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Romney Wins, Private Equity Loses: Is PE Getting a Bum Rap?

Aaron Task
Daily Ticker

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By winning handily in Florida, Mitt Romney put himself in back in the driver's seat to win the GOP nomination. Whether or not Romney wins the nomination - much less the general election - private equity seems to be the big losers of the 2012 campaign so far.

"In the fight that's going on for the nomination, private equity is caught in the middle," says Joel Kurtzman, a senior fellow at the Milken Institute and former editor of Harvard Business Review. "I don't see people standing up to defend the industry [but], overall, its impact on the economy is quite positive."

'Quite positive' might be an overstatement, but academic research suggests all the talk about private equity (PE) being "vulture capitalism" is just election-year hyperbole.

While there are examples of private equity deals that resulted in lost jobs and debt-laden companies, there are plenty of companies that have benefited from private equity investment, including Mitt Romney's favorite examples: Staples, Sports Authority and Domino's Pizza.

Kurtzman mentioned Hertz as another firm that benefited from private equity investment. "Most examples of private equity firms buying a company are more about building a company up, fixing it so that it's more valuable when you sell it on the public market or to another company," he says.

In addition, Kurtzman notes that PE firms are often active in buying businesses from families when there's no one willing or able to take over, allowing the owners to take out equity and move on with their lives.

Overall, research shows private equity has had net zero impact on jobs in America. Bigger companies tend to cut jobs and small ones tend to increase hiring when PE firms are involved, and is the case when they're not, Kurtzman notes.

In sum, Kurtzman believes private equity is "like any other" investment class, with positive and negative aspects, but overall an important cog in the wheel of capitalism.

What do you think?

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

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