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Feb 12

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Unwittingly, Romney is a terrible poster boy for the PE firms

When you are a leading presidential candidate, you get attention that you do not want.  Unfortunately for the private equity (PE) firms (like Bain Capital, where Romney made his millions), additional undesired issues arise.  Although Romney is hardly an everyday example of a PE firm executive, he is the most obvious example on which reformers can direct their attention. In the case of PE firms, the following consequences arise.

First, carried interest’s treatment as a capital asset is likely to be seriously challenged (eliminated). The tax treatment for carried interests is no longer in favor politically, particularly at the levels of money Romney has made.

Second, although it varies by firm, pension plans are the largest source of money for PE firms. This has two ramifications:

  1. Pension plans are currently being challenged to justify and disclose the fees they are paying. The large amounts of money earned by PE firms will likely cause pension trustees to negotiate for lower fees.
  2. The attack raised against Romney regarding cutting unnecessary jobs may cause some pensions, particularly those run by unions and public employees, to be more sensitive about with whom their moneys are being invested.

Really lucrative endeavors are more likely to stay that way when they are not getting daily press attention. PE firms need to come to Romney’s (or their own) defense. PE firms need to explain how they:

  1. Create jobs by efficiently employing capital in our economy, and
  2. Improve returns for pension plans, thereby improving chances for a comfortable retirement.

So far, these messages have been lost with the personal attacks.  Also lost is the notion that Romney is not really representative of either all PE interests, or the “rich” generally.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/02/unwittingly-romney-is-a-terrible-poster-boy-for-the-pe-firms/

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