The politics of private equity, round 2

The 114^th Congress of the United States convened for the first time on Jan. 6, 2015. That same day, just two months after the mid-term elections, former Florida Governor and private equity executive Jeb Bush kicked off the 2016 Presidential campaign.

Less than a month into the 2016 cycle, the prospect of another private equity executive running for President may pitch the industry back to the forefront of mainstream political coverage.

“We’re all too familiar with private equity being a part of the political and presidential context,” said one market source in Washington, D.C. “You can expect the industry to dust off the same playbook.”

Bush, who chairs energy private equity specialist Britton Hill Holdings and is the brother of former President George W. Bush, met with executives at Kohlberg Kravis Roberts’ Manhattan office on Jan. 7 to discuss a possible run for the presidency. The meeting with KKR took place the day after Bush officially launched his fundraising apparatus for the 2016 campaign, a political action committee called Right to Rise.

Little is known about Bush’s private equity experience. He is listed as chairman of Britton Hill in a 2013 regulatory filing, which shows that the Coral Gables, Fla.-based firm raised $40.4 million from 37 investors. The secretive firm’s website lists only its name and an email address: info@brittonhillpartners.com

Bloomberg has reported that Britton Hill has three other owners besides Bush: Amar Bajpai, formerly of Lehman Brothers, and David Savett and Ross Rodrigues, formerly of Credit Suisse.

The Washington Post reported that Bush resigned all of his corporate and non-profit board memberships in early January before the launch of Right to Rise. The report indicated Bush would review his work with Britton Hill and Jeb Bush & Associates, a consulting firm. Britton Hill declined to comment. 

Shortly after Bush launched the Right to Rise PAC, Mitt Romney – the 2012 Republican Presidential candidate and a former Bain Capital executive – reportedly began circling donors and campaign staffers for another run in 2016.

With Bush and Romney assembling resources for their prospective campaigns, private equity organizations are bracing for a fresh round of attacks against the industry.

“Those who will use old misinformation against them (the candidates), that’s going to be the case for anyone who has a background in business,” said Gary LaBranche, president and CEO of the Association for Corporate Growth (ACG). “That’s just the nature of politics these days.” 

As a refresher, private equity’s involvement in the 2012 election created its share of headaches for the industry, long considered opaque to “people who don’t read The Wall Street Journal every day,” one lobbyist told Buyouts.

Opponents used Romney’s background at Bain to depict the former Massachusetts Governor as out-of-touch. A short film produced during the Republican primary by a PAC backing former Speaker of the House Newt Gingrich tore into several of the firm’s investments, including KB Toys, commercial washing machine producer UniMac, and others.

Although the short film was widely criticized for its inaccuracies, the attacks laid the groundwork for President Barack Obama’s campaign, which took a similar approach after Romney won the Republican nomination.

Industry organizations such as the Private Equity Growth Capital Council responded with an effort to educate the public on private equity’s role in the economy. The PEGCC campaign, called “Private Equity At Work,” used white board videos and video case studies to explain how the investment strategy works and how it has benefitted certain companies. ACG, which counts many middle-market private equity firms among its members, hosted a webinar in mid-2012 explaining what was at stake in that year’s presidential election.

That said, even as Romney and Bush prepare their campaigns, “it’s awfully early to speculate on who might be in the mix” for 2016, said ACG’s LaBranche.

Indeed, a separate source in Washington speculated that Romney may eventually drop his bid, as he would likely find the field “too crowded” with Bush and New Jersey Governor Chris Christie “gunning for the establishment spot” in the lead up to the Republican primary. Meanwhile, party activists who met at the Republican National Committee winter meeting in mid-January argued Romney already had his chance and “flubbed it,” according to a Reuters report.

That “establishment spot” may come under fire from the more populist wing of the Republican Party, if recent comments from Republican Senator Rand Paul provide any indication. Paul, who is said to be considering his own presidential run, referred to the possibility of a third Romney campaign as “the definition of insanity,” according to an article in the New Hampshire Journal.

Christie may be open to private equity-related attacks as well. The New Jersey State Investment Council was heavily criticized in certain media outlets for perceived conflicts of interest between the former council chair, Robert Grady, and pension commitments to his old firm, The Carlyle Group. 

There also has been an ongoing internal investigation into a potential pay-to-play situation involving Massachusetts Governor Charlie Baker, a former partner with venture firm General Catalyst. Baker contributed $10,000 to the New Jersey Republican State committee in 2011, after which the State Investment Council committed $25 million to General Catalyst. The status of that investigation is not clear. 

Ultimately, whether Romney, Bush or any other candidate with a private equity background enters the race is beside the point from an outreach perspective, sources said. The industry has been through this before and, as one source put it, “every campaign learns from the campaigns of the past.”  

Lobbyists may face more pressure to show what they learned, now that the stakes seem higher. The tax treatment of carried interest will likely be at play if the new, Republican-led Congress makes an attempt at comprehensive tax reform, and the SEC’s scrutiny of management fees and limited partnership agreements presents additonal challenges for the industry. 

“Frankly, regardless of who runs for President, ACG will continue to help educate members of Congress on the role of middle-market private equity,” LaBranche said.