This cycle's candidates hope to avoid Mitt Romney’s missteps. | M.Scott Mahaskey/POLITICO Private equity seeks do-over in '14

After Mitt Romney’s 2012 train wreck, you might think the private equity industry would want to stay far, far away from electoral politics.

But at the outset of the 2014 cycle, something like the opposite has happened. In a handful of top Senate and gubernatorial races, private equity executives have already lined up to run and vowed not to repeat the mistakes of the Romney debacle.


In Romney’s home state of Massachusetts, former private equity executive Gabriel Gomez nabbed the Republican nomination for Secretary of State John Kerry’s old Senate seat. Halfway across the country in Illinois, former GTCR chairman Bruce Rauner is the frontrunner for governor on the Republican side. In Minnesota, a leading GOP gubernatorial candidate is Scott Honour, a former senior executive at the Gores Group private equity fund – while Twin Cities financier Mike McFadden, not a PE guy but a veteran of Lazard’s mergers-and-acquisitions branch, is also gearing up to run for Senate.

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In nearly every case, the candidates and their strategists, as well as finance industry leaders, said Romney has provided a useful blueprint on how not to run for office as a private equity executive.

The former Massachusetts governor and co-founder of Bain Capital was torn apart in 2012 by Democratic attacks on his wealth, his personal investments overseas and his deep connections to a company implicated in a string of layoffs and bankruptcies. And the shellacking didn’t just sully Romney’s image - it cast a pall on an entire industry through months of negative headlines and jokes by late-night comics.

Just as bad, Republicans say, is how poorly Romney defended and sold his background in business. Advisers to the 2014 generation of PE candidates say that Romney failed to educate voters about the real role of private equity in the financial system, instead making an unconvincing argument that the industry is all about job creation. Romney largely failed to present a positive account of his time in finance; when he pushed back on the Obama campaign’s attacks, he did so feebly and too late.

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For the finance veterans seeking office in 2014 – and the much-derided industry in which they made their fortunes – it’s an example to be studiously avoided.

Geoffrey Rehnert, who helped found Bain Capital and criticized Romney’s response to Democratic attacks in 2012, said the first step to improving on Romney’s performance is telling a more accurate and appealing story about exactly what private equity companies do.

For starters, private equity companies exist to create returns for their investors, many of which are sympathetic entities such as pension funds. While they may create jobs, that is not their primary purpose, as Romney often suggested.

“Mitt was uniquely vulnerable to attacks on his PE record since he made his job creation track record at Bain Capital a central theme of his campaign,” said Rehnert, who is currently the co-CEO of the private equity firm Audax Group. “It invited extra levels of scrutiny and critique which he had a difficult time refuting since he no longer had full access to Bain Capital’s internal information and records.”

Ken Spain, VP of the Private Equity Growth Capital Council, a group that defended the PE world extensively in 2012 through press briefings and informational videos, said candidates should be prepared to speak assertively about why their companies were valuable corporate citizens.

“From the perspective of the industry, this is not about partisan affiliation or one particular candidate. Campaigns are often characterized by political anecdotes that can constitute a larger narrative, which is why we will continue to aggressively tell the private equity story of growing and strengthening businesses across all 50 states,” he said.

One private equity executive put the industry’s value proposition in blunter terms: “We’re not in business to create jobs. We’re in business to earn a return on investments for investors. Sometimes you create jobs. Sometimes you lose jobs.”

That may be a cold assessment of the industry’s appeal to voters, but it’s actually one that the 2014 class of private equity candidates believes it can work with – especially in Democratic-controlled states like Illinois and Massachusetts, where the only Republicans who can be electorally competitive are likely to be political outsiders.

Advisers to several contenders said these Republicans weren’t deterred by Romney’s rough treatment as much as they were convinced they could sell similar resumes far better than Romney did. (One summed up his candidate’s view of the 2012 PE debate: “Romney did a terrible job.”)

Rauner, the Illinois finance executive, said in an emailed statement that he expects to see “career politicians … attack my business success,” and he’s prepared to make the case that he’s done more for the people of Illinois by investing public pension funds than his critics have.

“The fact is for decades I’ve overseen the retirement investments of cops, firefighters and teachers and created tremendous returns – far surpassing the stock market’s performance – for thousands of Illinois workers. Frankly, I’ve done a lot more for the retirement of state workers than the politicians in Springfield,” Rauner said, arguing that voters are “starving for leadership they know is financially independent from government union bosses.”

