ACG Denver Public Policy Advocacy in Action

Above: Gretchen Perkins (Huron Capital Partners) and ACG Global’s Maria Tolvin have produced a very helpful graphic showing “The Lifecycle of Private Equity.” This simple display makes clear that the ultimate beneficiaries of private equity investment are ordinary American workers– the teachers, fireman, police officers, and municipal workers that live and work in our communities.

ACG Global conducts a very active ongoing public policy program to educate policy makers about the outsized impact that the U.S. middle-market has on jobs and economic growth, including the potential effects of policy proposals on the middle-market ecosystem.  As part of this national initiative, I recently met with the staff of Colorado Congressman Jason Crow (D-CO) to explain the beneficial role that middle-market private equity investment plays in the overall economy. Also discussed was how the “Stop Wall Street Looting Act of 2019” ─ recently introduced by Senator Elizabeth Warren (D-MA) ─ would have a negative impact on both private equity investment and middle-market business growth.

Our vibrant conversation included the contributions that workers make into pension funds and the pension funds’ obligation to earn investment profits to pay promised retirement distributions to workers in the future. We discussed how professional fund managers seek the highest overall return on their investments at the lowest acceptable risk levels. Then, investment professionals select fund managers across a variety of investing strategies, including private equity, to achieve these objectives.  Since private equity investments typically earn higher profits than many other asset classes, pension funds, endowments, insurance companies and family offices allocate some of their investment funds to private equity to increase the overall returns in their investment portfolios. 

Private equity professionals use these funds to identify, invest and actively manage private operating companies. We discussed how these are long-term, illiquid investments with a mandate to grow the company in collaboration with and alongside management.  We further discussed how the strategies that middle-market private equity firms typically undertake often result in substantial business growth and job creation. 

Finally, we covered how private equity profits are typically distributed back to the investors in an 80/20 split, where investors – the pension fund, endowment, insurance company, etc. – receive its original principal, plus fees and expenses, plus 80% of the overall profits.  As a result, most of the PE fund’s profits accrue to the American worker. 

I concluded the meeting with the idea that constraining private equity investment, as the “Stop Wall Street Looting Act of 2019” appears to propose, would ultimately have a negative impact on middle- market investment, job growth and the livelihoods of many Americans.  Overall, Congressman Crows’ staff was very engaged and interested in learning more about the benefits of middle-market private equity investment to workers, job creation and the overall U.S. economy.