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Posted at 02:05 PM ET, 12/16/2011

Romney’s work with Bain Capital: An American success story

I agree with Carter. Mitt Romney had a good week, made particularly good by the endorsement of the governor of South Carolina, Nikki Haley. The endorsement says a lot about Romney, and he needs some things said. And it says something about Newt Gingrich that is discouraging for him and his supporters. But I still think Gingrich had a pretty good week. And while they are not winners, Michele Bachmann had a good week and Ron Paul still has enough support to make a difference. Where the race truly stands is a mystery to me.

Romney gave a good answer last night when he talked about his work with Bain Capital. Democrats too often think any private-sector experience, or certainly earning almost any private wealth, suggests something untoward about the earner. If Romney is the nominee, this will be an interesting part of the debate.

Bain Capital is a great American success story. And while it will never be part of a stump speech, and it will never be an applause line, it’s not irrelevant to recall how private equity capital works. Companies like Bain Capital make investments on behalf of others, and if the investments pay off, the leadership of Bain gets to keep a piece of the profits. In other words, they are the last ones to get paid, after having made money for others. Very often, private equity funds have substantial investments from public and private pension funds that represent millions of small depositors.

Most private equity firms worked at the time under a formula commonly called “2 and 20.” A management company such as Bain received 2 percent of the investment capital for expenses, and then could keep 20 percent of the profits after an investor had been paid back and had received 80 percent of the profits. By definition, you had to create value before you got paid. That meant you had to grow businesses — not just cut costs but add revenues and profits in order for an investment to really be successful.

I’m sure that somewhere, someone in the Obama political machinery knows this. I’m also sure it won’t matter. This president has no patience for private sector wealth creation.  But however the story gets told, Romney may be less vulnerable than the professors, union organizers and public-sector types who lead the Obama political machine might think

By  |  02:05 PM ET, 12/16/2011

 
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