| HONG KONG
HONG KONG Nov 11 The private equity
industry is embarking on another round of soul-searching as it
faces growing regulatory and political pressure, according to
buyout executives assembled at a conference here this week.
Henry Kravis, a pioneer of the industry, said scrutiny of
private equity would only heighten if Mitt Romney was nominated
for the Republican party in the U.S. presidential elections.
Romney is the former head of buyout firm Bain Capital, and his
background in the industry has bubbled up during his previous
"If he is a nominee, well, hold your seats," said Kravis at
a gala dinner for the conference this week.
Another factor fueling the push for an image re-make is that
several major private equity firms are now publicly traded, and
no longer able to keep certain aspects of their business behind
While the tone of several speeches was to open up more, the
executives were hesitant to endorse too much tampering with the
"We need to make sure that government is leaving the
industry alone," said David Rubenstein, co-founder of Carlyle
Group, at the annual AVCJ conference in Hong Kong.
Rubenstein's list of changes for the industry included
opening up to smaller investors, creating a global body to
impose industry standards, improving corporate and social
responsibility, and even changing the name "private equity".
"These are changes which, if not made, I think in some cases
will actually be imposed," said Rubenstein, who co-founded
Carlyle Group in 1978.
The industry was known as bootstrap financing decades ago,
then as leveraged buyout shops. Then the industry deliberately
moved to change the name to private equity, losing the
"leveraged buyout" tag that some felt carried negative
Rubenstein also advised that tax treatment of the industry
would have to be addressed as governments would continue to
raise the issue. Around the time of the 2007 credit boom and
bust, U.S. politicians looked into raising the corporate tax
rate on private equity firms, which is half that of
non-investment companies and citizens.
U.S. private equity, venture capital and other related firms
were given this tax status years ago to reward them for risking
capital on investments in the market.
The "Schwarzman tax" as some called it at the time came on
the heels of Blackstone Group's landmark IPO, which put
several billion dollars in the pockets of Blackstone Chief
Executive Steven Schwarzman and co-founder Pete Peterson. The
issue died after the 2008 financial crisis.
Around this time, an industry body was created in Washington
DC to represent private equity across the United States.
THE ROMNEY FACTOR
Kravis, a founding partner of KKR & Co LP, noted
during a key note speech at the AVCJ that unwanted attention
would shift to the industry if Romney won the nomination.
"There is no doubt that the Obama administration will
clearly come out after Mitt Romney and the whole private equity
industry," said Kravis, a pioneer of the private equity
industry, who co-founded KKR in 1976.
Kravis said private equity should aim to make its returns
through improving portfolio companies rather than financial
"They're going to describe us all as asset strippers, we're
flippers of assets, we just put on a lot of debt, fire a lot of
people and that's how we make money," Kravis said. "You know
that's not the case. That's absolutely not what we do."