Carl Thoma’s Perspective on Private Equity and Election Rhetoric
Election Rhetoric Hits PE, But the Funds Keep Coming
Private equity’s public reputation may be under attack, but its coffers aren’t.
Despite the heating up of presidential election campaign rhetoric stemming from Mitt Romney ‘s record as head of Bain Capital , buyout firms still managed to collect more commitments for funds in the second quarter than in the first three months of the year, as well as the year-earlier second quarter, according to Preqin data.
The successful fundraising period – in which the asset class brought in $24.9 billion in commitments for the three months ending in June, compared to $16.4 billion for the first quarter of the year and $22.8 billion for the same period in 2011 – demonstrates that limited partners continue to see the importance of the asset class, despite claims made by President Barack Obama’s campaign against Bain Capital.
In fact, pension funds – a big source of private equity capital that could have been affected the most by the bubbling up of anti-private equity sentiment due to their largely unionized membership – actually increased their allocations to the space on a year-over-year basis.
The average allocation to private equity by big pension plans – defined as those with more than $1 billion in assets – was 9.93% for the one-year period ending in June, up from 7.61% year earlier, according to data provided by Wilshire Trust Universe Comparison Service. Buyout executives say that while the attacks on private equity may hurt the industry’s reputation in the eyes of the general public, most of the sector’s sophisticated investor base continues to understand its importance.
“All this stuff about attacking private equity is about attacking Romney. If he had been working for [ General Motors Co .], Romney would’ve been attacked for screwing up GM instead,” said Carl Thoma, founder and managing partner of midmarket firm Thoma Bravo.
Limited partners agree. A private equity investment officer at a pension fund with tens of billions of dollars under management said he doubted the attacks on the asset class would have “any lasting effects on the industry,” mostly because of private equity’s contributions to the pension fund. “For long-term, institutional investors, private equity is essential for meeting our performance objectives,” the person said.
He added that with returns on public equity mostly flat for more than the past decade, private equity plays a big role in getting to the pension fund’s target return.
But that is not to say the industry’s perception by the public isn’t important. Despite the apparent commitment to the space by limited partners during the election, some buyout executives say the harsh glare from the political fighting is forcing them to adapt.
“I do think there is more demand for a greater understanding of what we do,” Mr. Thoma said, referring to questions from public pension board members as well as state lawmakers.
Speaking at a New York conference in June, Blackstone Group President Tony James suggested that his peers “get up and get on the record.” Mr. James added that firms should publicly provide proof of their contributions to the U.S. economy. For example, he pointed to the levels of organic growth across Blackstone’s U.S. holdings, which was 4.2% in 2011.
Besides data, some say case studies on investments are just as crucial. “People remember the story of a company better than they remember data,” said Maura O’Hara, executive director of the Illinois
Venture Capital Association. Ms. O’Hara advocates for private equity on the local level in Illinois, similar to the work done by the Private Equity Growth Capital Council, which focuses on supporting the sector on a national scale.
The PEGCC rolled out its own campaign defending the industry earlier this year, which included eight video case studies and an educational whiteboard video that received more than 14,000 views on YouTube. And according to Noah Theran, spokesman for the PEGCC, the lobby group has also set up more than 50 meetings between congressional members and private equity portfolio companies.
The industry still has a ways to go before it is more comfortable defending itself publicly rather than keeping its name out of the headlines, said Mr. Thoma. But the private equity veteran remained optimistic.
“It takes a long time to teach old dogs new tricks,” Mr. Thoma said. “We’ve gotten a little more progressive and outreaching in telling our story.”