The Private Equity Growth Council issued a report touting the $443 billion PE firms invested in the United States. The figures are broken out by states and by congressional districts as if the money had actually flowed into these jurisdictions. Texas is listed as the big winner with 282 deals and $87.4 billion in capital. The PEGC wants us to know that the districts of the following five Congressmen received the greatest amount of investment: John Carter (TX-31)-$24.9 billion -Mike Doyle (PA-14)-$24.8 billion -John Culberson (TX-7)-$14.6 billion -Carolyn Maloney (NY-12)-$13.7 billion -Henry Waxman (CA-33)- $10.7 billion.
The private equity industry is trying to position itself as an economic engine that is stimulating key areas of the country. This data is making its way into local newspapers and will be talking points for Senators and Congressman as they defend the PE industry. For example, The Sacramento Bee carried the following headline: “California trails Texas in private equity investment dollars.” The Journal Sentinel of Milwaukee positioned the report as if the state had done something to draw capital, “Wisconsin attracted $5.9 billion in private equity investments in 2013.” It’s pretty much meaningless.
PE investments aren’t like government contracts that bring actual money into states or districts. When a PE firm buys a company, most of the proceeds go to the selling investors, who are probably not in the same state or district even if the company is headquartered there. To the extent some of the capital is invested in businesses, the plants, distribution centers, or retail outlets may be located just about anywhere, including overseas. In other words, the figures are very misleading.
For arguments sake, let’s assume that all the capital actually went into a particular state or district. We still wouldn’t have a complete picture. By its very nature, PE firms buy and sell companies. The PEGC’s report only captures the purchases. If they were to report the sales and treat them as a divestiture of capital, private equities net impact would be rather small.
PE managers always prefer to talk about performance before fees (gross), rather than performance after fees and expenses (net). They also prefer that we focus on their winning investments and ignore the losers. The same principals are at play when it comes to industry marketing. The data may be meaningless, but the marketing is getting traction.