Douglas Lowenstein, who shepherded the Private Equity Growth Capital Council from its narrow origins representing some dozen mega-firms to a far more diverse organization, and who repeatedly beat back the forces calling for higher taxes on carried interest, planned to hand over the reins on Sept. 1.
Steve Judge, the vice president of government affairs, was to take over as interim president and CEO. The council has launched a search for a permanent replacement, who will face a host of legislative and regulatory challenges in the months ahead—see table, this page.
Lowenstein, 60, said in a prepared statement that he felt it was a “good time” to step down. “Our research program, our advocacy program, our grassroots programs, and our efforts to enhance communication between policymakers and the men and women who work in private equity has helped build a better understanding among a wide audience about the important and positive contributions private equity makes to the economy,” he said.
A spokesman for PEGCC said executives were not available to comment beyond the press release announcing Lowenstein’s departure.
The council was founded in early 2007 in part to give the industry a louder voice on Capitol Hill and at the Securities and Exchange Commission. Its launch, with backing from such heavyweights as
Within weeks Sen. Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee, advocated a proposal to tax carried interest as ordinary income instead of capital gains. Across the industry professionals were livid.
Lowenstein’s efforts on the Hill helped kill the proposal, in his first big test as industry lobbyist. Similar proposals popped up repeatedly during his tenure. Like a master of legislative whack-a-mole, Lowenstein helped defeat them every time, including most recently a compromise proposal introduced by Sen. Max Baucus, Democrat of Montana and chairman of the Senate Finance Committee.
The efforts, though successful, siphoned resources that might have gone to expanding membership in the early years of PEGCC, a result that appears to have had implications for other legislative and regulatory battles to come.
Along with carried interest taxation, the Private Equity Growth Capital Council, originally called the Private Equity Council, achieved at least two other major accomplishments under Lowenstein. One was to fund research showing the positive role that buyout shops play in the economy, including by creating new jobs at target companies. With statistics in hand, the council was in a stronger position to persuade legislators that private equity firms were worth protecting. “Before [the council] showed up on the scene, no one was talking about private equity as potentially a good thing,” said a source at a member firm. “They sort of got the dialog started.”
Eventually Lowenstein also succeeded in expanding the council’s roster to 36 members, including many mid-market firms, according to its Web site. But there were setbacks along the way.
Under Lowenstein, the council has also experienced executive turnover over the past year, including the departures of Jason Thomas, vice president of research, and Robert Stewart, vice president of public affairs. (The Web site currently lists three senior staff members.)
That the council didn’t open its doors to firms with less than $8 billion under management until early 2010 also may have influenced the regulatory course of the entire industry. In mid-2009, its membership still dominated by mega-firms, the council, while not agreeing that buyout firms presented systemic risks to the economy, came out largely in favor of the proposed Dodd-Frank financial reform law requirement that firms with $150 million or more in assets register as investment advisers.
The proposal ended up passing, even as the National Venture Capital Association successfully lobbied for a carve-out for venture capital firms. (The PEGCC had argued that any carve-out should be based on size, not type of investment.)
Mid-market firms—too big to qualify for the carve-out, yet not mega enough for the costs of registration to be easily absorbed—ended up big losers in the Dodd-Frank battle.
Earlier this year, in fact, a small group of them banded together in a grass-roots effort to delay if not outright reverse the registration requirement, arguing the additional regulation and paperwork would be costly and unnecessary. The SEC did grant a delay until early 2012, and proposed legislation eliminating the requirement could come up for a floor vote in the House in early fall.
The council ended up providing support for the grass-roots effort, but it hasn’t convinced everyone that it’s in the corner of smaller shops. A buyout pro involved in the lobbying said in February he appreciated the council’s help. Be he still saw PEGCC as “basically an LBO group for the five to 10 largest asset firms out there.” (In an interview late last month this same source reaffirmed his view, pointing to how much more in membership fees the large firms pay.)
With other associations, including ACG and NASBIC, competing for the attention of buyout shops, the council’s inability to rapidly capture market share has arguably left the industry fractured and without a unified voice.
“There’s no real umbrella” organization in the United States as there is in Europe thanks to the European Venture Capital Association, said our source from a member firm. “That’s a challenge.”