The Private Equity Council issued the following statement on the “Day of Action” being staged today by the Service Employees International Union. The statement should be attributed to Douglas Lowenstein, president of the Private Equity Council.

“With gas prices nearing five dollars a gallon, with the mortgage market paralyzed, with home prices falling, with banks struggling, and with people worried about their jobs, the Service Employees International Union’s priority seems to be mounting a fact-challenged, hyperbolic campaign against the private equity industry.

“Private equity is a vital source of capital for investment in the U.S economy, strengthening scores of American companies, including MGM Studios, Dunkin Brands, Continental Airlines, Toys R Us, Univision, J. Crew, Burger King, AxleTech and many more. And private equity has delivered more than $1.12 trillion in returns to pension funds, endowments, foundations and other investors, helping to ensure the retirement security of millions of teachers, firefighters, police officers and other public employees, many of whom are union members.

“It’s disappointing that at a time when everyone with a stake in a strong American economy should be seeking ways to find common ground, the SEIU is more interested in headline-grabbing street theater than solving the challenging economic issues facing the country today.

“We hope the SEIU eventually decides that sloganeering and clever sound bites are poor substitutes for serious policy engagement. If it does, we look forward to joining the SEIU in a constructive dialogue on issues of mutual interest and concern.”

About The Private Equity Council

The Private Equity Council, based in Washington DC, is an advocacy, communications and research organization that develops, analyzes and distributes information about the domestic and international private equity industry. Its members are: Apax Partners; Apollo Global Management LLC; Bain Capital; The Blackstone Group; The Carlyle Group; Hellman & Friedman LLC; Kohlberg Kravis Roberts & Co.; Madison Dearborn Partners; Permira; Providence Equity Partners; Silver Lake Partners; THL Partners and TPG Capital (formerly Texas Pacific Group).
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The Private Equity Council today issued the ffollowing statement on new research on private equity conducted for the World Economic Forum by a team of researchers led by Josh Lerner, the Jacob H. Schiff Professor of Investment Banking at Harvard Business School. The studies are available on the WEF web site at www.weforum.org. The statement should be attributed to Douglas Lowenstein, president of the Private Equity Council.

“The WEF studies represent a significant new contribution to the body of research on private equity investment. Professor Lerner, his team and the WEF are to be congratulated for their effort.

“The WEF studies further validate what we’ve been saying all along: private equity firms invest for the long term and build stronger, more innovative, and more competitive companies.

“The studies affirm that private equity-owned companies pursue more economically important innovations than companies that are not owned by PE investors.

“The studies directly contradict critics’ assertions that PE owners starve investment and R&D. In fact, the researchers said PE firms maintain a comparable level of cutting edge research at the companies they acquire.

“The studies demonstrate that PE firms are job savers and job growers. Firms acquired by PE on average are losing jobs at a faster clip than their peers when purchased – but over time, as the business is stabilized and refocused by PE investors, the employment trend rises to match the industry average at old facilities and exceeds average industry-wide job creation at new facilities.

“The WEF results in this regard are consistent with a study done for the Private Equity Council by Dr. Robert Shapiro, a former Under Secretary of Commerce. Shapiro found in a study of 26 large U.S. PE acquisitions that after a period of initial job losses, PE firms over time were net job growers.

“The WEF researchers put to bed the myth of “strip and flip.” They report that private equity owners are long-term investors of five years or more. “Quick flip” transactions of two years or less represented less than 12 percent of all the transactions studied.

“The study confirms that private equity investors are active owners that take a direct role in managing the companies they acquire long after the acquisition closes.”

About The Private Equity Council

The Private Equity Council, based in Washington DC, is an advocacy, communications and research organization that develops, analyzes and distributes information about the domestic and international private equity industry. Its members are: Apax Partners; Apollo Global Management LLC; Bain Capital; The Blackstone Group; The Carlyle Group; Hellman & Friedman LLC; Kohlberg Kravis Roberts & Co.; Providence Equity Partners; Silver Lake Partners; THL Partners and TPG Capital (formerly Texas Pacific Group).

The study, authored by Dr. Robert J. Shapiro, former Under Secretary of Commerce in the Clinton Administration and Chairman of Sonecon, LLC, and Dr. Nam D. Pham, founder and president of NDP Group, LLC, is believed to be the first ever based on empirical data provided directly by major private equity firms. The study represents the initial phase of a project undertaken by the PEC and Drs. Shapiro and Pham to assess the economic impact of private equity on the U.S. economy.

For the jobs study, Drs. Shapiro and Pham examined data from 42 large companies acquired by eight major private equity firms between 2002 and 2005 and found that overall employment rose from 310,420 to 336,634, a net increase of 8.4 percent. The companies studied represent 60 percent of all acquisitions valued at $250 million or more made by the eight firms between 2002 and 2005, and 70 percent of the total dollars invested in deals over the $250 million level in the period.

“The data show that large private equity transactions produce significantly greater job gains than observed in other companies in the same sectors, especially other large companies,” Shapiro said. “These findings reflect the role that private equity funds play in the economy: acquiring underperforming companies and reforming their operations,” he added.

Douglas Lowenstein, president of the PEC, said: “An important measure of each individual private equity investment is whether it helps a company grow and become more competitive in today’s global economy. There are many ways to evaluate progress toward this objective, including revenue and sales growth, capital expenditures, innovation and R&D investment, and, of course, employment. With respect to the latter, in some cases private equity investments may result in employment growth, in others, it may save endangered jobs, and in still other cases, it may mean job losses. But this study clearly suggests that, in the aggregate, private equity investment has a net positive effect on U.S. employment growth.”

In the manufacturing sector, the study found that job results were consistent with the long-term investment approach typical of private equity: After experiencing initial job losses, acquired companies generated job gains within two years that exceeded both the initial losses and the rates of job gains by other companies in the same sectors.

Lowenstein said the jobs pattern reflects the efforts of private equity investors to take steps in the early stages of an investment that will ensure the long-term growth and competitiveness of an acquired company. The job gains resulted both from organic growth and acquisitions.

“This analysis shows the value for job growth in the United States of the long-term approach used by private equity firms to reform the operations of underperforming companies,” Shapiro said. He added that the study provided “particular insight into the recent impact on employment of the purchases of relatively large companies by large private equity firms and their subsequent operations.”

The Shapiro-Pham study is part of a broader effort by the PEC to add to the growing body of research examining the effects of private equity investments on the American and global economies, Lowenstein said.

“In the next few weeks, major new research on private equity’s impact will be released at the World Economic Forum by a team headed by Professor Josh Lerner of The Harvard Business School. We look forward to reviewing Professor Lerner’s findings. In releasing this study, our intent is to complement his work and to make a positive contribution to the global discussion about the economic impact of private equity – on job growth, productivity, innovation and many other important metrics. We look forward to working with Professor Lerner and scholars around the world in the important work required to shed more light on the economic issues surrounding private equity investments,” Lowenstein added.

Highlights of the Shapiro-Pham study include:

• Over the period examined, the combined worldwide workforce of the 42 large firms acquired in private equity transactions grew 8.4 percent. More than 76 percent of the sample recorded job gains, while less than 24 percent reduced employment.

• Among a subset of 26 firms providing data on their U.S. employment, domestic jobs by private equity-backed firms increased 13.3 percent, compared to 5.5 percent for all U.S. businesses and 2.7 percent for large U.S. businesses. About 73 percent of the companies covered in the study increased their employment, while 27 percent cut jobs over the study period.

• Manufacturing firms purchased by private equity funds achieved the greatest relative gains, increasing their worldwide employment by 8.6 percent. Moreover, domestic employment by private equity-backed manufacturing companies rose by 1.4 percent, compared to job losses in all U.S. manufacturing of 7.7 percent. The job results followed a pattern of initial losses followed by subsequent and usually larger gains.

• Non-manufacturing companies purchased by private equity funds, in areas such as health care, retail trade and food services, expanded their total employment by 8.4 percent. Moreover, domestic employment by private equity-backed non-manufacturing firm rose 14.3 percent, almost double the gains of 7.4 percent by all non-manufacturing U.S. firms.

