The Truth About Private Equity: Politicians Need It, Taxpayers Fund It

Ignore the ‘vulture capital’ talk. Romney, Obama, and both parties rely on their support—money that comes from government-backed, taxpayer-supported pension funds.

by Nomi Prins
January 13, 2012 4:45 AM EST

GOP presidential hopeful Mitt Romney inspired a slew of commentary about the private-equity industry, following his boasts of creating 100,000 jobs during his reign at Bain Capital. Some columns claimed private equity is an important part of capitalism, so stop picking on it. Some pointed out the sector infiltrates firms, cuts jobs and expenses, and makes buckets of money in the process. Which it does. But simply examining whether private equity is inherently good or evil, and by extension whether Romney is, misses key points fundamentally related to our nation’s economic health.

First, the tax structure for private equity—and hedge-fund and venture-capital firms—gives it an unfair advantage, while encouraging excessive fee and profit extraction from flailing companies. Second, private-equity funding disproportionally comes from public pension funds. In other words, from government-backed, taxpayer-supported money.