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DAVID KRUSE

By Staff | Jan 27, 2012

Mitt Romney has made his business experience and job creation record the cornerstone of his campaign for President. Republicans must be a little worried about it as they don’t like anyone of their own challenging Romney’s version of his Bain Capital experience.

I would think that it is a pretty safe bet that the Bain Capital website has seen a lot of traffic recently.

Bain Capital calls itself a private equity company. That stretches the common definition of private equity a bit. There are two kinds of investment companies – private equity and hedge funds. I have had some experience with both.

Hedge funds are typically managed funds with little or no capital invested by the fund managers. They discover investment opportunities, sell them to investors who provide the capital, and the managers earn fees and share in the profits, though they often have little money invested themselves at risk.

In my experience, hedge fund managers are not particular how they earn profits. They will take business profits, or if that doesn’t work, they will try to profit from partners or shareholders. They typically care little or nothing about the core business.

Private equity is different. As the name suggests, private equity is often put up by individuals who have direct input into investments and management. They generally operate a cut above hedge funds with a longer term investment horizon. They also have some or all of the money in the investment at risk.

As I analyze Bain Capital, they appear to be a hybrid between a private equity firm and hedge fund, because they manage a lot of other entity’s money, which means they are investing assets far beyond those of the principals.

According to Wikipedia, “From 1993, when Bain raised its first institutional fund through the beginning of 2012, Bain had completed fundraising for 11 funds with total investor commitments of over $38 billion, including its global private equity funds and separate funds focusing specifically on investments in Europe and Asia – pools of committed capital from pension funds, insurance companies, endowments, fund of funds, high net worth individuals, sovereign wealth funds and other institutional investors.”

According to the Bain Capital website, “Our principals are the largest single investor in each of our funds, “but like a hedge fund, most of the capital in their funds comes from others.”

Bain has invested in more than 250 companies. One of the surprises that I uncovered was, “In early 2001, Bain purchased a 30 percent stake in Huntsman Corporation, a leading chemical company. Bain’s $600 million investment in Huntsman has been noted as an interesting footnote in the 2012 Republican Presidential nomination process since Romney’s former firm (he had left Bain in 1999) acquired the company controlled by the father of another candidate, Jon Huntsman, (Huntsman was an executive of the company at that time.)”

Huntsman endorsed Romney after leaving the race so the Huntsman Klan must not be that disgruntled over their investment with Bain.

The most fragile risky claim by Mitt Romney is that he created 100,000 new jobs with Bain Capital. That number gets pulled out of the air, because it sounded good. Even Fox News has discredited Mitt’s job creation claim. His campaign only counted the winners.

The AP fact check noted, “By that sort of charitable math, President Barack Obama could be credited with creating over 1 million jobs (200,000 in December) even though employment overall is down about 2 million since he came to office. Romney accuses Obama of destroying jobs, while using a different standard to judge his own performance.”

I am sure that someone doing deep research into Bain Capital will come up with a more accurate number, but it will be no where near a net 100,000 jobs. I don’t have any trouble if Bain Capital invested in a company, found that it wasn’t viable and closed it despite job losses.

You can’t ride a dead horse; you can’t make a dead dog fetch. I do have a problem, however, if they pillaged companies before burning the barn down.

Reuter’s said that Bain put $8 million in Arm Steel Corp, issued $125 million in bonds from which they took $36.1 million. Issuing debt to make distributions is a dubious practice.

It is not often successfully done, because new investors typically refuse to enrich old ones. They obviously should have asked themselves, if the investment was so good, why was Bain cashing out? Not enough money was set aside to fund pensions.

The company filed bankruptcy and taxpayers ended up coughing up $44 million through the U.S. Pension Benefit Guarantee Corporation to cover basic pension payments.

The workers, of course, lost their jobs and 22 percent of pension benefits.

This investment had a very unequal outcome where Bain won and everyone else lost. Creating jobs is not part of private equity or hedge fund’s mission. They are in it to make money and the rest, as long as it’s legal, is just “business.”

Bain was good at that. You won’t get any apologies out of them for the rest. Business ethics, however, do reflect those of the owner.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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