Editor’s note: The interactive graphics embedded in this story no longer work because they were built with Google’s Fusion Tables technology, which Google discontinued on December 3, 2019. Buyouts will update the graphics if a technical solution becomes available.
By Sam Sutton
Private equity executives made political contributions to unabashed liberals, pragmatic Democrats, Republican centrists and Tea Party favorites during the 2015-2016 election cycle.
But even among that diverse coterie, the industry showed no love for Donald Trump.
Political-contribution data compiled by Buyouts from a database maintained by the Center for Responsive Politics showed no donations from major executives at American Investment Council-member firms to the Republican nominee’s presidential campaign.
Trump “is not suited to win,” AIC President and CEO Mike Sommers said at Buyouts’ PartnerConnect Midwest conference in Chicago this summer. Trump’s “vision is not aligned with the conservative agenda led by [Rep.] Paul Ryan and followed by most leading Republicans.”
Buyouts analyzed data from the Center for Responsive Politics detailing political contributions from executives at firms belonging to the AIC, the industry’s primary lobbying organization. Those executives contributed more than $6.5 million to federal campaigns, political parties and political action committees through mid-summer.
The AIC, previously called the Private Equity Growth Capital Council, lobbies on behalf of 39 PE firms on issues ranging from the taxation of carried interest to the minutiae of public filings required by the SEC.
While Trump has some fans within the industry — distressed-debt guru Wilbur Ross and Cerberus Capital founder Stephen Feinberg raised money for his campaign — support among top executives at AIC-member firms like Blackstone Group, Carlyle Group, Kohlberg Kravis Roberts and TPG was nonexistent through mid-summer, according to the Buyouts analysis.
The lack of support for Trump runs in direct contrast to contributions that helped fuel Mitt Romney’s presidential campaign. A Super PAC supporting Romney, a former Bain Capital executive, raised $8.2 million from industry executives in 2012, Private Equity International reported at the time.
Mainstream Republican primary candidates in the vein of Romney, including former Florida Gov. Jeb Bush and Sen. Marco Rubio (R-Florida), attracted considerably more attention from top industry executives during the Republican primary. Bush and Rubio raised $66,150 and $58,080 respectively, according to the Buyouts analysis.
Since Trump clinched the GOP nomination, Democratic presidential nominee and former Secretary of State Hillary Clinton emerged as a clear favorite of industry executives. Her campaign had collected more than $137,000 in the form of direct contributions from private equity executives through mid-summer, according to the Buyouts analysis.
CHART: How private equity supported 2016 presidential campaigns
Of course, presidential politics represents only one component of a maddeningly intense and hotly contested 2016 election cycle. The composition of the next Congress could have profound effects on how the industry is taxed and regulated, and private equity professionals contributed heavily to down-ticket races in the 2015-2016 election cycle.
At least three senators the AIC views as private-equity-friendly are nearing the end of tough reelection campaigns. All three — Kelly Ayotte (R-New Hampshire), Mark Kirk (R-Illinois) and Pat Toomey (R-Pennsylvania) — received significant contributions from a wide range of AIC member-firm executives. (See below.) Those seats, along with other competitive races in the House and Senate, could dictate the viability of comprehensive tax reform.
CHART: PE contributions to Sens. Kelly Ayotte, Mark Kirk and Pat Toomey
Similarly, the industry also wrote checks to those who may dictate policy agendas when the next Congress convenes in January, regardless of party affiliation. Speaker of the House Paul Ryan (R-Wisconsin) and Sen. Charles Schumer (D-New York), who is poised to succeed Sen. Harry Reid as Democratic leader, were among those who received the most from PE executives in the 2016 cycle.
CHART: PE contributions to Rep. Paul Ryan and Sen. Charles Schumer
Private equity dollars tend to flow to those who take a more holistic view of the industry and its role in the economy, according to AIC Vice President of Public Affairs James Maloney.
“In our general criteria, and I assume this holds true for a lot of the firms, what we’re looking for is pragmatic lawmakers who engage with the private equity industry,” he told Buyouts. Maloney added that support for the industry is sometimes gauged by something as simple as whether a congressman is willing to take a meeting with a portfolio company CEO, “or just generally be engaged by the industry.”
Carried interest remains a popular political football, and efforts to trim regulatory requirements mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act hinge on Republican majorities and ideologically flexible Democrats.
To that end, Buyouts broke down the industry’s political contributions along a few critical issues, with charts outlining some of those relationships below. Readers can find a more comprehensive, sortable chart outlining how private equity executives distributed their political contributions here.
Carried Interest
No single issue defines private equity’s place in the political ecosystem more than carried-interest taxation.
Carried interest is a firm’s share of the profits generated by fund investments. Private equity firms typically commit 1 percent to 5 percent of their funds’ total investable capital, with the rest coming from a variety of institutional investors, family offices and high-net-worth individuals.
Most firms take more than 1 percent to 5 percent of the profits, however. The industry standard is typically 20 percent of carried interest.
Current tax laws treat those earnings as a capital gain, which is taxed at a lower maximum tax rate than regular income. PE-fund managers are well-compensated, even by financial-industry standards, and many politicians (including Hillary Clinton, Trump and President Barack Obama) have strongly pushed for those profits to be taxed as ordinary income instead.
The AIC takes the opposite view, arguing that taxing carry as a capital gain encourages investment. Executives at AIC-member firms contributed more than $498,000 to candidates and officials who’ve advocated maintaining carried interest’s current tax treatment. (See below.)
