Everything You Wanted to Know About Private Equity

The hottest phrase on the campaign trail right now is “private equity”.  Mitt Romney made his hundreds of millions as head of Bain Capital, a major private equity firm and insists the company has created jobs and improved the efficiency of the American economy.  President Obama just as strongly insists that Bain and other private equity firms make most of their money by loading up acquired companies with a burdensome level of debt that destroys jobs and often leads to bankruptcy.

Who’s right?  For those who want the answer, there’s no better place to start than with the terrific recent report A Primer on Private Equity at Work by Eileen Appelbaum and Rosemary Batt.

Feigenbaum is a senior economist at the Center for Economic and Policy Research.  Batt is a professor at Cornell University’s College of Industrial and Labor Relations (my alma mater).

Their report reveals that in the last 10 years private equity firms have moved from the periphery to the center of the economy. In 2011 private equity buyout funds had about $1.3 trillion in their investment portfolio.  Some 16,000 private equity backed companies are headquartered in the U.S. with over 8 million employees.  In 2007, their peak investment year, private equity firms were involved in over 1500 deals valued at over $600 billion.  The economic collapse shrank these numbers but in 2011 private equity firms still did a more than respectable amount of business:  810 deals in 2011 valued at about $350 billion.

Feigenbaum and Batt trace the history of private equity firms and rigorously examine the data on their impact on the national economy.  The bad news for Republicans is that their conclusions support Obama’s contention and contradict Romney’s.  The good news is that they arrive at their conclusions in a very transparent fashion, allowing those who disagree to examine their data and their methodology.  All of which can help inform and raise the level of the debate on one of the most important economic issues:  In a capitalist economy what should be the rules governing the use of capital?



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David Morris

David Morris is co-founder of the Institute for Local Self-Reliance and currently ILSR's distinguished fellow. His five non-fiction books range from an analysis of Chilean development to the future of electric power to the transformation of cities and neighborhoods.  For 14 years he was a regular columnist for the Saint Paul Pioneer Press. His essays on public policy have appeared in the New York TimesWall Street Journal, Washington PostSalonAlternetCommon Dreams, and the Huffington Post.