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September 2023
AAM Magazine
September 2023
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PE Panorama: Private equity’s ongoing image problem

private equity
By Paul Mackintosh   
May 15, 2023

As I've pointed out before, private equity has a serious image problem. Headlines like “Private Equity is Gutting America” in the New York Times, “How Private Equity Looted America” in Mother Jones, and “looting” in the Financial Times aren’t exactly positive in any PR playbook.

Firms may dismiss such reporting as baseless alarmism, but it can have an impact on allocation decisions by institutional investors, and on regulation. Bear in mind that the US industry only just missed the closing of its favourite carried interest tax loophole in the Inflation Reduction Act of 2022, thanks to one dissenting senator, Kyrsten Sinema, who is now no longer a Democrat. But it could still happen.

Now, one more investor voice has called out the industry on this issue. Rami Cassis, founder and CEO of family office Parabellum Investments, which invests some US$126 million, warned publicly early this month that the private equity industry “must start taking its image problem seriously and take immediate action to improve it, or risk damaging restrictive regulation”. He cites specifically the Biden administration’s continuing pressure on US private equity through the Department of Justice’s antitrust unit and the US Federal Trade Commission, which have been attracting headlines of their own for their increased scrutiny of private equity deals.

Cassis, himself a direct investor into mid-market deals, still regards the industry as “a force for good”, and a growth and jobs creator in the global economy. But he is concerned that “the industry has garnered negative public perception over many years - projecting an image of itself as bullish, secretive, and opportunistic. This seemingly unshakable image problem, and the largely absent desire to fix it, is holding the industry back”.

There isn’t much to challenge in that diagnosis on its merits, let alone its source. As to solutions, Cassis advocates diversifying private equity’s leadership, bringing in more senior professionals with backgrounds in HR, tech, marketing, data, etc., to join the bankers, lawyers and accountants currently crowding the senior benches of most private equity firms. That would be great - if it were possible.

I’m concerned that private equity’s image problem, and its rigidity and insularity at top levels, stem from the same root cause - an industry that has grown fast but not matured at anything like the same speed. Its mindset and instincts are still stuck in a culture of closed, collegiate leadership and dealmaking which is no longer sustainable for an industry which, as Cassis points out, directly runs some 6.5% of US GDP as of 2020.

You can’t be both big and immune to oversight - much as private equity would like to believe it still can.