Perception is reality

At the end of the (10-year, illiquid) day, private equity is all about this – how much cash did you put in, and how much did you get back?

Central to that activity is the GP's ability to find value where others see risk, and then to realize that value. Balance sheets get restructured, EBITDA is grown, costs are taken out. This is the hands-on process of which GPs like to say,?I'm just keeping my head down.?

But surrounding this core investment activity is a tremendous amount of what might be called perception-driven work. A GP group must first raise a fund, which involves hard numbers but also personality, presentation skills, marketing prowess. In pursuing deals, GPs turn on the same charm to management teams in an effort to convince the sellers that they are ?bringing more to the table than just money? – a nice turn of phrase, no doubt invented by someone with a flair for advertising.

This issue of Private Equity Manager explores many aspects of image and perception to which many GPs have not given much thought, but which may loom larger as our industry grows and matures. Filed under ?impropriety and the appearance of impropriety?is the issue of election campaign contributions made by private equity GPs to people who either do or appear to have influence over the commitment of capital to the GPs' funds (p. 27). On the one hand, it is the right of GPs to support the candidates they think best. There may be an overlap between work and politics, but nothing would get done in the world if every potential conflictwas avoided. On the other hand, a headline in the Sacramento Bee linking a candidate to a pension fund to a GP can do damage to all three parties.

Take for example, the increasing role that private equity is playing in front of the general public. Major private equity firms are indirect employers of thousands of people. They buy the national treasures of transforming economies. They back many of the IPOs that the public buys. Most of big firms now employ sophisticated communications strategies, as Judy Kuan writes beginning on p. 21. Middle market firms can learn from the missteps and triumphs of these major firms as the spotlight focuses on smaller firms, which may be foiled in their attempts to win deals if they develop a poor public image.

Enjoy the issue,

David Snowdavid.s@us.investoraccess.com