Private equity goes to Washington

Since last August, The Blackstone Group, Kohlberg Kravis Roberts, The Carlyle Group, and TPG have all created a new position called “head of public affairs.” The role is a broad one: At each firm, the professional hired for the role has been tasked with engaging a variety of constituents, including regulators, nongovernmental organizations and other third parties in the US and abroad, in addition to keeping abreast of any regulatory, legal or tax issues that could affect the firm or its portfolio companies in any jurisdiction.
In a time when misconceptions about the industry abound, and senators and union leaders alike are firing criticisms at the industry, the need to keep open lines of communications has never been more pressing. The growing volume and complexity of the business of some of the bigger firms also multiplies the array of regulatory issues must be dealt with.
“Broadly speaking, in the last year or so virtually all the private equity firms have had a renewed understanding that public affairs and public policy issues intersect with their businesses in ways that have evolved and are quite different than they might have been five or ten years ago,” says Doug Lowenstein, president of the Private Equity Council, an industry lobbying body formed in December 2006.
The key to meeting these evolving challenges, Lowenstein says, is to make sure that some party, internally or on an outsourced basis, has a dedicated focus on understanding the whole range of public policy and public affairs issues that impact the firm and its portfolio companies. And that party must be fully supported by the firm and vested with the authority of senior management in order to be effective.
For big firms already in the process of becoming more institutionalized – adding in-house professionals to oversee functions like finance, legal, recruiting, information technology and investor relations – adding an in-house public affairs head is yet another example of firms matching specialized challenges with specialized professionals.
These public affairs gurus divide their time between three areas of work: firm-specific issues, industry issues, and issues relating to portfolio companies. Firm specific issues can include the firm’s reputation and relationships, and its interactions with regulators at home and abroad. Industry issues include regulatory and tax changes that affect private equity, as well as engagement with various stakeholders. The work a public affairs head does on behalf of a firm’s portfolio companies includes guiding them through government or regulatory challenges, and helping them navigate the legal systems of any jurisdiction in which they do business.
Because the new role encompasses so many responsibilities, it can’t necessarily be filled by someone with a traditional finance or even communications background. When hiring for this role, firms need to find someone with a very unique confluence of skills.
“It isn’t realistic to think that people who have spent their lives doing transactions and being engaged in the business of operating companies can suddenly devote 20 or 30 percent of their time to an external set of issues that they’re not schooled in in the first place,” says Lowenstein.
An ideal candidate, Lowenstein says, would have several qualities: exposure to public policy and advocacy, good communication kills, a sense of public relations and an ability to develop effective messages, and finally the ability to work in coalitions and in concert with others who have shared views and goals. The latter is particularly important.
“These people shouldn’t have a lot of ego,” Lowenstein says. “You want people who see their role within the company as an asset, but also recognize that all companies are part of a larger industry that needs to speak collectively and effectively, and so there shouldn’t be a lot of ‘I’ in how you approach this.”
In order to learn the types of talents that other firms have secured, what follows are brief profiles of several public affairs heads at prominent private equity firms.

Peter Rose
Managing Director, Corporate Communications and Public Relations
The Blackstone Group
Blackstone had previously outsourced its lobbying needs to Ogilvy Government Relations, which the firm has retained since 1995. But in 2007 Blackstone’s spending with the well connected lobbying firm skyrocketed: as of June 30, 2007, just after Blackstone’s $4.13 billion IPO, the firm had spent $3.74 million employing 13 lobbyists, compared with the $120,000 it spent on seven lobbyists in the first six months of 2006.
The spike in spending on lobbying services was not surprising. In June 2007, Senate Finance Committee members Charles Grassley and Max Baucus introduced the so-called “Blackstone Bill,” which would have caused publicly traded partnerships that receive income from asset management or investment advisory services (like Blackstone) to be taxed at a higher, corporate rate.
Perhaps in recognition of the mounting challenges it faced, Blackstone hired Peter Rose late last summer. Rose’s resume is tailormade for the demands of the position: He joined Goldman in 1987 as a lobbyist and political analyst, and in 1996 set up the firm’s first US press office in New York. Rose, a New Zealand native, spent five years in Hong Kong, leading Goldman’s corporate communications in Asia, and in 2003 returned to New York to lead its Americas communications. Before joining Goldman, Rose spent time in Washington, DC, as chief of staff to Congressman Mike Synar, an Oklahoma Democrat. Rose was also a partner at Washington DC law firm Williams & Jensen.
The combination of political, legal, and financial communications experience seems to be a winning one; Blackstone’s peers have also chosen public affairs heads with similar backgrounds. Having relationships and expertise in all these arenas makes these men well equipped to handle the multi-faceted duties that fall under their job descriptions.

