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Industry Assess Damage Done By Campaign: CORRECTED, UPDATED

The ad blitz came just as the industry seemed to be making progress in improving its public image, thanks to the creation of a new lobbying group in 2006, several shops becoming public companies, and large firms investing in companies of increasingly national importance, such as The Carlyle Group’s White House-backed investment in a Philadelphia oil refinery in July. Many private equity pros, not surprisingly, felt the ads greatly oversimplified the industry and were misleading or completely inaccurate. 

“I think the stigma on PE will now blow over since the election is now history,” John Howard, CEO of Irving Place Capital—and an Obama supporter—wrote to Buyouts in an e-mail. 

The industry had better hope so. To be sure, the ads had little impact on the the views of investments officers at pensions, endowments and other institutionals that have backed private equity for decades. Bain Capital expressed this belief itself in a recent letter to investors.

“Fortunately the folks with whom we do business have a great ability to separate hyberbole from fact, and political gamesmanship from reality,” the firm wrote in the letter, published by The New York Times.

The industry also remains extremely attractive to young, talented professionals, executives said.

“But it could be an issue with the management team, or a family shareholder” at a company that a private equity firm is looking to buy, said Rob Morris, a managing partner of buyout shop Olympus Partners. “They may come to the room with a chip on their shoulder, or they may not come into the room at all” because of the ads.

Buyout firms also face battles against higher taxes on capital gains, dividends and carried interest, along with fights to contain regulatory overreach in the wake of the financial crisis that many blame on Wall Street. It’s a lot easier to prevail in such battles when Congress and the public view private equity sympathetically, as a source of job creation and force for economic good.

Still, some see a silver lining in the bruising presidential campaign waged by Obama. “This scrutiny has been a good thing for the industry, because it’s caused us to engage more, be more public, generate more data and proactively work to explain who we are, how we do it and who benefits,” Chris Ullman, a managing director with The Carlyle Group, told Buyouts. “No one loves to be beat up, but at the same time, with scrutiny and daylight comes information and hopefully appreciation.”

Morris of Olympus Partners said the campaign has elevated the industry, albeit negatively, in the public consciousness, and perhaps led thoughtful voters to educate themselves about it. Complementing this, Morris said, is the fact that private equity is more commonly found in mainstream entertainment, such as in Stephen L. Carter’s 2009 novel “Jericho’s Fall,” in which the main character is an ex-CIA director and ex-buyout pro.

“I am crazy enough to believe that people eventually believe the truth,” Morris said. “As private equity becomes more mainstream, people will be more comfortable with it.”

Long before Romney’s candidacy, of course, private equity had grappled with its public image as it ballooned from a niche market to a major force in the American economy. In 2006, it formed its first lobbying group, now called the Private Equity Growth Capital Council, which soon had its hands full grappling with hostile unions and others bent on tarring buyout firms as rapacious job-killers.

In the most recent wave of bad publicity, the Obama campaign blanketed battleground states with ads ripping Romney’s firm for shipping jobs to sweatshops in China, linking a woman’s cancer-related death to a Bain Capital decision to close a steel plant, and showing interviews of bitter ex-employees at Bain Capital-owned companies. In recent days, political analysts have said the advertising deluge was a critical aspect of Obama’s win. They said it cemented Romney’s image among many voters in the summer, before Romney himself was able craft his own story to the general public following a grueling primary in which even fellow Republicans criticized his Bain Capital career.

The scrutiny accompanying Romney’s most recent bid—from Republicans during the primaries as well as from the Obama campaign—grew so abrasive that it appeared to startle the industry into an invigorated sense of urgency.In February, the council launched its “private equity at work” campaign aimed at educating the media, policy makers and the public about the industry’s impact on the economy.

“We tried to fill that vacuum with lots of information and facts about what private equity is, how it helps to grow companies,” Steve Judge, who became president and CEO of the Private Equity Growth Capital Council in January, told Buyouts.

Mainstream media criticized some of the claims made about Romney and Bain Capital, and influential politicos, including Democrats such as Newark Mayor Cory Booker and former Pennsylvania Gov. Ed Rendell, defended the industry.

“I think those voices, now that we’re past the campaign, will be even stronger,” Thomas H. Lee Partners Co-President Scott Sperling, a Romney supporter, told Buyouts.

Now comes the hard work of rehabilitating any damage done to the industry by the campaigns. Like Irving Place’s Howard, Sperling believes much of the negativity will recede into the horizon now that the ads will cease.

“I suspect our profile will be lower than it has been the last nine months,” Sperling said. “On the other hand, I don’t think we can sink too far into the recesses. We shouldn’t be secretive about what we do because the success we’ve had in helping to turnaround companies and drive growth has broader applicability. I think it’s important to be very transparent about what we do.”

Going forward, the Private Equity Growth Capital Council will be concentrating more on swaying the hearts and minds of legislators and their staffers than the general public.

“It’s transitioning; we’re out of election mode and in post-election mode,” Judge said. “This year, we’ll be focused more on what’s going on in the Capitol than with the reaction to the campaign. But the essence of our message is the same: Let’s provide people with a good basis of information about what private equity is but make sure policy makers know the issues so that they’re dealing with them on a fact-based understanding.”

Judge declined to say what the council’s budget was, or how it would allocate funds for public outreach and lobbying. He added: “What doesn’t change is we want to be telling the really good stories about the industry. What private equity is, how it grows and strengthens companies. It’s a shift in where we deliver that message.”

That may be where the Private Equity Growth Capital Council is more effective anyway, Sperling suggested.

“I think that [the Council] have been more successful inside Washington than with the general public, but that’s the reality of the budget they’re dealing with and often complex nature of issues they’re explaining,” he said. ” think they’ve done a good  job, but they don’t have the loudest megaphone.”

(Correction: Cory Booker’s name was misspelled in the original version of this story. Update: Story updates to include Judge comments and substitutes spoken comments from Sperling interview for written comments he had provided soon after storm)