Naked Capitalism pointed out something yesterday that confounds conventional wisdom on what kind of capitalism private equity firms like Bain Capital really engage in:
... most members of the public do not know that close to half the investment capital in private equity funds is contributed directly by government entities. In this respect, private equity is little different than companies like Fannie, Freddie, and Solyndra that are regularly criticized in the media as recipients of government subsidies.
“Government entities” here refers to public employee pension funds, or entities that receive significant public support, like university endowments. That Bain and its ilk depend on these entities to fund their work is the kind of fact that both campaigns have mostly avoided dwelling on: Romney probably doesn’t want to be seen as profiting off public largesse, diluting his reputation as a hero of an imaginary, wholly free market, nor seen as a too comfortable speculating with taxpayer dollars. Obama, meanwhile, doesn’t want to make Romney seem too warm and fuzzy for investing on behalf of, and creating tremendous returns for, cops, firefighters, and teachers.
Still, the NC post goes on to explain recent research indicating that private equity funds do more to enrich themselves than their pension fund clients. One wonders if this may yet serve as another Bain-related angle for the Obama campaign to seize upon: Romney got rich on the backs of taxpayers! Looking forward to the rest of an ongoing series on private equity from Naked Capitalism’s Yves Smith and “private equity insider” Nanea.