Rauner pointed out that he’s already put his wealth to use outside the finance industry: “From starting charter schools and investing in education reform to building facilities for organizations like the YMCA and the Red Cross, I’ve been directly engaged in the community for decades.”

Former Minnesota Republican Party Chairman Pat Shortridge, a top adviser to Honour’s campaign, said his candidate is prepared to talk about his own humble upbringing and discuss in detail the pension funds his company managed.

“When he was born, his parents lived in a trailer. His dad had lost his job as an airline pilot and lost the pension that was going to go with that,” Shortridge said. “Scott’s [story] is certainly very different than Gov. Romney’s, and different from [Democratic Gov.] Mark Dayton who was the heir to a large department store fortune.”

If that’s the extent of Republican pushback, Democrats say bring it on.

Whatever good works these private equity veterans may have done in their private lives, and no matter how well their companies may have served their clients, Democrats are keenly aware that it only takes one or two neon-highlighted failures to discredit much of a businessman’s record.

And judging from the Romney experience, it’s not only private equity, per se, that can be turned against a candidate emerging from the financial services sector. The Obama campaign targeted other aspects of Romney’s corporate success, ridiculing him for having a Swiss bank account, holdings in a secretive Bermuda corporation and investments in the Cayman Islands – all apparently legal, but deeply alien to most Americans.

In the Massachusetts special election, for example, Democrats have spent little time on Gomez’s private equity background on its own, but have hammered him for having taken a questionable tax break on his sizable Cohasset home.

Carrie Lucking, who heads the Democratic outside group Alliance for a Better Minnesota, said the simple fact is that voters still recoil from the trappings of an industry they view as having precipitated a national economic recession.

“Everybody knows that Wall Street and their basically gambling with people’s money prior to 2008 was the reason our economy collapsed. But Wall Street was held largely unaccountable,” said Lucking, whose group has labeled Honour “Minnesota’s Mitt Romney.” “I think this will be a very important point here in Minnesota. It’s not just that these guys run corporations. It’s that they run corporations that fire middle-class workers.”

That foreseeable line of attack causes at least some anxiety in the PE industry. One senior executive at a large private equity firm who asked to speak anonymously warned that voters are more familiar with the industry than they used to be, and not necessarily in a helpful way.

“Negative campaign messaging targeting the private equity industry has been used in the past and used effectively. Because of the 2012 national presidential election, voters are now familiar with it. The caricature has been established,” the executive said, adding from a business standpoint: “I’m not particularly concerned, because … I think our industry has engaged effectively to try to correct factual misrepresentations in the public domain about what the private equity industry actually does.”

Another executive warned that his colleagues who make the leap into politics must be prepared for the intensity of the scrutiny to which they’ll be subjected.

“If you’re a traditional private equity investor, guaranteed you will have money or funds that you’ve invested in that’s registered in the Caymans,” the executive said. “If you have money in Swiss accounts, do something about it. Either get rid of it or be prepared to proactively talk about it. Because sure enough it will be discovered and it will be used against you.”

Still, Republicans remain optimistic that voters may react differently to a debate over private equity, if the person offering their side of the story is a more appealing figure than Romney.

GOP strategists and industry officials consistently noted that Romney’s failure to connect with voters through his business background was emblematic of his broader struggle to come off as a personable and likable candidate.

A similar – though not identical – set of biographical facts may strike voters differently if they’re presented and defended by a candidate who just seems more, well, normal.

Former Oklahoma Gov. Frank Keating, the Republican who heads the American Bankers Association, said he and other Romney admirers in the banking world were troubled by the GOP nominee’s “very scripted” demeanor – around his business experience, and in general.

“Don’t be as scripted, don’t be as buttoned down. Be spontaneous. Don’t be afraid to take positions and to be aggressive and be aggressive for the position that you hold,” Keating offered as advice to the private equity candidates. “People want [candidates] they can trust and they want people who they can identify with and they certainly want transparency, openness and believability.”

Matt McDonald, a partner at the consulting firm Hamilton Place Strategies who advised Romney last year, said he doesn’t view PE as a sure killer for political candidates, as long as they can make the industry’s positive accomplishments tangible for voters.

“The most resonant stuff from the Romney campaign were things about Staples or things about Sports Authority – these iconic companies he helped found and build. On the Obama campaign side, they were trying to define it around steel mills that were closed,” McDonald said. “There are stories behind all that but part of the problem is just that negative campaigning is more resonant than positive campaigning, which is not shocking to anyone in the political arena.”