David Marchick
Managing Director, Global Government and Regulatory Affairs
The Carlyle Group
Carlyle hired David Marchick in September from the Washington DC office of law firm Covington & Burling, where he was a partner. There he advised on big-ticket transactions including Carlyle’s sale of aviation assets to Dubai Aerospace Industries, Saudi Arabia Basic Industries’ Acquisition of GE Plastics, and IBM’s sale of its PC division to China’s Lenovo.
Marchick is an international trade and policy expert, and Carlyle has been making good use of his talents. In April, Marchick testified before the US Senate Committee on Banking, Housing and Urban Housing, warning against a protectionist stance regarding sovereign wealth funds and calling on the US to “lead the way” in adopting a sensible etiquette for receiving investments from them.
Marchick was perfectly in his element here, having testified before Congressional committees on trade issues many times in the past. Carlyle has recently expanded Marchick’s team. In April, Marchick hired a deputy: Bryan Corbett, a former economic advisor to President George W. Bush. Corbett has also been a senior advisor to deputy Treasury secretary Robert Kimmitt since 2006, before which he was majority counsel for the Senate Banking Committee.
“I’m familiar with the deal process, how it works, and what it takes,” Corbett told sister news site PrivateEquityOnline when he was hired.
“For the last five years, I have spent every day dealing with banking and financial regulations.”
In the coming weeks, Carlyle will add one more person to the Marchick team to work out of China, both an important growth market and one characterized by a high level of government interaction with financial markets. It’s also a market where the private equity model is relatively new and not always fully understood.

Adam Levine
Director of Public Affairs
TPG
TPG quietly brought Adam Levine in-house this January as its director of public affairs. As an advisor at government relations firm Public Strategies, Levine was the co-leader of TPG’s public affairs efforts on last year’s controversial TXU buyout. The assignment proved Levine’s mettle: TPG, with Kohlberg Kravis Roberts and Goldman Sachs Capital Partners, overcame resistance from environmental groups, labor unions and Texas legislators to close the $45 billion deal last October, eight months after the buyout consortium’s initial bid. The success of TXU was in sharp contrast to TPG’s attempt to buy an Oregon public utility two years earlier, an effort that collapsed amid a storm of bad public relations.
Levine has had quite a varied career. He was a senior advisor to US senator Daniel Patrick Moynihan, a Democrat from New York, during which time he worked as a professional staff member on the Senate Finance Committee. He then went on to work as an assistant White House press secretary under President George W. Bush. In that role he found himself fielding calls from reporters during the Valerie Plame scandal. After his time at the White House, he worked as a television producer and executive for NBC News and ABC, where he was, among other positions, senior producer of Hardball with Chris Matthews. Prior to joining Public Strategies, he was vice president of corporate communications at Goldman Sachs, serving as a spokesman for the firm’s executive office and government affairs operations.

Ken Mehlman
Managing Director, Head of Global Public Affairs
Kohlberg Kravis Roberts
KKR found its head of public affairs in a manner similar to TPG, bringing in-house the Akin Gump Strauss Hauer & Feld lobbyist who represented the firm throughout 2007. That lobbyist was Ken Mehlman, a high-profile figure in
Washington, DC. Mehlman was formerly Republican Party chairman, and managed President Bush’s successful bid for re-election bid in 2004. He also held various administrative posts in the Bush White House. He resigned as RNC head in 2006 after the Republican party lost control of both houses of Congress. Shortly after, he returned to Akin Gump, where he helped KKR lobby against efforts in Congress to raise taxes on carried interest and publicly traded partnerships. KKR paid Akin Gump $1.02 million in fees in 2007.
Mehlman hasn’t begun yet, but KKR has described his role as similar to that of his counterparts at the other big firms. The firm has also said it sees his addition as a part of a natural evolution. The firm has brought in-house a number of traditionally outsourced roles as it becomes increasingly institutionalized: Last November the firm hired long-time external legal counsel David Sorkin to be its first in-house general counsel; Goldman Sachs alum Robert Gottleib as its chief human resources officer; and former PricewaterhouseCoopers advisor Edward Brandman as its chief information officer.
This May, KKR and US nonprofit Environmental Defense Fund announced a new initiative called “Green Portfolio” that is indicative of the type of work Mehlman will be doing. KKR pledged to conduct pilot projects to develop analytic tools to measure and improve the environmental performance of its US portfolio companies.
If successful, KKR and EDF promised to make the process, tools and results of these projects publicly available to be “implemented by other companies around the world.” KKR and EDF first came into contact during the TXU deal. The buyout consortium faced intense criticism from several environmental groups, much of which centered on TXU’s plans to build 11 new coal fired power plants that would emit high levels of greenhouse gases. The buyout firms contacted EDF in order to broker a plan for cleaning up TXU in a way that would address the concerns of the environmental groups, but maintain the viability of the business.
The private equity firms and EDF drafted a plan under which the firms agreed not to build eight of the eleven plants slated for construction, and agreed to a number of other initiatives to reduce TXU’s carbon footprint.
It seems KKR and TPG both took away important lessons from TXU: the larger your business grows, the more parties are affected by it. And the nature of your interactions (or lack thereof) with those parties can determine the success of your firm.