The eight PE firms provided data on 70 companies acquired between 2002 and 2005, including 50 that they continued to own in 2007. Of those 50, comparative job data were available for 38 companies, or 76 percent of the total. Employment data also were available and included for four companies that had been acquired between 2002 and 2005 and subsequently sold.

The study is available in PDF format on the PEC web site at www.privateequitycouncil.org. Hard copies can be obtained by contacting the PEC at 202.465.7700.

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The Private Equity Council, based in Washington, DC, is an advocacy, communications and research organization and resource center established to develop, analyze and distribute information about the private equity industry and its contributions to the national and global economy. PEC members are: Apax Partners; Apollo Global Management LLC; Bain Capital Partners; the Blackstone Group; the Carlyle Group; Hellman and Friedman LLC; Kohlberg Kravis Roberts & Co.; Providence Equity Partners; Silver Lake Partners, THL Partners; and TPG Capital (formerly Texas Pacific Group).

In a hearing before the House Ways and Means Committee, PEC Board Chairman and Carlyle Group Managing Director Bruce E. Rosenblum said the current tax treatment of private equity investment profits is consistent with the tax treatment of real estate, energy, small business and many other partnerships, and is consistent with the treatment of capital gains generally.

“There is no justification for treating capital gains allocated to private equity sponsors less favorably than other capital gains – including those earned by other successful investors and businessmen, whether they be Warren Buffett, Bill Gates or persons of more modest means who have successfully invested in the stock market or a small family business,” Rosenblum said.

“As long as one believes that taxing long-term capital gains at a lower rate is sound tax policy, something Congress has affirmed repeatedly, there is no ‘inequity’ in the current taxation of capital gains attributable to carried interests,” Rosenblum added.

The Private Equity Council opposes legislation that would significantly raise taxes on private equity investment firms because it would undermine an industry that has made a major contribution to the American economy by strengthening companies and delivering superior returns to pension funds, university endowments, charitable foundations and other investors. HR 2834 would tax profits earned by private equity firms on the sale of long-term investments at the regular income rate of 35 percent instead of the long-term capital gains rate of 15 percent.

Rebutting allegations that the current private equity taxation regime represents a “tax break for the rich,” Rosenblum said that, in fact, it is the private equity tax bill sponsored by Rep. Sander Levin (D-Michigan) that would create an environment that would favor the affluent – by requiring that investment partners receive capital gains tax treatment only in proportion to the amount of money they invest in a business, regardless of their investments of time, energy and talent.

If the tax change is enacted, “Only those who are in a position to provide significant risk capital – and not those who build these businesses through their ideas, vision and effort – will be in a position to derive significant benefit from differential long-term capital gains rates,” Rosenblum testified.

That is one of the reasons that minority- and women-owned investment firms have joined to establish the new Access to Capital Coalition, Rosenblum said.

He quoted leaders of the coalition as saying that the proposed tax increase on private equity “could impose a significant financial burden on minority- and women-owned investment capital firms, both with respect to their profitability and maintaining and improving their access to investment capital…”

Often overlooked in the debate over private equity taxation, Rosenblum said, are the significant contributions that private equity investment firms have made to the American economy. “Private equity investment is about … entrepreneurial firms, large and small, located in all parts of the United States, that are integral to capital formation and liquidity in this country,” Rosenblum said.

In his testimony, Rosenblum addressed the major arguments advanced by proponents of the private equity tax increase, saying:

• A carried interest is not the equivalent of a stock option – Stock options arise from an employer-employee relationship. But a private equity firm is not an employee of its limited partner investors, and the carried interest simply represents the terms of ownership created by the founders of a private equity fund at the inception of the venture.

• Recipients of carried interest bear significant economic risks – Private equity firms and their partners invest substantial amounts of their own capital in their funds and also risk the time and energy they devote to investments that may in the end yield no profit.

• Private equity funds and their partners own capital assets – A private equity fund and its partners do not supply services to their partners; they are co-owners of a capital asset who are entitled to long-term capital gains tax treatment when the asset is sold at a profit.

• Private equity sponsors do not benefit from loopholes – Private equity partnerships are taxed in exactly the same manner and at exactly the same rate as all other partnerships that buy a capital asset, increase its value and sell it at a profit.

