The Private Equity Council, which in its first three years of life had limited its membership to the industry’s largest players, has opened its doors to all buyout shops with operations in the United States, Buyouts has learned.
“This is about bringing the wide world of private equity under one umbrella, and finally building out one national voice for private equity,” said Douglas Lowenstein, the founding president of the council. The annual membership fee for buyout shops with less than $8 billion under management is $25,000; for those with $8 billion to $15 billion under management it is $200,000; for those with $15 billion to $30 billion under management it’s $500,000; and for those with more than $30 billion under management it’s $750,000. When the Private Equity Council formed, it limited membership to buyout firms with at least $8 billion under management.
Lowenstein said he had no goal for membership this year, and that the ramp-up is impossible to predict. Still, there are signs of early interest.
The Private Equity Council announced its formation in late 2006, listing its initial members as
Limiting its membership to the largest buyout shops solved a problem for the Private Equity Council that countless associations face—that of how to balance the interests of its largest members, who tend to pay the most in membership dues, with those of smaller members. But limiting its membership also presented a new problem, which grew worse as the council began playing a bigger role on Capitol Hill. Because their partners are among the wealthiest in the financial services industry, the largest buyout shops can fail to strike a sympathetic chord when arguing against, say, proposals to raise taxes on carried interest.
Lowenstein said that a big reason to organize smaller buyout shops now is that there’s been something of a lull in hostile activity toward the industry. As a result, the Private Equity Council feels that it can finally re-direct resources toward building its membership, ensuring the industry will be better prepared for the next challenge. “It’s more important than ever for firms that haven’t been part of the Private Equity Council to be part of the effort now,” Lowenstein said.
That said, it’s hard to remember a time that the buyout market has faced such a large number of legislative issues. Along with carried interest taxation, they include proposals to compel buyout shops to register as investment advisers with the Securities and Exchange Commission (the Private Equity Council has argued for a carveout for smaller shops), to preclude banks from having private equity arms, and to require buyout firms to produce consolidated financial statements for their portfolio companies. In Europe, the European Union has floated rules that would make it much more difficult for U.S. firms to market their funds in EU countries.
A particularly unifying cause for the buyout market has been to maintain the status quo of taxing carried interest as capital gains rather than as regular income; small and large firms alike tend to agree that raising taxes on carried interest is a bad idea. The industry has also found common cause in fighting against efforts by unions and other critics to paint buyout firms as rapacious investors that care more about profits than they do about the fortunes of rank-and-file workers and customers.
“I can tell you that much of the energy and enthusiasm for moving in this direction came from many of the larger firms,” said Lowenstein of the decision to open the door to smaller firms. “Everyone understands that the most effective way to tell the private equity story is through a diverse group of firms based on geography, size and ownership.”