Profile of the PEGCC and President & CEO Steve Judge
Limited Partner Magazine recently profiled the PEGCC and our President and CEO Steve Judge. During his interview, Steve discussed the reasons why private equity has consistently outperformed the stock market and his expectations for industry growth. Highlights from the piece include:
“The private equity industry continues to grow,” says Steve Judge, president and CEO of the Private Equity Growth Capital Council. “Allocations to PE investment are continuing to increase from limited partners. The investments and the amount of dry powder that our firms have on hand continue to grow. And there continues to be a need to help companies transform from their current state to a more effective, competitive stance than they had before. So the need for private equity investment continues and in fact is growing, especially with international competition.”
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The work of the PEGCC is both external and internal. “Our function is to represent the industry itself, to be an advocate in every respect for the industry, and to provide services to the industry,” explains Judge. “So in advocacy we represent the industry before Congress, before regulators, through research and in communications. We want to be the voice of the industry in all public dialogue. On our members’ services side we try to provide committee meetings, opportunities to meet with colleagues in peer-to-peer exchanges that provide real value to people in our firms as they try to do the best job they can in serving the needs of their investors.”
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“Through the financial crisis, PE firms and the companies they owned maintained their growth and stayed in business better than publicly owned firms or other types of structures,” said Steve Judge. “PE-owned firms take the long view. They represent patient investments and with the strong financial positions of the sponsors, the firms themselves typically do very well through all economic conditions.”
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The U.S. is currently engaged in a widespread consultation about its tax system. Policymakers are supportive of private equity, however. “Generally speaking there’s good political support for the industry,” says Judge. “But by its nature private equity is not well understood. And so we find that the greater the understanding of the industry, the investment model, its economic values, and how it builds companies for the long term, we develop greater support for the industry among politicians and opinion leaders.”
“We have a differential on capital gains income in this country and it’s very important to maintain that capital gains differential. So carried interest – the return on capital invested in the United States – is taxed at a lower rate of about 20 per cent. Carried interest is taxed as a capital gain not as ordinary income. That’s a key component of the US tax system and really important in driving entrepreneurial risk and driving the kind of businesses that will invest long term to achieve these capital gains.”
PEGCC says there are three taxation issues on its agenda: the maintenance of carried interest as a capital gain; the maintenance of the pass-through status of partnerships, such that individual partners are taxed at their individual rates; and that interest remains deductible as a necessary and ordinary business expense.
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Top of Judge’s wish list is continued and greater understanding of what the private equity industry is really about. “I would like the industry to be perceived more accurately than it currently is, and that’s a challenge,” says Judge. “I would like to see policymakers, opinion leaders and others understand better the tremendous value that PE firms provide to their communities, to the companies they own, to the pension plans securing the retirement of millions and millions of Americans and people all across the world in providing economic opportunity.”
