Pam Hendrickson Discusses Private Equity and Tax Reform on Bloomberg

Appearing on Bloomberg’s Market Makers on March 19, The Riverside Company COO Pam Hendrickson explained the mutually beneficial nature of the private equity business model.

“The thing about private equity is it is a competition for capital, and very much survival of the fittest. If we don’t do a great job growing our companies for the benefit of our investors, who are largely pension funds – firemen, teachers, policemen – then we don’t raise our next fund, and indeed that will be the end of a private equity fund.”

Hendrickson noted that private equity plays a role in the daily lives of many Americans, highlighting that, “One in 20 workers in the U.S. works for a private equity-backed company,” adding that, “the vast majority of studies out there show that as a governance model, private equity is actually a superior form of ownership.”

Hendrickson also discussed the possibility to broad base tax reform with the show’s hosts. While she noted that she did not think that eliminating loopholes was a necessarily bad thing, she stressed that carried interest is not what’s typically referred to as a ‘loophole,’ and that rather it’s just “misunderstood.”

“It is sweat equity, and since 1913 when the tax code was originally written, there has been this concept that both financial equity and sweat equity should be taxed at a lower rate.”

An example?

“You start a business and your dad gives you $10,000 to start it, you give him 50 percent of your company. And for the next 10 years you work really hard and you sell it for $5 million. Well, your dad gets capital gains, and so do you. You didn’t put in one penny, you just put in your labor, your creativity, your intellectual heft, and you got capital gains. That is what private equity firms do. That is what carry is.”

See the full video below.