Mitt Romney is worth $250 million. Why so little?

Mitt Romney is indisputably a very rich man. And if he is elected president on Nov. 6, he will become one of the wealthiest people ever to hold the office.

But exactly how wealthy is Romney? The figure that gets tossed around is $250 million in net worth — meaning the total value of his assets, financial and others, minus any debts.

Graphic

Mitt Romney's $250 million net worth is much smaller than that of the other big players in the private-equity and leveraged buyout business, as listed in the latest Forbes 400 list of the richest people in America.
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Mitt Romney's $250 million net worth is much smaller than that of the other big players in the private-equity and leveraged buyout business, as listed in the latest Forbes 400 list of the richest people in America.

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It’s a big number, but frankly, it seems low. Given the industry in which he made his fortune (private equity), the era when he made it (the 1980s and 1990s) and the wealth of his peers in that business (mostly billionaires), Romney should be worth a good bit more than that.

Why isn’t he?

No surprise, Romney has not made it easy to figure out the precise size of his fortune, and any inferences drawn from the available data are necessarily speculative — yet they still, I think, say something about the man who would be president.

We know that Romney’s fortune derives in large part from his founding in 1984 of Bain Capital, one of the premier private-equity firms in the world, which he ran for the next 15 years or so, during a boom time for the industry. Among Bain’s most successful investments are those in well-known companies such as Staples, Domino’s Pizza, Dunkin’ Donuts and the Weather Channel. Others include lesser-known enterprises such as Experian, an information-services company that Bain bought (with Thomas H. Lee Company, another Boston-based buyout firm) for $1 billion in 1996 and sold months laterfor a profit of $700 million; and Seat Pagine Gialle, an Italian yellow-pages business whose investors, including Bain, made $1 billion in profits after two years.

We also know that Bain was supposedly so successful under Romney’s leadership that the firm was able to charge its investors fees 50 percent higher than those of its competitors. Instead of the typical industry fee of 2 percent of the cash under management and 20 percent of the profits on individual deals, Romney extracted from investors a 3 percent fee and 30 percent of profits for the privilege of investing in Bain’s deals. Sophisticated investors — pension funds, university endowments and large foundations — that put money in private equity don’t do this kind of thing willingly. They did it at Bain because they believed it was worth the price to get into the deals.

And finally, we know that the other people who founded private-equity firms around the same time that Romney and his partners started Bain, and who had to make do with a lower fee structure, are far richer than Romney. These men — Henry Kravis and his cousin George Roberts, the founders of KKR & Co.; the late Teddy Forstmann, the founder of Forstmann Little; David Bonderman and Jim Coulter, the founders of TPG Capital; Leon Black, the founder of Apollo Global Management; Steve Schwarzman and Pete Peterson, the founders of the Blackstone Group; David Rubenstein, the founder of the Carlyle Group; and Jonathan Nelson, the founder of Providence Equity Partners — each have a net worth measured in the billions. Schwarzman, with a fortune greater than $5 billion, is the wealthiest buyout mogul, according to the latest Forbes 400 list.

“Mitt Romney should be a billionaire,” Margaret Collins and Richard Rubin stated flatly last month in a detailed Bloomberg News examination of his wealth. Yet, when Boston Magazine listed the 50 wealthiest Bostonians in 2006, Romney, then the governor of Massachusetts, was not even on the list. His Bain partner, Steve Pagliuca, who joined the firm in 1989 (five years after Romney started it) was listed at No. 35, with a net worth of $410 million.

Romney’s net worth of $250 million is an estimate provided to the media by his campaign, and it is in line with the $254 million maximum value of his financial assets found in his June 1 presidential-candidate disclosure form. Yet this form is a masterpiece of obfuscation, in large part because it allows for absurdly wide ranges of value, with little specificity.

The form shows that Romney has about $31 million in cash and between $250,000 and $500,000 worth of gold, and that less than a quarter of his financial assets are related to Bain. The form excludes his homes in California, Massachusetts and New Hampshire. It also excludes the (perfectly legal) tax-avoiding trust he established in 1995 for his children and grandchildren that Bloomberg estimates contains $100 million. But it includes his 1996 charitable remainder trust (listed with a value of less than $50,000 in cash), four speaking fees totaling $190,000, and both his and his wife Ann’s blind trusts and individual retirement accounts.

