With Mitt Romney and Newt Gingrich exchanging barbs about private equity from New Hampshire, it’s hard to remember that it’s an industry of 8.1 million people working around the world, and not just a political buzz word.Michael Carrazza would like to remind you of that. He’s the Chairman and CEO of Solaia Capital Advisers, a private equity firm based out of Stamford, Connecticut and New York City — and recently, a significant portion of his days have been spent figuring out how to let the American people know that that’s not a bad thing.
“There’s a reason for private equity,” he explained. “I’m living proof of why it’s good.”
Carrazza’s proof is his work with Patriot National Bank. In 2010 the small, community bank was about to be taken over and wound down by the FDIC. Then Solaia stepped in. They restructured and downsized the bank, closing some branches, but keeping it alive. Some employees had to start working at new locations, but all told Carrazza says the deal saved 150 jobs and $185 million from the FDIC (or, tax payers).
It’s stories like Patriot National Bank’s, that the Private Equity Growth Capital Council (PEGCC) would like to spread to clear up the mud-slinging coming from politicians. The Washington D.C. based advocacy group has gone on the defensive, making sure that industry-members are speaking out and telling success stories.
“Private equity is the aggregation of capital directed toward efficiency.” Carrazza said. And it is his belief that without that efficiency, America would not have an effective capitalistic system. “Without private equity, we wouldn’t be a leading country.”
But the fundamental question here, another industry-member told Business Insider, is not about Mitt Romney or Newt Gingrich — though neither of them would ever tell you that. The question is about the role of a corporation in this country. Is it to provide employment or to make a return? Which is more important? With so many Americans without a job and an election on the way, it’s easy to say the former, but you can’t actually have it without the latter.
It’s a complicated argument in a climate that embraces simplicity.
Carrazza expected this attack to surface in the election eventually, he just didn’t expect it so soon. He also didn’t expect it to come from a Republican.
“It’s clear hypocrisy for the sake of elections,” said another private equity professional.
But as the Washington Post’s Wonk Blog argued, there are two sides to Mitt Romney’s Bain career. One of growing companies into household names as a venture capitalist ($1.5 billion of Bain’s $60 billion portfolio), and another of buying dying companies, reorganising them, and selling them shortly after in private equity.
It is the latter that proved both more risky and more rewarding for Romney. 10 of the private equity deals he made provided 70% of Bain’s dollar gains while he was at the firm. Some of his deals failed (like his investment in American Pad and Paper) and people lost their jobs.
Again, this is a complication that is hard to work out in an America where people are tired of hearing about unemployment. Romney’s casual gaffes about firing people don’t help either. In the fundamental argument about what is more important, jobs or returns, his opponents are finding it easy to put him squarely on the side of returns.
“We don’t take jobs over and get into the day to day running of a company,” Carrazza told Business Insider. “We work with management to solve problems. Big companies have the money to hire a Bain or a McKinsey to do that for them. Small businesses don’t, and private equity helps with that.”