Making friends in Washington

With another presidential election looming, US private equity firms must once again make their case to skeptical politicians - before they do it for them.

Last week executives from mid-market firm Riverside Company and representatives from some of its portfolio companies made the trek to Washington DC to once again make the case for private equity.

Riverside has previously sent executives to participate in various hearings and to lobby officials, notably during the prior US election; this time, its group met with the staff of Republican presidential contender Senator Marco Rubio, as well as close to 30 other lawmakers.

The visit was well-received by America’s policymakers on both sides of the political aisle, according to participants. That should be heartening news for industry practitioners concerned about private equity once again becoming a talking point and tax target in the run-up to a US presidential election.

Donald Trump and Jeb Bush, who are vying for the Republican candidacy, as well as Democratic hopeful Hillary Clinton, have all taken aim at carried interest, making its current capital gains tax rate a campaign issue. Going further, eliminating tax deductions on interest paid on corporate loans, another financial engine of the industry, is a plank of the Bush tax plan.

Riverside addressed these issues with lawmakers directly and provided examples of the contribution PE-backed companies have made to individual Congressional districts. Other firms and industry groups have also been lobbying Washington to that effect; earlier this year the Small Business Investor Alliance, which represents more than 225 GP and LP investors in the lower mid-market, issued a report to Congress showing private equity-backed companies generated 129 percent more revenue growth and 257 percent more employment growth than non-PE-owned businesses.

All of this seems to be making a difference, according to the CEO of Riverside portfolio company Censis, Randall Smith: “The public, by and large, does not distinguish between Wall Street and private equity, whereas the legislators we met with were knowledgeable and seemed to understand the distinct role that private equity plays in the US economy.” 

Better informing ‘Main Street’ remains an issue for private equity, and one PEI has long been vocal about. Riverside and other firms or industry groups attempting to shed light on what they do for government officials is very valuable – but talking to lawmakers is not enough. Main street also needs to better understand why and how private equity can be a force for good.

A number of the industry’s larger firms have recognised this – Carlyle, Permira and others now regularly produce case studies meant to showcase how businesses can be transformed by private equity ownership, as do some of the industry trade groups. EQT has also got in on the act recently, releasing data on 22 of its Swedish portfolio companies showing that five years post-exit, business sales grew annually by 9 percent, while EBITDA increased by 6 percent and employee growth by 8 percent.

More of these efforts towards transparency and education must be embraced by fellow firms if the industry is to defend itself against political rhetoric and influence proposed regulatory changes. For private equity, it’s hard to see the downside in being more aggressive when it comes to talking up its success stories. And the other thing to remember is this: when it comes to making sure you stay on the right side of public opinion, there really is no time like the present.