• Tax fairness does not require treating carried interest proceeds as ordinary income – The current tax treatment of carried interest for private equity firms and partners is fair, equitable and consistent with the tax treatment afforded to all similar business ventures.

About The Private Equity Council

The Private Equity Council, based in Washington DC, is an advocacy, communications and research organization that develops, analyzes and distributes information about the domestic and international private equity industry. Its members are: Apax Partners; Apollo Global Management LLC; Bain Capital; The Blackstone Group; The Carlyle Group; Hellman & Friedman LLC; Kohlberg Kravis Roberts & Co.; Providence Equity Partners; Silver Lake Partners; THL Partners and TPG Capital (formerly Texas Pacific Group).

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The report, “Driving Growth: How Private Equity Investments Strengthen American Companies,” details the new tools and techniques that have led to a “quiet revolution” in the way that private equity investment firms strengthen American companies and make them more competitive in the global marketplace. The view of private equity as financial engineering is outdated. Today, private equity investment firms create value and drive productivity in companies they acquire by focusing on four key areas: capabilities, clarity, culture and capital, the paper concludes.

The white paper details three case studies – Burger King, SunGard and AutoZone – to illustrate the manner in which private equity investment firms drive growth, value and productivity at the companies they acquire by:

• Upgrading capabilities – changing management, bringing in outside experts and delivering the PE firm’s own in-house skills.

• Creating clarity – carving out a neglected business from a larger conglomerate or specifying the key metrics that matter most to performance.

• Establishing a performance culture – aligning incentives and trying compensation to performance.

• Providing capital – assuming risks that public markets or large corporate conglomerates would not or providing capital on more patient terms that available elsewhere.

“Private equity investment firms today rely on their unique experience, talent, energy and entrepreneurial skills to significantly improve fundamental business processes and operations,” said Private Equity Council President Douglas Lowenstein. ‘Their focus on value and performance has become a potent force that has strengthened hundreds of companies, delivered superior returns to pension funds and other investors and driven economy-wide improvements in corporate productivity.”

The Burger King story exemplifies the benefits of this singular focus. At the time of private equity acquisition in December 2002, Burger King faced significant challenges. In the previous fiscal year, the company had lost $37 million and closed more restaurants than it had opened. On top of that, one in four franchises was nearly bankrupt. By the time that Florida-based Burger King went public in 2006, the company’s income had risen to a $27 million profit, average sales per store had grown by 33 percent and the number of franchisees in distress had dropped by 2,700 to less than 100.

The white paper also tells the success stories of SunGard, a Pennsylvania-based leader in developing and marketing business software that has significantly increased its revenue, employment and research and development efforts under private equity ownership – the company now processes almost 70 percent of all NASDAQ trades; and AutoZone, which grew under private equity stewardship from the a small unit of a wholesale grocery business with 1,000 employees and 175 stores in 1984 to become the nation’s leading auto parts retailer with 27,000 employees and 1,423 stores in 1996, when private equity investors exited the company.

The new white paper is available on the Private Equity Council’s web site at www.privateequitycouncil.org. In addition to the “Driving Growth” report, the PEC web site offers access to a wide range of information about the contributions that private equity investment firms make to the national and global economies. The site includes fact sheets, position papers, press releases, backgrounders and links to other private equity-related web sites.

About The Private Equity Council

The Private Equity Council, based in Washington DC, is an advocacy, communications and research organization that develops, analyzes and distributes information about the domestic and international private equity industry. Its members are: Apax Partners; Apollo Global Management LLC; Bain Capital; The Blackstone Group; The Carlyle Group; Hellman & Friedman LLC; Kohlberg Kravis Roberts & Co.; Providence Equity Partners; Silver Lake Partners; THL Partners and TPG Capital (formerly Texas Pacific Group).

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“There will be deals that won’t be done, entrepreneurs who won’t get funded and turn-arounds that won’t be undertaken,” said PEC Board Chairman Bruce E. Rosenblum, managing director of The Carlyle Group, one of the council’s 11 members.

