The Private Equity Growth Capital Council (PEGCC) is the United States’ organization dedicated to the advocacy, communication and research of the private equity (PE) and growth capital investment industry. KITE Invest spoke with the President and CEO of the PEGCC, Steve Judge, to get an official perspective of the vast American private equity industry.
KITE Invest: What is the current outlook of the United States’ PE industry in light of the recent global recession?
Steve Judge: The private equity industry performed remarkably after the recession. Cambridge Associates shows that private equity has returned an annualized 16.8 percent to investors over the last 5-year period and investors in private equity received a total return of nearly $130 billion last year. This total is close to the $135 billion returned to investors in 2013, and higher than the $118 billion returned in 2012. The PEGCC’s most recent research shows that the private equity industry recorded its highest exit volume ever last year, at $257 billion, and also closed the year with the most investment volume since 2007. These return figures show the resilience of the industry to perform well for its investors, despite weak market conditions after the financial crisis.
KITE: In terms of deal flow and investment size, how do you view the industry now and what do you expect in the near future?
SJ: Private equity invested a record amount of capital into American companies last year – over $500 billion. Our fund managers continue to find new investment opportunities and provide the necessary capital to expand businesses and create jobs. Deal flow has remained relatively steady over the past year, and I anticipate this will remain the same in coming quarters. In general, I believe the fund managers continue to work hard to find profitable investment opportunities and remain disciplined in their deliberate deployment of capital.
KITE: How have the sectors and industry trends shifted since the global recession and what areas do you see as ‘up and coming’?
SJ: The PEGCC produces an annual report, the Top States and Districts, which demonstrates the broad range of sectors receiving capital from the industry. It’s notable how investment shifts sectors from year to year. In 2013, information technology was the sector that received the most investment. This contrasts with 2012 when consumer products was the top sector and 2011 when healthcare received the most capital. We are nearing completion of our 2014 study, which will give us a sense of the more recent trends.
KITE: As part of its mission the PEGCC engages with policy makers and the US government in an effort to advocate for policies that encourage responsible investment. Please shed light on the external challenges faced by the industry, specifically the status of the Dodd-Frank Act implementation and tax reforms.
SJ: It’s no surprise that Dodd-Frank has increased the regulatory requirements of private equity firms. Firms now have to register and be subject to compliance exams by the SEC. As the trade association, we have heard from many in the industry, particularly those at mid-market firms, that adhering to new regulatory requirements is expensive and time consuming. On the tax front, Congress has begun debating comprehensive tax reform to find a way to simplify the tax code. This discussion includes the tax treatment of carried interest and interest on business debt, issues that affect our firms and their portfolio companies, respectively. We will continue to advocate for continued capital gains treatment of carried interest and full deductibility of interest. We will also continue to work with regulators to find ways our firms can comply with robust regulations.
KITE: Due to the different levels of private equity investment and subsequent job creation from state to state; what measures does the PEGCC take to increase investment in states where there are fewer opportunities?
SJ: One of the interesting elements of the private equity industry is the geographic diversity of its investments. It is a natural part of the private equity model for investment and job creation to vary by state. The benefits of private equity to local communities are something we highlight with the media and U.S. policymakers. The PEGCC tracks not only state and Congressional district level investment information, but also private-equity backed job information for these areas. It is a powerful research tool for our industry that demonstrates the vast impact of private equity.
KITE: There has been an increased interest by the PEGCC to raise levels of collaboration with its international counterparts around the world. To what extent does the PEGCC collaborate with PE & VC associations around the world, and how come this focus is a relatively new one?
SJ: The PEGCC is a relatively new association, founded in 2007 with only four members. Since that time, we have grown to 36 members – including growth firms and fund-of-fund firms – and 17 associate members, which are leading law and accounting firms that have a private equity focus.
Along with this strong internal growth, we have also built a reputation of collaboration with other associations. Whether it’s working with an association on a regulatory issue that has crossover impact – such as joint comment letters - or discussing potential co-developments of initiatives for our respective memberships, we find that we best represent our member firms when we have a strong, unified voice with other associations.
KITE: Lastly, in terms of goals, what is the PEGCC aiming to achieve this year or in the short-term?
SJ: Our three pillars as an organization are advocacy, research, and member services. Staying engaged in the process of tax reform and regulatory issues is a top priority for the year. We are also developing new services and peer-to-peer events to provide members with the best resources possible to advance their firm goals. Finally, we are looking to build our membership across the spectrum of private equity and growth capital firms – from growth to sector-specific firms. We believe that we are strongest as an association when we are able to hear from the diversity of firm voices within our industry.