Tony James, president of Blackstone Group LP, said campaigns criticizing the private equity industry in the wake of Mitt Romney’s run for the Republican presidential nomination will hurt fundraising and buyouts.
Romney’s opponents have attacked Bain Capital LLC and other buyout managers as corporate looters who enrich themselves at the expense of ordinary workers. The debate over the value of the private equity business and its track record in creating jobs will affect negotiations about future investments, officials and trustees at public pensions, among the biggest investors in private equity, have said.
“Pension funds have boards, they don’t want to be giving money to an industry that has a taint,” James, 61, said today in an interview on Bloomberg Television’s ‘InsideTrack’ with Erik Schatzker. “Similarly, boards of directors don’t want to sell their company to organizations they don’t view as respectable. So it could be very damaging for the industry.”
The debate is affecting private equity managers as they compete 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.
Industry May Shrink
“The truth is that private equity creates jobs and is necessary for a healthy economy,” James said. “Last year we created 4.6 percent new jobs organically in America. By contrast, last year the U.S. economy created 1.8 percent new jobs.”
If private equity continues to attract negative attention, the industry will shrink as fewer managers will have the funds to chase deals and the clout to form special fundraising relationships, James said. Blackstone in December won as much as $1.8 billion in state pension money from New Jersey, though its client won lower fees and separately managed accounts.
“Private equity is one of five or six asset classes that are embedded in a broader relationship,” James said. “The private equity component of that could get smaller. That actually would not be bad for the industry because returns should go up.”
The Private Equity Growth Capital Council, the industry’s lobbying group in Washington, launched a website last week promoting private equity as an “engine” that helps drive the U.S. economy and featuring testimonials of people who say the buyout industry has helped their businesses.
‘Turmoil Is Good’
James said he has already seen fewer competitors in Europe, where New York-based Blackstone has sought marked-down assets in credit and real estate. The firm did six private equity deals and “several” real estate transactions in the region last year.
“Turmoil is good for our business,” James said. “I think we got compensated for that with lower prices. We have very low leverage and we’re getting very nice cash-on-cash returns. Europe has come alive as far as we’re concerned.”
Blackstone has secured more than $6 billion of pledged capital for a new real estate fund that will buy mainly distressed-property assets, two people with knowledge of the fundraising said last month. Blackstone Real Estate Partners VII has a total target of at least $10 billion and is expected to be fully funded this year, the people said.
Blackstone plans to continue pursuing differentiated investing and will avoid buying more hedge funds or entering private banking, James said.