Should you join the PEC?

Two months ago Washington DC-based Private Equity Council (PEC), a lobbying group launched in 2007 with 11 mega-firm backers, decided to welcome firms of all sizes into the fold. The news was first reported this week on PrivateEquityOnline.com.

An expansion of the PEC would better allow it to sell the message of private equity on Capitol Hill, where lawmakers are especially receptive to policies that favour small businesses and entrepreneurs, but aren't eager to appear to be helping big Wall Street players.

One person close to the PEC said an expanded membership that included, for example, women-owned and ethnic minority-owned private equity firms would allow the PEC to more compellingly argue that private equity makes an impact on the US economy that is both broad and positive. 

The PEC launched with the backing of Apollo Global Management, Bain Capital, The Blackstone Group, The Carlyle Group, Hellman & Friedman, Kohlberg Kravis Roberts, Madison Dearborn Partners, Silver Lake Partners, Texas Pacific Group and Thomas H. Lee Partners. The founders deliberately limited membership initially to this circle of the very largest private equity firms. 

Doug Lowenstein, president of the PEC, said in an interview that the association members had put off the decision to expand membership in part because of the need to focus resources on lobbying against key congressional initiatives. While Lowenstein said the private equity industry is not “in the clear” on the regulatory front, he said that a lull in legislative momentum means that now is “the best opportunity to be visible” on Capitol Hill. 

Private Equity Manager called a handful of US middle-market private equity firm partners to hear their views on the PEC’s new outreach. Reactions ranged from eagerness to join the cause to ambivalence about attempting to work with much, much larger GPs.

One partner at a smaller firm said that his peers like going about their business free from scrutiny, and isn’t sure many will want to draw attention to themselves by lobbying for the industry with the likes of Blackstone and KKR. 

There is recognition that all private equity firms face a common threat from legislation that could force private equity firms to register with the Securities and Exchange Commission as investment advisors, and no one wants to see a tax hike on carried interest pass into law. But the small-firm partner and several others at similarly sized firms said they would be happier working with the PEC on an informal basis.

The issue of membership fees is also one that middle market firms want more information about. This year's official PEC dues rate for a firm with between zero and $8 billion in assets under management is $25,000, which is a lot of money for some smaller firms. Two GPs said they would wait to hear more about the dues before deciding whether to join.

One GP said that his firm doesn’t have the manpower to task someone on the team with working with the PEC and going to meetings in Washington. Small middle market firms have lean teams, and may not have capacity to fully participate in PEC initiatives, some said.

Aside from the resources issue, some small firms don’t believe that they have enough in common with the existing PEC members to make membership worthwhile. A small, sector-focused middle market firm is “in a completely different business” than TPG, one of its GPs said. He said he didn’t think he would have much to talk about with TPG-founder David Bonderman. 

But despite reservations, most firms interviewed for this story are interested in learning more, and all of them applaud the PEC’s decision to reach out to the middle market. On GP said that the move was “long overdue”, and that the PEC had made a critical mistake by waiting so long to invite middle market firms to join. Maybe if lawmakers had understood earlier that biggest buyout firms aren’t representative of the entire industry, private equity firms wouldn’t be facing the regulatory threats they are now, the GP said.

Two GPs at separate firms said they would absolutely join the PEC – one will join in a matter of weeks. One GP said that engaging with Washington and trying to influence legislation is obligatory right now, and that private equity firms should be trying to monitor regulatory developments closely. Joining the PEC is the best way to fend of Washington’s “intrusion” on the private equity industry, he said.