Five Questions With Steven Klinsky, Founder and Chief Executive, New Mountain Capital

How would you characterize the private equity market right now?

It’s a pretty strong private equity market in the sense that the lenders are lending very actively again and I think there’s both a number of companies that are coming up for sale and a number of funds that are still well-funded to try and buy them, so it’s a busy and active time in the market.

Is New Mountain Capital deploying capital as quickly as you would like?

We try to have a very deliberate pace. We’re quite different from the rest of the industry in that we really don’t depend on the debt markets. We haven’t even used debt in the majority of our transactions. We have a fund that lasts for five years, and we’re effectively investing about one fifth each year. We’re about as a-cyclical as you could possibly be, so we’re kind of right on schedule.

What’s your view on the growing number of private equity firms going public?

What is true and worthwhile is that private equity firms are increasingly thinking of themselves as ongoing institutions, not just as small groups of individual entrepreneurs. So to the extent that you can build a great team, a great process, an ongoing strategy, I think it’s good to think of private equity in the long term… I think that’s positive. And the idea of going public is just an outgrowth of the fact that these are ongoing permanent institutions.

So will we see more private equity firms going public?

I think there will be only a few because one of the long-term effects of the great recession is that there is going to be a greater division between those who have done well and those who did poorly, and probably a shake-out in every type of asset management.

President Obama renewed a pledge to change the tax rules to treat carried interest as ordinary income? What do you think should happen?

I personally believe that if we and our limited partners earn capital gains in a transaction, it should be taxed as capital gains…We’re talking about something very difference from salary, something very different from bonus. You take a business, you spend years building value, and if you do in fact sell it at capital gain, you get charged at capital gains rates. That’s what carried interest means… So I hope it stays and that people look at it in a fair way. But there has been a lot of anger directed against financial institutions in general and a kind of a revenge factor at work even though private equity really didn’t have anything to do with causing the financial crisis. We kind of got caught up in that spirit of revenge, and hopefully people will look at it more fairly and level-headedly.

Edited for clarity