Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Amid Political Battles, Private Equity Still Raking in Cash


Private equity may be taking a beating on the presidential campaign trail, but that's not stopping investors from pouring money into the industry.

Gregor Schuster | Getty Images

Investors pumped $42 billion into private equity, or PE, funds during the second quarter, more than doubling the first-quarter total of $20 billion, according to figures released Thursday from the Private Equity Growth Capital Council.

That inflow came as economic uncertainty continued and opponents of presumptive Republican presidential nominee Mitt Romneydemonize the industry as a job-destroying business-raiding enemy of working people.

Romney helped run PE giant Bain Capital from 1984 to 1999, when he stopped working full-time before finally severing ties completely in 2001.

Supporters of President Obamahave sough to paint Romney as a venture capitalist who outsourced jobs and destroyed businesses for his company's gain.

Through the negative publicity, though, PE firms have thrived.

The industry has outperformed the Standard & Poor's 500 on a one-, five- and 10-year basis, and an index the private equity council uses to gauge industry progress rose 6 percent in the first quarter and was near its 10-year moving average.

Continued interest in private equity, according to Bronwyn Bailey, the council's vice president of research, comes down to one word: "Returns."

"You talk to anyone in the private equity world, they'll tell you the fundraising world is very difficult. There's a lot of competition," Bailey said in an interview. "The strong increase shows that investors are still quite interested in placing capital in private equity investments."

The bad publicity hasn't seemed to make much impact.

"It's not affecting the industry from what I've seen and what the data are showing," Bailey said.

Politicking hasn't been the only factor aligned against PE. The industry also faces the obstacles of a tough financing environment as well as an economic slowdown in the U.S. and a recession in Europe.

Exit volume — which measures payouts to investors once takeover companies either go public or are resold — declined 10 percent to $24 billion for the quarter.

"It's more the uncertainty, all those what-ifs, and you see that with the exit activity," Bailey said. "The main driver of exits is valuation. If the public market keeps moving up and down, it's hard to know what the valuation of an investment is. That's really the biggest impact."

If issues can be resolved such as the and the U.S. fiscal cliff — tax increases and spending cuts that will take effect if Congress fails to hit deficit-reduction targets — then the industry likely will find itself on firmer footing, she added.

"No one really knows what's going to happen. There are possible threats in the next three to six months," Bailey said. "As that uncertainty dissipates, then you'll see more activity on the exit side."

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