In testimony before the Senate Finance Committee, Rosenblum said the Private Equity Council opposes two bills that would significantly raise taxes on private equity investment firms because they would undermine an industry that has made a major contribution to the American economy. HR 2834 would tax profits earned by private equity firms on long-term investments at the regular income rate of 35 percent instead of the long-term capital gains rate of 15 percent. S1624 would impose a 35 percent corporate income tax on private equity partnerships that decide to go public.

A major force in strengthening U.S. competitiveness

“I urge you to proceed very carefully before risking an adverse impact on a form of ownership that has been a major and positive force in strengthening U.S. competitiveness, giving struggling or failing businesses a new lease on life, and pumping critically needed capital into the economy,” Rosenblum said.

Private equity investment firms between 1991 and 2006 returned more than $430 billion in profits to their investors, nearly half of which are public and private pension funds, university endowments and charitable foundations, he said.

Changing the tax structure would make U.S. private equity investment firms less competitive with their foreign counterparts and foreign governments that are amassing large investment funds, Rosenblum said. He added that a large tax increase could prompt the next generation of private equity investors to set up their shops outside the United States, diverting investment capital from U.S. businesses to foreign competitors.

Critics are wrong to suggest that private equity investment firms benefit from tax loopholes, Rosenblum said. Taxes on private equity firms are based on their ownership interests in long-term investments – their portfolio companies – that appreciate in value.

PE firms are taxed at the same rate and in the same manner as any other partnership – including those that invest in real estate, oil and gas, start-up enterprises and family businesses – that owns an asset that increases in value over time and later is sold for a profit.

“The tax treatment of this ownership structure is well settled by case law and administrative rulings of the Internal Revenue Service. It is anything but a loophole.” Rosenblum said.

Countering an argument made by tax increase advocates, Rosenblum said that there is a clear distinction between owners who take entrepreneurial risks to grow businesses over time and employees who are paid based on their performance.

Rosenblum quoted a new PEC-funded study by David A. Weisbach, Walter J. Blum professor at the University of Chicago Law School. In the study, “The Tax Treatment of Carried Interests in Private Equity Partnerships,” Weisbach said: “The tax law makes a fundamental distinction between an employee performing services and an entrepreneur creating or increasing the value of its business. There is little question that a sponsor of a private equity fund is more like an entrepreneur than an employee. The sponsor is the driving force, the individual with the ideas and the skill to make a project happen. The sponsor is the general partner of the fund with exclusive control over the fund’s activity. …[T]he sponsor bears all of the fund’s residual risk.”

Contrary to critics, private equity firms take on substantial risks, including risks to their capital, Rosenblum testified. The firms’ partners contribute significant risk capital to their funds and they can lose all or some of it, just like their limited partners. Private equity firms, large or small, also face the real risk that after investing in and working with their portfolio companies for years – six years is the current average – they will have nothing to show for their efforts if things go bad. In that situation, they also could face significant legal and financial liabilities, he said.

Rosenblum added that capital gains treatment has never been tied to the proportion of capital contributed to the venture. The founder of a technology company may put very little capital into the business and over the years raise billions of dollars in equity financing from third parties. Still, the founder will receive capital gains treatment on the sale of his or her 50 percent stock ownership, even if he or she has provided only five percent of the capital, Rosenblum said.

The full text of the Rosenblum’s testimony is available under the “Public Policy” tab on the PEC web site at: www.privateequitycouncil.org.

About The Private Equity Council

The Private Equity Council, based in Washington, DC, is an advocacy, communications and research organization that develops, analyzes and distributes information about the domestic and international private equity industry. Its members are: Apax Partners; Apollo Advisors; Bain Capital; The Blackstone Group; The Carlyle Group; Kohlberg, Kravis & Roberts; Hellman & Friedman; T.H. Lee Company; Providence Equity; Silver Lake Partners and TPG Capital.

The report, “Public Value: A Primer on Private Equity,” is a reader-friendly introduction to the world of private equity that draws on independent research and real-life examples to describe how private equity investments build better companies and strengthen retirement funds, endowments and foundations, which together represent the single largest group of private equity investors.

