Sunday, April 22, 2012

Search for Positive PEU Contributions Doesn't Slow Lerner

Harvard Business School Professor Josh Lerner is head of the Private Capital Research Institute Pension & Investments reported on a fledgling private equity underwriter (PEU) database.  The philosophy is "build it and they will come."

Officials at non-profit The Private Capital Research Institute are hoping a starter set of 15 well-known private equity firms contributing to a research database is enough to get more general partners to participate.

The stater set is ample in size and scope:

The initial contributors are Actis; Apax Partners; Apollo Global Management LLC; Berkshire Partners LLC; The Carlyle Group; Court Square Capital Partners; Clayton, Dubilier & Rice LLC; First Reserve Corp.; General Atlantic LLC; KKR & Co. LP; Kohlberg & Co. LLC; New Mountain Capital LLC; The Riverside Co.; Saybrook Corporate Opportunity Fund LP; and Thomas H. Lee Partners

Apollo, Bershire, Carlyle, KKR, Clayton Dubilier and Thomas H. Lee Partners should be able provide data on thousands of PEU transactions.  I expect they plan to pick and choose, submitting data on "winners" under Josh's criteria.  If PEU's can game the political system, they have the wherewithal to distort academic research.

As for Josh Lerner, one doesn't have to look far to find his love for PEU's.  Yet his new nonprofit claims to have no particular "point of view."

The Private Capital Research Institute (PCRI) led by Harvard Business School Professor Josh Lerner, is seeking to address these disparities in knowledge by examining private capital transactions and institutions, seeking to understand their fundamental economic nature and impact. The PCRI is a not-for-profit corporation, to date solely funded by the Erwin Marion Kauffman Foundation; the Brookings-PCRI Private Capital Project has a number of generous donors, including the Association of Corporate Growth. The research is independent and focused on promoting an understanding of the Private Capital Industry, rather than advancing a particular point of view.

Of course Lerner has a point of view.  It's pro-PEU.  Otherwise why would he get invited to speak at meetings of global economic tamperers this past decade. Take this talk from 2008:

Josh Lerner recently led an international team of scholars in a study of the economic impact of private equity for the World Economic Forum (WEF).
Josh knows how PEU money drives the WEF.  Lerner co-heads the Brookings Private Capital Project.  It's aim?  Research positive contributions of the industry.  That means only putting their good stories in the database.  That's why fifteen PEU's with thousands of companies isn't nearly enough.

How might Josh Lerner's "research" shift the private equity frame in the Presidential campaign, now that Bain's Romney has a lock on the Republican nomination?  It remains to be seen, but In the end, both Red and Blue love PEU.

Update 6-3-14:  NakedCapitalism noted similar characteristics of PEU return studies as PEUReport:   "Most studies have relied on cherry-picked data sets supplied by the private equity general partners. And even more rich, who has performed these studies? Almost without exception, finance professors who are members of business school faculties. Who are the biggest funders of business school endowments? At many schools, private equity firms. In other words, taking a critical stance towards the industry would not be a career-advancing move for a budding young scholar."