Romney’s IRA, valued between $21 million and $102 million, must contain a portion of his profits — or “carried interest,” in private-equity speak — from myriad Bain deals. He put the carried interest in his IRA when it was valued at a nominal amount and then, through the financial alchemy of leveraged buyouts, watched its value soar.

It would be illuminating to know precisely how many millions Romney still has in Bain’s private-equity funds, in various Goldman Sachs hedge funds and in hedge funds managed by his son Tagg or his former partner David Dominik — rather than the amorphous “greater than $1 million” disclosure.

Well then, what does Romney’s 813-page2011 tax return — covering the Romneys’ individual income and their trusts and estates — reveal about his net worth? His $13.7 million in income last year derived entirely from sources other than wages or salary. Romney lists $3 million in interest income, two-thirds of which came from interest on his government bonds and one-third from other sources. Although the yield on Treasury securities is historically low — a seven-year Treasury yields a little more than 1 percent — let’s be generous and assume that this portfolio yields 2 percent. That would make the underlying nest egg $150 million.

He lists an additional $3.7 million in dividend income, most of which came from his trust funds. The average dividend yield on the S&P 500 index is 1.97 percent. Using that as a proxy, the size of the underlying portfolio that would yield annual dividends of $3.7 million would be $188 million.

Romney also lists $6.8 million in net capital gains, a combination of $9 million in capital gains and $2.2 million in capital losses. But you can forget about estimating the size of the portfolio that would yield such gains. The tax return provides practically no information about how Romney made them, although his separate net worth statement shows a long list of securities that were sold last year. Setting aside the portfolio that led to the capital gains, the size of the underlying portfolio that yielded $6.7 million in interest and dividend income in 2011 would probably be around $340 million.

So, if Romney’s reported $250 million net worth seems low compared with his peers, his former partners and his securities portfolio, why would it lag so far behind? Theories abound.

Perhaps, instead of being greedy, as he could have been, Romney shared the wealth with his seven other senior partners so that each had a one-eighth stake in Bain and its profits.

Or perhaps, during Romney’s years at the firm, Bain’s funds were smaller than those of its peers; although Bain now manages a whopping $65 billion, it did not have its first $1 billion fund until 1998, the year before Romney left. (By then, Blackstone was investing a nearly $4 billion fund, and KKR was investing a $6 billion fund.)

Or maybe, unlike other funds, Bain had to “aggregate” its losses on deals against its gains before taking its 30 percent profit — in other words, despite getting industry-leading fees, the Bain team’s overall investing track record may have been subpar.

Or, unlike KKR, Blackstone, Apollo and Carlyle, Bain has not (yet) decided to cash out by taking the firm public, which often multiplies the founders’ wealth since public-market values are generally higher than private ones.

Or perhaps Romney missed what Kravis called the “golden age” of private equity in the years before the financial crisis because he went off to run the 2002 Olympics and then the state of Massachusetts. (Bloomberg estimates that if Romney had stayed at Bain, his fortune would exceed $1.3 billion.)

He has also been exceedingly charitable with his wealth, although unlike several of his private-equity peers, he has not signed the Giving Pledge, which would commit him to giving most of his fortune to philanthropic causes.

We may never know the full extent of Romney’s fortune; he has not disclosed a longer history of his tax returns, and R. Bradford Malt, the lawyer at Ropes & Gray who manages the Romneys’ trusts, did not respond to an e-mail I sent seeking comment. But to me, while Romney’s departure from Bain and his willingness to spread his firm’s riches around may account for some of the difference between his wealth and that of other private-equity barons, I still can’t help but suspect that the $250 million figure underestimates Romney’s true wealth.

Does it really matter if Romney is worth $250 million, $1 billion or more? Rich is rich after all, right? I think it does, politically as well as substantively.

Politically, the alternatives are not great. If he were perceived as the first real billionaire to run for president, it would only exacerbate popular doubts about how someone living so removed from the concerns of average Americans — or even just 47 percent of them — could effectively represent them.

And if he is not a billionaire, doesn’t it suggest that he was not a great private-equity investor after all, thus torpedoing his claim to understand how to create jobs and get the economy back on track?

Something to keep in mind on Nov. 6.

wdcohan@yahoo.com

William D. Cohan, a columnist for Bloomberg View, is the author of “Money and Power: How Goldman Sachs Came to Rule the World” and “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street.” He has worked at Lazard Freres, Merrill Lynch and JPMorgan Chase.

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