The white paper was posted today on the Private Equity Council’s new web site at www.privateequitycouncil.org. In addition to the “Public Value” report, the PEC web site offers access to a wide range of information about the contributions that private equity investment firms make to the national and global economies. The site includes fact sheets, position papers, press releases, backgrounders and links to other private equity-related web sites.

“Private equity has proven itself to be a powerful engine for creating economic value for investors, for retirees, for many workers and for institutional investors – including universities and foundations that are better able to meet their educational and charitable objectives as a result of their private equity investments. Moreover, the role PE firms play in improving the performance of companies of all kinds in all sectors increases productivity and competitiveness,” the report concludes.

Statistics cited in the “Public Value” report show that private equity firms returned $430 billion in profits to their limited partner investors between 1991 and 2006 and that private equity investments substantially outperformed the public equity markets during the 25-year period beginning in 1980. During that period, top-quartile private equity funds generated annualized returns to investors of 39.1 percent, while the Standard & Poor’s 500 index posted average annual returns of 12.3 percent.

The report also cites research by Professor Josh Lerner of the Harvard Business School and Professor Jerry Cao of Boston University that concluded that companies that went public again after being acquired by private equity firms and operated by them for more than a year consistently outperformed the public equity markets and other IPOs.

“This report makes a compelling case that private equity firms play a critical role in creating real economic value for the companies they acquire, for the consumers those companies serve and for the pension funds, universities, charities and other institutions that invest in them,” said Private Equity Council President Douglas Lowenstein. “We hope this report will make clear that private equity is neither a dark force nor a silver bullet, but instead an important tool for driving growth and investment in the American economy.”

“Public Value” describes in detail how private equity investments work, how private equity firms generally return 80 percent of investment profits to their limited partners and how private equity firms build stronger companies. The paper uses the real-life examples of companies such as Dunkin’ Brands, which owns Dunkin’ Donuts and Baskin-Robbins, and SunGard, a major software developer and vendor, to make the point that private equity firms today rely on deep expertise, a performance culture, unique managerial capabilities and nimble ownership structures to drive performance improvements at the companies they acquire.

The report quotes Dunkin’ Brands CEO Jon Luther’s testimony before the House Financial Services Committee, in which he said: “The benefits of our new [private equity] ownership to our company have been enormous. Their financial expertise…enabled us to make significant investments in our infrastructure and our growth initiatives…They have opened to the door to opportunities that previously were beyond our reach.”

The report is available in PDF format on the PEC web site. Hard copies can be obtained by contacting the PEC at 202.652.2330.

About The Private Equity Council

The Private Equity Council, based in Washington DC, is an advocacy, communications and research organization that develops, analyzes and distributes information about the domestic and international private equity industry. Its members are: Apax Partners; Apollo Advisors; Bain Capital; The Blackstone Group; The Carlyle Group; Kohlberg, Kravis & Roberts; Hellman & Friedman; T.H. Lee Company; Providence Equity; Silver Lake Partners and TPG Capital.

The Private Equity Council today announced its opposition to legislation introduced last week by Sens. Max Baucus (D-Montana) and Charles Grassley (R-Iowa) that would discourage U.S. private equity firms from offering shares to the public and in the process undermine U.S. financial competitiveness.

“After studying the bill, we have concluded that the Baucus-Grassley legislation, by significantly raising taxes on U.S. private equity firms that seek to offer shares to the public, will discourage them from tapping into the most robust capital market in the world – the United States,” said Private Equity Council President Douglas Lowenstein. “That means that U.S. firms will be put at a competitive disadvantage to overseas firms that can manage investment funds at a lower overall tax cost,” Lowenstein added.

“Congress should not inadvertently create an uneven international playing field for an industry that serves such an important function in the American economy – strengthening portfolio companies and delivering superior returns to public and private pension funds, charitable foundations, university endowments and other investors,” he said.

That said, we understand the broader concern about protecting the tax base and to the extent this is a concern, we prefer to work with the committees on a solution that addresses the issue in its entirety, rather than in one industry sector,” he added.

