Published May 24, 2012
The intense scrutiny of Mitt Romney's record at Bain Capital has thrust private equity firms into the spotlight, as the presidential campaigns battle over whether such companies are good for the economy or only good for their shareholders.
Such firms pool private capital and buy companies that either have great growth potential or those that are struggling to survive. Steve Judge, president and CEO of the Private Equity Growth Capital Council, said they provide an infusion of cash the companies wouldn't have been able to raise on their own and also offer in-depth business experience.
The ultimate goal is to make the companies succeed, so that "everyone wins," which includes investors and employees, Judge said.
"Sixty percent of funds that private equity receives are from pension funds, from endowments and foundations," he said, adding "the pensions of nurses, teachers, firemen all sorts" of people benefit directly from private equity investment.
Bain Capital, which Mitt Romney co-founded in 1984, has recently become a target of President Obama's re-election campaign and its supporters.
In one Obama campaign video, an employee of a failed company that Bain bought referred to the firm as "a vampire that came in and sucked the life out of us."
And in a Web video by MoveOn.org, former Labor Secretary Robert Reich says private equity firms profit by firing workers or cutting wages and benefits for those who remain on the payroll -- or both.
A response ad by the Romney campaign features workers who saw their companies flourish under Bain's intervention. Bain itself has weighed in, issuing a statement that reads in part: "Despite political attacks that emphasize the few companies that have struggled ... revenues grew in 80 percent of the more than 350 companies in which we have invested."
On Thursday, Romney addressed the attacks by noting Bain's record of success, adding, "if all the president wants to do is talk about the failures, why, he's misrepresenting the nature of free enterprise."
The National Bureau of Economic Research, which examined roughly 3,200 companies bought out by private equity firms between 1980 and 2005, found the companies shed jobs at a rate one percent higher than comparable businesses. However, those same companies tended to open more new branches, offices and factories. In addition, they typically wound up hiring more new staff.
All this discussion raises the question: Will Romney's Bain record help or hurt him at the ballot box?
In a Washington Post poll released earlier this week, respondents were asked whether Romney's private equity past will influence their vote. Twenty-one percent said it was reason to support him, while 21 percent also believe it was reason to oppose him. In the end, the majority -- 54 percent -- said it won't impact their vote at all.