CHART: Contributions to candidates who think carried interest is a capital gain
While those contributions represent a substantial haul, industry executives actually tended to favor candidates who’ve argued for raising taxes on carried interest. Those candidates, typically Democrats, received almost $624,000 in direct contributions from private equity executives in the AIC.
CHART: Contributions to candidates who believe carried interest is income
According to Maloney, this might relate to the level of influence held by certain officials. For example, Schumer and ranking Senate Finance Committee member Sen. Ron Wyden (D-Oregon), both of whom support raising taxes on carried interest, received substantial contributions from PE executives in the 2015-2016 cycle.
“More lawmakers now have a better understanding of who we are vis-a-vis a hedge fund or investment bank,” Maloney said. “There’s been more opportunity for lawmakers to have a more nuanced view of the private equity industry, whereas before there wasn’t interest in most of our issues other than carry.”
One example Maloney cited is Sen. Cory Booker (D-New Jersey). Booker is on record as wanting to raise taxes, but he also defended the industry during the 2012 presidential campaign. Executives at AIC-member firms contributed almost $30,000 to his campaign in the current cycle.
Similarly, the Clintons were paid more than $1 million to give speeches for private equity firms in the runup to Hillary Clinton’s campaign. She’s since raised north of $130,000 from the industry.
Dodd-Frank
The 2010 enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act represented a major shift in how the industry is regulated, which ultimately led the SEC to scrutinize private equity practices.
Dodd-Frank required many PE firms to register as investment advisers for the first time. In recent years, the SEC’s examination of investment and investor disclosure practices resulted in several multimillion-dollar settlements including, most recently, a $52.7 million settlement with Apollo Global Management over allegations it misled investors and failed to protect clients from inappropriate expenses.
Apollo did not admit or deny wrongdoing.
In light of those findings, sources considered a complete rollback of Dodd-Frank highly unlikely. That said, many of the senators and congressmen who voted “no” on Dodd-Frank — including Rep. Kevin McCarthy (R-California) and Sen. Orrin Hatch (R-Utah) — continue to be key voices for the industry on Capitol Hill.
PE contributions tended to favor more of those who voted against Dodd-Frank rather than those who advocated its eventual passage. Contributions to those who voted “no” outweighed contributions to those voted “yes” by more than $187,000.
CHART: Contributions to Senators/Representatives who voted ‘no’ on Dodd-Frank
That isn’t to say a “yea” vote on Dodd-Frank was a dealbreaker, however. As with carried interest, legislators’ viewpoints on private equity tend to evolve as they learn more about the asset class. Opinions on PE and how it should be taxed and regulated are rarely flush with those of the AIC.
Rep. Jared Polis (D-Colorado) voted in favor of Dodd-Frank but later voted favorably on bills that would have rolled back some the legislation’s more strenuous requirements.
CHART: Contributions to Senators/Representatives who voted ‘yes’ on Dodd-Frank
HR 5424 and HR 1105
Those bills, HR 5424 and HR 1105, were sponsored by soon-to-be retired Rep. Robert Hurt (R-Virginia). The AIC lobbied for both bills, and representatives who voted in favor generally received more in contributions than those who did not, according to the Buyouts analysis.
The first bill, HR 1105, was introduced in 2013 and passed the House by a vote of 254-159 before dying in the Senate. HR 1105, also known as the Small Business Capital Access and Job Preservation Act, would have exempted many PE firms from having to register with the SEC as investment advisers.
Hurt introduced a follow-up bill in the current session, HR 5424, which eliminated specific filing and investor-notification requirements. The House approved HR 5424 by a vote of 261-145. Several sources have said the bill is unlikely to be considered by the current Senate, though a follow-up bill may be introduced when the new Congress convenes next year.
CHART: Voted “yes” on HR 5424 and HR 1105
Unsurprisingly, industry executives directed fewer contributions to those who voted against HR 5424 and 1105. Rep. Joseph Crowley (D-New York) was an exception.
CHART: Voted “no” on HR 5424 and HR 1105
With all of that said, as with any occupation, PE executives hold opinions across a wide political spectrum. Contributions to individual candidates could represent agreement on issues completely unrelated to the industry, taxation or regulation.
“It could have nothing to do with private equity. They could be any number of political or personal concerns, or something like that,” Maloney said. “That aside, there are indications that their professional life leads to their dollars going to lawmakers with more positive relationships with the industry.”
As mentioned at the top of this story, a complete interactive chart with sortable filters can be found through this link. In the upper left hand corner, use the drop-down “Filter” menu to sort contributions by contributor and candidate, as well as stances on specific private equity-related issues. You can add as many filters as you’d like, just be sure to adjust the number of nodes in the upper left hand.
The data points used to compile this map are available in the “How Private Equity Contributes to Political Campaigns” and “Contributions and Stances” tabs.
We’ve put together similar maps for contributions to political action committees and super political action committees here and another for party committees here.
Please check out the tables and play around with them. Most important, if you see anything we missed, let us know at ssutton@buyoutsinsider.com.
Tucker Higgins contributed to this story.
Photo: Republican U.S. presidential nominee Donald Trump meets with law enforcement and first responders at the St. Johns County Sheriff’s Department in St. Augustine, Florida, U.S. October 24, 2016. REUTERS/Jonathan Ernst
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