June 04, 2007
David Kirkpatrick has a story in today's NYT (quoting yours truly) about Mitt Romney's background in private equity. I personally view Romney's successful background in PE as a net positive in a political candidate; the readership of the NYT may differ. He does come across as a little slick, and the "putting companies at risk" angle won't help him in the general election, should he get that far. Of course, leverage can also be a useful efficiency-enhancing restraint on managerial slack, and Bain's historical returns suggest they've managed portfolio company debt levels quite well.
Speaking of historical returns, Bain's track record allowed Romney to negotiate for "Two and Thirty" (a thirty percent carry) from Bain's LPs instead of the industry standard two and twenty. Impressive.
The story says that most of Romney's fortune came from his work at Bain. If, say, $250 million of his $350 million net worth is attributable to carried interest distributions, and during most of that period carry was taxed at 20% less than ordinary income (I think the rates were 20% and 39% during some of the relevant time frame; it's 15% and 35% now), then the generous tax treatment of carry accounts for about $50 million more in Romney's pocket than if he'd made the money in a regular job. (More, actually, since he's reinvested the tax savings since then.) That $50 million+ will pay for a lot of campaign ads.
Between Romney and John Edwards' work for Fortress, this is shaping up to be the first private equity/hedge fund presidential election.
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