Private equity firms fear Joe Biden in the Oval Office

The prospect of Joe Biden becoming president has large swaths of corporate America scared, and none more so than the whipping boys who run the private equity business.

Private equity is mainly in the business of buying public companies — many of them hurting from bad management and financial distress — and then running them as private concerns so the problems can be fixed without having to answer to shareholders on a daily basis.

But if you read up on the exploits of the big PE firms — Blackstone Group, KKR, Carlyle Group, Apollo, etc. — in the liberal media, you would think the guys running these outfits are modern-day robber barons. For every 10 success stories where workers’ jobs were saved, there is breathless coverage of one-off disasters (read up on Toys ‘R’ Us).

This is why during every presidential election — and this one is no exception — PE becomes a target of progressives looking to give some opium to the masses by drumming up class warfare. They highlight allegedly unfair tax breaks, and claim PE destroys jobs.

And like clockwork, PE outfits are now rushing to complete deals on the notion that major changes are coming under a potential Biden administration if he wins in November as the polls suggest.

“What we see every election year is an uptick in private equity M&A [mergers and acquisition] activity, but this year is more,” said Paul Aversano, a managing director at Alvarez & Marsal, a global professional-services firm. “People just want to get ahead of any changes that might be coming.”

So why are PE executives so worried this time around?

Biden has been fairly quiet on the matter probably because some of his most prominent financial backers are Wall Streeters. But that doesn’t mean he isn’t gunning for the business, PE executives tell me.

While Barack Obama talked a good game attacking PE, he backed off eliminating some of PE’s cherished tax breaks, like the so-called carried-interest deduction. Carried interest does allow PE investors to make a lot of money; it also incentivizes them to take the risk and fix companies they would otherwise ignore.

Most Democrats these days are more determined than Obama and want carried interest gone for good. Ex-VP and Dem nominee Biden sees ditching carried interest, and other investor-friendly tax breaks, as a “moral issue,” I am told. He will likely do this through a backdoor method by increasing long-term capital gains on millionaires that will make carried-interest deductions largely obsolete.

Then down comes the hammer on private equity: if Massachusetts Sen. Elizabeth Warren is in the majority and free to enact her ludicrously ­titled piece of legislation known as the “Stop Wall Street Looting Act.”

Warren proposed this bill last year while running for the Democratic nomination. She lost, of course, and the GOP thwarted her.

But the fringe is no longer the fringe of the Democratic Party — it’s the mainstream.

If Biden wins the presidency and the Dems keep the House and win the Senate, her legislation would pass, PE execs tell me. That would usher in a sweeping restructure of the PE business by increasing firms’ legal liabilities and pension-fund obligations, making it next to impossible for PE firms to take risks on many deals.

“In that scenario there could end private equity as we know it,” one veteran PE executive apocalyptically predicted. “It’s scary.”

Not for progressives like Warren, and latter-day progressives like the once-moderate Biden, who don’t mind destroying a great business to score some points with their base.

Leon bid to clear name

Speaking of private equity, it’s hard to imagine Apollo Global Management without Leon Black, the PE firm’s founder and a Wall Street icon after 40-plus years in the business. But Black now finds himself in an unwelcome spotlight because he did business with convicted sex offender Jeffrey Epstein.

Some context: Epstein is now best known as a child-abuser after his 2008 conviction and subsequent indictment (and suicide) last year on additional charges. But before that he was considered a high-end wealth manager for a coterie of rich people in addition to Black.

What is most baffling to people — including investors in Apollo — is why Black did business with Epstein even after he got out of jail several years ago, and why Black still has yet to fully explain this.

That’s about to change. Amid client concerns, the firm hired prominent white-collar attorney Andy ­Levander, of Dechert LLP, to investigate the matter and provide the full story.

As part of the probe, I am told Black is willing to account for every penny he paid Epstein during their years doing business together. Black believes the record will show that Epstein did real work for him, and Black had no involvement in Epstein’s sordid private life. The investigation, which Black himself called for, will take about six weeks. Black is likely to address the matter at this Thursday’s earnings call.

“If Leon can account for all the money he paid ­Epstein and why,” the matter will be put to rest, said one person close to Black.

A spokeswoman for Black tells me that Epstein’s work was vetted by outside law firms and Black was “unaware and appalled” by Epstein’s conduct.

Levander didn’t return a call.

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