Private Funds Prepare To Lobby

By Jeffrey H. Birnbaum
Washington Post Staff Writer
Wednesday, December 27, 2006

Some top private-equity funds have joined to form a lobbying organization to head off potential regulation.

The funds have become some of the most active purchasers of U.S. corporations, pooling money from private investors and companies and augmenting those sums with loads of debt. More than 28 percent of the dollar value of acquisitions announced in the United States this year involved private-equity firms, up from 3 percent five years ago, according to Dealogic.

The new organization, the Private Equity Council, is backed by such leaders in the burgeoning business of company buyouts as Blackstone Group, Carlyle Group and Kohlberg Kravis Roberts. Douglas Lowenstein, president of the Entertainment Software Association, which represents the U.S. video game industry, will head the trade association.

The move is the latest effort by the financial services industry to bolster its presence in Washington. The association that represents hedge funds, the Managed Funds Association, recently added to its staff, and the Securities Industry Association and the Bond Market Association merged this year to form what they hope will be a more influential lobby. The combined organization is the Securities Industry and Financial Markets Association, or SIFMA.

In late spring, several of the nation's largest private-equity firms started to discuss creating a lobby group. The decision was precipitated by recognition that they were becoming the target of tough criticism in the United States and in Europe; in Germany, for instance, a state governor referred to private-equity firms as "locusts."

Carlyle, Kohlberg Kravis Roberts and other firms were sued last month by investors who claimed they conspired to hold down the amounts they pay for companies. A regulator in Britain is also investigating market abuse in private-equity transactions.

Private-equity firms collect large pools of funds from wealthy individuals, pension funds, college endowments and other sources and use the proceeds, along with loans, to buy all or large parts of companies. Hedge funds also amass money from similar sources but engage in usually shorter-term investments in such things as stocks and bonds.

Both are lightly regulated by the government, and that has caught the attention of lawmakers and senior officials in the executive branch, including those in the Securities and Exchange Commission. Christopher Cox, chairman of the SEC, has been pressing for more oversight of hedge funds, for example, which is now a $1 trillion industry.

The core group of firms behind the Private Equity Council are Blackstone, Carlyle, KKR and Texas Pacific Group. Initially, the association will consist of 15 to 20 firms and will be staffed by Lowenstein and a small group of senior people who will focus on commissioning research about the private-equity industry and its benefits to the economy.

Lowenstein could not be reached for comment yesterday, but in statement the council said it "will become a leading advocate for the domestic and international private equity industry as well as a resource for those seeking to better understand the industry's role in the rapidly evolving global economy."

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