This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Private Equity Has a 'Social Responsibility': Carlyle Founder

Stock quotes in this article: BX, KKR, APOL

Meanwhile, private equity's social responsibility would be at odds with a perception that the industry is representative of Wall Street.

For instance, Goldman Sachs (GS) Chief Executive Lloyd Blankfein appeared to echo a Gekko-like mentality in a 2010 Senate hearing where he defended the firm's practice of hedging risky investments that the company sold to its customers. Blankfein noted that the firm's responsibility was to provide "liquidity" and make markets, not to act as an advisor to its trading customers.

Liquidity and market making have clear benefits to society, as do other Wall Street services like lending, capital raising and even storing savings as deposits, but a social responsibility beyond conducting operations in a profit-maximizing fashion and that grows with a firm's size is an ethical Rubicon that Wall Street investment banks have been reluctant to cross.

In fact, Wall Street reforms aimed at the nation's largest banks also are filled with "too big to fail" and "living will" clauses, which reflect the belief that as banks get larger their social costs may actually grow.

"It's an entirely different mindset," said Rice of Clayton, Dubilier & Rice about the private equity industry's role in being a principal for company investments in contrast to Wall Street's agent role of arranging transactions. As an owner of companies, firms have an interest in growing jobs and the economy said Rice, who is working to compile unbiased data that would prove private equity investments are both high returning and good for the economy.

"Good rates of return aren't good enough," added Rubenstein of the industry's image problem. While the industry need to prove to politicians and the press that its incentives are aligned with job creation and growth, "we have not succeeded in getting the message across," added Rubenstein.

Rice is currently funding private equity deals database that will quantify the industry's impact on growth, jobs and corporate earnings, in an effort led by Harvard Business School professor Josh Lerner called Private Capital Research Institute. "Until we have that database, it's going to be a difficult sell," said Rice of the industry's ability to prove its economic value to politicians, the press and many in the public.

Prior to the financial crisis, a detailed study by Lerner and other economists featured at the World Economic Forum showed that employment at private-equity owned companies falls 10% on average relative to non-PE controlled firms five years after a buyout. Nevertheless, the study found that targets were job losers prior to a takeover and more likely to do hiring after a buyout -a not so catastrophic finding for the financiers congregating at the mountain resort. However, those findings desperately need a sweeping update to account for the financial crisis.

In the converse, if Rice's Institute proves that private equity investments impart jobs and growth losses even if they enrich investors and general partners, it might catalyze a complete rethink of the industry's practices.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,804.71 -238.19 -1.40%
S&P 500 1,946.16 -26.13 -1.32%
NASDAQ 4,422.0850 -71.3050 -1.59%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs