A new book by Bloomberg Press reporter, Jason Kelly, uses interviews with “private equity chieftains” such as Stephen Schwarzman, David Rubenstein and David Bonderman among others to explain a “cottage investing industry that has blossomed into a global financial force.” The book, The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything (Bloomberg News, 2012), may sound a bit intimidating for readers that are not familiar with the private equity world, but the author has written it in a language and narrative that is understandable.
Kelly begins with, “Standing in Legoland in Carlsbad, CA in 2011, fulfilling a promise to my then eight-year-old son William, it hit me. I was strolling around a Blackstone-owned property. We’d woken up in a Homewood Suites, owned by Blackstone-backed Hilton. We’d driven to the park in a rental car form Hertz, owned by private-equity firms Carlyl and Clayton, Dubilier & Rice. Practically every time I’d opened my wallet that day, it had been to a company owned by private equity.”
The author tackles topics such as where the money comes from, where the profits go, provides a look at leveraged buy-outs (LBO), syndicated loan markets among other related topics. Kelly uses examples of companies such as Dollar General so readers can get a view of how the money and the management flow. And, he writes about the number of people employed and the number of jobs created by the private equity industry.
“The numbers speak for themselves. U.S.-based private-equity firms employ 1.8 million people by one estimate, out of a total workforce of roughly 154 million. That’s 1 in 20 workers,” Kelly writes.
The author uses several private equity firms in his case studies including Bain Capital, made even more famous in this past year by its co-founder, Mitt Romney, running for President of the United States. Kelly addresses the pressing questions about Romney’s tax returns.
“Here’s the catch on the tax side and what the protestors (Occupy Wall Street) and others including the Obama administration, characterize as a loophole: Carried interest is considered investment income and therefore taxed at a capital gains rate, which in 2012 stood at 15 percent, versus the top ordinary income rate of about 35 percent,” writes Kelly.
For those in the financial industry, this book is a good read. For those readers that have a mild or no interest in the private equity industry but would like to learn more about the issues surrounding this particular presidential race, the book provides enough detail to gain a better understanding of what these investment firms do for the job’s market as well for their investors. Private equity firms have been out to look like the destroyers of business and industry when in fact thousands of companies have been created and millions of people have been employed through the dynamic groups.
As a business writer myself, The New Tycoons reinforced the fact that private equity firms are not the evil doers portrayed over the past few months through political ads and often in the main stream media, whose very companies may well be owned by a private equity group.