Issa Criticizes Rush To Judgment On The Public Sale Of Private Equity Funds

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Issa Criticizes Rush to Judgment on the Public Sale of Private Equity Funds

Rep. Darrell Issa (R-CA), one of the most successful business entrepreneurs in Congress who founded and built a NASDAQ listed consumer electronics company, today at a hearing of the House Oversight and Government Reform Subcommittee on Domestic Policy, strongly cautioned his colleagues to not confuse Private Equity Funds with Hedge funds. Issa lamented the lack of understanding in Congress about the nature and purpose of private equity funds in the business world and the enormously positive role private equity funds play in rejuvenating American companies and their central role in growing American pension and retirement funds.

"When the business community develops a successful model, this Democrat Congress will want to regulate it. If it continues to succeed they want to tax it," said Issa. "Democrats are attempting to confuse the public by combining apples and oranges. Private Equity Funds and Hedge Funds are fundamentally different."

While publicly traded companies tend to focus on creating immediate profits, Private Equity Funds typically purchase mature businesses that are underperforming or that have the potential to outperform current expectations. Following the purchase of such a business, Private Equity Fund Managers focus on long-term efforts to maximize the value and operations of a company rather than immediate profits. Private equity funds typically own these targeted businesses for several years before reselling the revamped business.

Hedge Funds, on the other hand, are generally pools of capital invested in stocks, bonds, or commodities. They typically do not purchase a controlling interest in a company. Instead, the typical business model seeks to capitalize on short-term gains. The typical holding period for a hedge fund investment is weeks or months, and rarely years.

As an example of a successful Private Equity Fund acquisition, Rep. Issa cited the purchase of Dunkin Brands (Dunkin' Doughnuts) in 2006, that was an under-performing asset in a larger family of companies. The private equity firm's strategy required significant expenditures that reduced short term earnings. The CEO of Dunkin Brands recently told the House Financial Services Committee that private equity enabled them to, "make significant investments in our infrastructure … and opened door to opportunities that were previously beyond their reach." Now, Dunkin Brands expects to create 250,000 new jobs as they open new stores across the United States. This turnaround (and the 250,000 new jobs) was made possible because of the opportunity provided by private equity.

"Democrats have already begun discussions about new regulations and increasing taxes on Private Equity Funds - they have not made the case for why this business model should be regulated or taxed differently than other companies that decide to go public. Democrat efforts to fund their spending binge by punishing the success of a relatively new business model are misguided and contrary to the well-being of our free market economy."

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