PEGCC President Steve Judge in Motley Fool: PE is Good for America

Private Equity Is Good for America

Steve Judge, Special to The Motley Fool

The recent attention given to the private equity industry, due in large part to the upcoming November presidential election, has fostered an often lively debate about the utility of the industry for society. Some would have you believe that private equity is not good for the economy, but this claim is an outmoded notion unsupported by the facts. The truth is that private equity delivers the capital necessary for companies to compete, succeed, and grow — driving significant economic benefits that can be felt across the U.S. economy.

The essence of the private equity business model is about long-term investments in companies, people, and ideas. Private equity firms raise money from investors such as public and private pension funds, university endowments, and charitable foundations to invest in underperforming or undervalued companies, called portfolio companies. Private equity managers work to increase the value of the companies they buy through capital investment and managerial expertise. They improve business strategy, purchase more efficient machinery, commercialize new technology, and expand product distribution in an effort to strengthen companies and create value. Many years after the initial investment, private equity firms look to sell portfolio companies at a price higher than they initially paid. If they are successful, the investors realize superior returns.

Over the past 10 years, 2,400 U.S.-based private equity firms that in one form or another ascribe to this business model invested more than $1.6 trillion in 15,200 U.S.-based companies. By investing in promising companies and those needing a turnaround, private equity has helped grow key sectors of the economy including manufacturing, technology, health care, energy, and retail. In 2011 alone, the private equity industry invested more than $150 billion in U.S. companies, creating jobs and driving economic growth. Investments flow through local communities, saving and creating jobs.

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