Private equity firms, which act as general partners, raise capital from limited partner investors – more than a third of which are pension funds, charitable foundations and university endowments – with the goal of acquiring companies, improving their performance and selling the companies for a profit. Generally, 80 percent of the profits realized upon the sale are distributed to the limited partner investors.

Between 1991 and 2005, private equity firms around the world distributed more than $430 billion in profits to their investors. Pension funds, foundations and endowments typically invest in private equity funds because they deliver returns far greater than the investors could achieve in public equity markets.

In addition to expressing concerns about the bill’s impact on capital access, the PEC also objects to singling out private equity partnerships for less favorable tax treatment than other publicly-traded partnerships.

“Income from private equity investments is no less qualified for this tax treatment than the income that flows to partnerships that own apartment buildings, mine for minerals or refine, market and distribute propane and other petroleum products,” Lowenstein said. In fact, just days after introducing the bill targeting private equity, the Senate Finance Committee approved legislation expanding tax benefits for publicly-traded partnerships in the energy and alternative fuels industries, Lowenstein noted.

“This proposal would, in effect, create a ‘triple tax’ for private equity firms that decide to go public,” Lowenstein continued. Today, portfolio companies owned by private equity firms pay regular corporate tax on their income. When the companies pay dividends or when the businesses are sold and profits are distributed, the private equity owners pay another tax. “This proposed legislation would add a third layer of tax to the same income stream,” Lowenstein said.

The fear that the corporate tax base will erode without legislation is unsubstantiated, Lowenstein added. Major financial institutions are unlikely to abandon their status as publicly-traded corporations to become publicly-traded partnerships because they would be faced with monumental tax payments that would serve as a powerful deterrent to converting to a publicly-traded partnership.

“We understand and respect the concerns that gave rise to this proposal and we are grateful that the bi-partisan leadership of both the Senate Finance Committee and the House Ways and Means Committee is committed to holding hearings on it. We look forward to a constructive dialogue with them as the legislative process proceeds,” Lowenstein added.

About The Private Equity Council

The Private Equity Council, based in Washington DC, is an advocacy, communications and research organization that develops, analyzes and distributes information about the domestic and international private equity industry. Its members are: Apax Partners; Apollo Advisors; Bain Capital; The Blackstone Group; The Carlyle Group; Kohlberg, Kravis & Roberts; Hellman & Friedman; T.H. Lee Company; Providence Equity; Silver Lake Partners and TPG Capital.

The private equity industry makes substantial contributions to the American economy by building strong, financially secure companies and delivering superior investment returns to pension funds, universities and foundations, Private Equity Council President Douglas Lowenstein told a Congressional committee today.

Private equity investment returns secure the financial futures of tens of millions of Americans, underwrite college scholarships and help pay for important medical and scientific research, Lowenstein added.

“Private equity is about hundreds of thriving companies contributing to the economy in numerous positive ways,” Lowenstein said in testimony before the House Financial Services Committee, chaired by Rep. Barney Frank (D-Massachusetts). Well-known companies that have been strengthened through private equity ownership include Dunkin’ Donuts, Toys R. Us, Domino’s Pizza, MGM Studios, and J. Crew, among hundreds of others – both known and less well-known, Lowenstein said.

Superior returns

“Public and private pension funds, foundations and university endowments have chalked up returns from private equity investments that far exceed those available from the stock market,” Lowenstein added. “Between 1991 and 2006, private equity firms worldwide created more than $430 billion in net value for these and other investors. These funds translate into stronger public employee pension programs, more funds for college financial aid and scholarships and more funds for research and other causes supported by charitable foundations.”

Lowenstein joined other witnesses at a hearing on the effect of private equity investment firms on the American economy. Among those at the witness table was Jon L. Luther, chairman and chief executive officer of Dunkin’ Brands, who told members that private equity ownership “liberated” his company.

Luther said new resources provided by private equity owners have spurred Dunkin’ Brands’ expansion efforts and helped create new opportunities for entrepreneurial franchise holders. “As a result, our franchising efforts, the engine of our growth, have taken off,” Luther said. In the next 15 years, Dunkin’ Brands, which also owns Baskin-Robbins, expects to add 250,000 new jobs to the economy, Luther added.

