(Bloomberg News) Mitt Romney's campaign for the Republican presidential nomination may be costing his private-equity backers a lot more than they bargained for.
Attacks by opponents portraying Bain Capital LLC, Romney and other buyout managers as corporate looters who enrich themselves at the expense of ordinary workers have put a spotlight on the industry that will affect negotiations about future investments, according to officials and trustees at public pensions. As firms struggle to raise funds, pensions may be more reluctant to commit money and may ask for more details on job creation and push for lower fees, these officials said.
"Private-equity managers' wealth and tax rates are on display at a time when pensions are getting squeezed," said Joseph Alejandro, treasurer of the New York City Patrolmen's Benevolent Association. "Public investors should raise questions about whether the business is overly generous for managers. I hope the renewed attention on the industry will lead to discussions on fees and greater controls like claw-backs."
The debate is affecting private-equity managers, including Romney's former firm, Boston-based Bain Capital, as they're competing for a shrinking pool of investor dollars. Fundraising slowed in the third quarter to the weakest pace since before the global financial crisis and stayed near that level in the final three months of the year, according to London-based researcher Preqin Ltd.
U.S. public and private pensions provide 42 percent of the capital for all private-equity investments, according to the Private Equity Growth Capital Council in Washington. Public pensions are sensitive to protracted debates about managers' compensation and whether buyouts create value and jobs, because they must answer to ordinary workers, said one official, who asked not to be named because he wasn't authorized to speak on the topic.
"The political attacks against Romney and Bain will definitely come up when firms pitch us their new funds," said William Atwood, executive director of the Illinois State Board of Investment, which oversees $10.4 billion in pension funds. "You'd be crazy not to bring it up."
The pension board had $621.3 million, or 6 percent of its assets, in private equity as of Dec. 31, according to its website.
Private-equity firms typically charge about 1.5 percent of assets to cover their expenses, and 20 percent of the profits from investments as compensation, or carried interest.
Institutional Investor Push
Pensions, endowments and sovereign-wealth funds, which comprise the majority of so-called limited partners in buyout funds, have pressed for better payouts and data from global private-equity managers in the wake of the financial crisis. Some of the biggest investors formed the Toronto-based Institutional Limited Partners Association, which introduced guidelines in 2009 addressing fees, governance and communication with clients. Blackstone Group LP, KKR & Co. and TPG Capital are among firms that have signed on.