Photo: AP Photo
As you can imagine, Matt Taibbi’s newest piece for Rolling Stone ‘Greed and Debt: The True Story of Mitt Romney and Bain Capital’, has tongues wagging.And for good reason. The piece is an indictment of Romney’s record as a stand-up businessman and job creator. It’s an incredibly unflattering lambasting of the entire private equity industry.
So, obviously, people are going to have questions.
Taibbi took the time to answer one important one on his blog today. A reader e-mailed him saying that he has misunderstood the private equity industry — “There is a reason why many of PE’s biggest investors are unions and pension funds . . . who have benefitted more than once from private equity deals,” the reader wrote.
Here’s part of Taibbi’s response (from Rolling Stone’s Taibblog):
This is a valid point. It is true, many of the biggest investors in private equity deals are pension funds and workers’ unions. I think this is unfortunate, and I know for a fact that many union leaders discourage unions from investing in private equity takeovers. But it’s an undeniable fact that unions and pension funds do sometimes make money on private equity deals.
But what people need to understand about private equity firms like Bain is that they are not in the business of turning around companies and creating jobs. The unions and pension funds that invested in those deals did not do so to rescue companies.
If you invest in a Bain or a Carlyle or a KKR takeover deal, you’re not betting on the future success of whatever company they took over. You’re betting on the ability of those firms to make money on the deal, which may – or, just as importantly, may not – involve turning the target company around.
Basically, Tabbi’s point is that yes, private equity works for investors. That’s great. American companies though, he thinks that’s another story.
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