Private equity firms raise substantial amounts of money from pension funds, universities, foundations and other investors, collectively known as limited partners. The firms use the money to buy companies that PE fund managers believe can be strengthened and improved, either by an infusion of capital, an introduction of new management talent, development of a new business strategy or perhaps all three. Generally, private equity owners hold the investment for three to five years, with a goal of improving the company’s performance and balance sheet and eventually selling it for a profit. Eighty percent of the profits flow back to the investors.

Investors are drawn to private equity because the returns delivered by private equity funds far outstrip those from many other investment opportunities, including the public equity markets. Between 1980 and 2005, the “top quarter” private equity firms, on average, produced annualized net returns for pension funds and other limited partners of 39 percent. During the same period, the Standard & Poor’s 500 index posted returns of 12.3 percent, Lowenstein said.

In his testimony, Lowenstein presented three case studies describing private equity acquisitions that delivered dramatic improvements to mid-sized businesses, saying they typify the approach PE firms have to growing companies and increasing their long term value:

SunGard, a major software developer and vendor, was under tremendous earnings pressure from public shareholders. Under private equity owners, the company plans to complete 53 new research projects in 2007 (up from about 10 annually before the private equity acquisition).

AxleTech International Holdings, Inc. designs and manufactures drive train components for growing markets in the military, construction, material handling, agriculture and other commercial sectors. Since its acquisition by a private equity firm, AxleTech sales have increased 16 percent annually and employment has increased by 37 percent, from 425 to 568. New jobs were created in AxleTech facilities in Troy, Michigan; Oshkosh, Wisconsin; and overseas.

ITC Holdings, an electric power transmission company in Michigan, has increased its capital budget under private equity ownership by 20 times and grown from 28 to 230 direct employees.

“Private equity is not a silver bullet, but neither is it a dark force,” Lowenstein said. “It is an innovative, flexible financial tool that has proven very successful in responding to the global challenges faced by American businesses today.”

About The Private Equity Council

The Private Equity Council , based in Washington DC, is a resource and research center that develops, analyzes and distributes information about the domestic and international private equity industry. Its ten members are: Apollo Advisors; Bain Capital; The Blackstone Group; The Carlyle Group; Kohlberg, Kravis & Roberts; Hellman & Friedman; T.H. Lee Company; Providence Equity; Silver Lake Partners and TPG Capital.

Contact:
Robert W. Stewart 202.652.2313
roberts@privateequitycouncil.org

Washington, DC - April 24, 2007 -

The following statement should be attributed to Douglas Lowenstein, president of the Private Equity Council:

Private equity firms are driven by one overarching objective: to enhance the value and grow the businesses they acquire. There is no one formula for doing so, and every transaction is unique. While we welcome an informed debate about the role of private equity in the global economy, we don’t think that isolating five transactions out of the more than 3,000 PE acquisitions between 2004-06 accurately reflects the private equity market.

“In fact, research shows that private equity investment often results in long-term employment growth and enhances the economic viability of a business to the benefit of all stakeholders. A.T. Kearney found earlier this year that PE firms generate employment, on average, at a much faster pace than comparable, traditionally financed firms. Earlier this month, The Financial Times reported that its study of the 30 largest European private equity transactions in 2003-04 revealed that ‘overall, jobs were more likely to have been gained than lost as a result of private equity-backed buys.’

“Curiously, in discussing private equity’s impact on the country, SEIU ignored the salient fact that the largest investors in private equity are public employee pension funds, foundations, and universities who have flocked to the sector because top PE firms have generated returns more than triple the S&P 500. Thus, the benefits of PE activity flow through to tens of millions of firemen, police officers, and other public servants via more secure retirements, and also help fund college scholarships and educational opportunities, and disease research. In fact, the PE investors have received $181 billion from private equity funds since 2000 which, in turn, means less pressure on states to raise taxes or cut spending to meet their pension obligations, and more money to spend on critical services such as health care.

We recognize the SEIU’s interest in promoting good jobs, and we look forward to engaging in a constructive, open, and fair-minded dialogue with the union and all other stakeholders.”

Contact:
Robert W. Stewart
202 652-2313
roberts@privateequitycouncil.org