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Edward L. Dandridge

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Barack Obama, Mitt Romney and The Truth About Private Equity

Posted: 06/07/2012 10:51 am

Given the state of our economy, voters want more than rhetorical jousting between the presidential campaigns. What voters need is a real conversation and informed ideas about what we can do to revive our economy and move our country forward together.

As President and CEO of the National Association of Investment Companies ("NAIC") -- the 42-year-old trade group representing investment managers who invest in small and mid-sized companies -- I'd like to offer some thoughts on the role private equity plays in our economy.

But for starters, the record needs to be set straight on a few things. First, when employed correctly, private equity plays a productive role in driving economic growth and innovation essential to our recovery. Second, despite what you see on television and read in the news, neither Mitt Romney nor Bain Capital represents the entire private equity industry.

NAIC's membership includes women and minority investment professionals, many of whom focus on underinvested industries and areas in the United States. Although often overlooked by the media, these private equity managers build stronger, nimbler companies by encouraging growth through investment that produces and sustains homegrown jobs in local communities all across this country.

This form of private equity delivers much-needed investment returns for the pensions of millions of public employees: teachers, nurses, cooks, public works and first responders. Because the broader equity markets have produced virtually no return over the last decade, now more than ever public and corporate pensions need the significant positive returns produced by private equity managers to meet their obligations.

For all of Mr. Romney's business success, there is scant evidence in his bio that he has experience in addressing the challenges affecting segments of our economy that lack sufficient capital to scale. Mr. Romney touts his "Salt Lake City Olympic turnaround," but what's his track record on turning around underinvested communities and industries where the real untapped growth in our economy lies?

Similarly, President Obama can and must do more to ensure that public dollars are effectively leveraged to attract capital in the emerging markets right here on our own soil. Instead of ensnaring the entire private equity industry in a political debate, President Obama has an opportunity to engage Congress to push for greater incentives to attract more private investment in underinvested markets and communities. Increased institutional investment in these sectors creates more jobs and growth for the parts of our economy where they are needed most.

While in the state legislature and the U.S. Senate, Mr. Obama was a reliable champion for greater access to Illinois public pension fund investments for women and diverse investment professionals, often referred to as "emerging managers." Collectively, these managers have produced an impressive track record of performance by identifying new and underinvested small and mid-sized companies and infusing the necessary capital - financial, intellectual and human - to successfully scale them.

Despite the impressive performance of these managers, in the wake of 2008's collapse some of the nation's largest public pension funds have adopted a "return to basics" strategy. Citing the administrative burden of too many investment professionals in their portfolios, these public pension funds are scaling back the number of managers they invest with. This strategy may well have the unfortunate effect of public pension staffs shorting their own portfolios by reducing investments with middle market and emerging managers who are producing returns in this environment.

Wall Street was saved and Detroit got bailed out because they were deemed too big to fail. But does that also mean that those who invest in or live and work on Main Street are deemed too small to succeed?

Now is the time for President Obama and Mitt Romney to lay out their plans to encourage public pension funds, endowments and corporations to make greater investments in managers who have proven that they know how to do well for investors while also doing well for our economy.

This is what the 2012 election is really about.

Ed Dandridge is President and CEO of the National Association of Investment Companies.

 
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