Sunday, April 5, 2009

Is Private Equity The American Industry that protects American Enterprise?

Here’s a potential title for future historians to consider for the Private Equity industry in this decade:

Flush with liquidity, which you could call a “Greenspan Blessing”, the Private Equity industry, a truly American Industry, invested over a trillion dollars into American enterprises that were/ are strategic players in their industries, protecting them from a future downturn that would make many vulnerable to hostile takeovers from international buyers.

My thoughts went down this path thanks to a question posed by David Rubenstein from the Carlyle Group.

While lobbyists in D.C. would be salivating at this spin- the idea behind the headline is to answer David's question on the Private Equity industry's place in the economy.

I have an answer that's more an essay, however, I am sharing below some questions that I structured to effectively, and comprehensively answer David's question. Hope this helps you in understanding the Private Equity industry better.

Back to our headline- does it really make sense?
1> Would America’s rebound from the downturn have to lag that of other economies (discounting the opportunities for Brazilian, Chinese and Indian companies) for this to even be a potential story?
2> Can we prove the industry’s deal making and execution can have this unintended, headline making, consequence?
3> Could this unintended consequence have happened as an explicit strategy to protect, store and manage American value? Would this strategy have worked if it were run by the American government?
4> Given America’s history and promise as the land of reinvention and rejuvenation, does this unintended consequence or strategy make sense? Specifically, why save and protect when failure makes you better and stronger?
5> Or couldit truly be an example of reinvention and rejuvenation?
6> Can the Private Equity industry even be called a truly American industry? Could we truly say "Only in America!"?

How would this trend of over a trillion dollars in Private Equity investment have worked out during the 1981-82 recessions? Are the market structures today substantially different than they were in 1981 for the comparison to be odious?

While I have an opinion and can weave a story…

What do you think?

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