. Gingrich had taken money to praise private equity when making speaking appearances before the campaign. “Nobody praised private equity, risk taking, capital more fulsomely than Newt Gingrich,” Bloomberg quoted Mr. Levy as saying. Nor did charges of special tax treatment over carried interest stick. As Mr. Pagliuca said, “we’ll pay all taxes that are necessary.” No matter how creative and sophisticated private equity firms are in their tax structuring, no one appears to seriously believe that they are any more abusive of, or more favoured by, the US tax system than any other area of business or finance.
The real casualty of the whole affair was probably politics, not private equity. The virulence of the negative ads and campaigning, the bad impression left on everyone except partisans of either camp, especially the undecided voters, hardly makes a good case for use of such tactics in future. “Look what’s going on right now: it’s more like a soap opera than an election,” Mr. Pagliuca rightly commented.
Private equity is probably safe for another cynically practical reason: the attacks didn’t work. Bain’s supposed wrongdoings were just not enough of a theme to help out Mr. Gingrich’s campaign, and with that very conspicuous failure, no one else appears likely to pick up the mantra. In fact, the final self-defeating outcome of the whole farrago might be to put a private equity guy in the White House. Now that could be interesting …