The next US president, private capital, business investment, and economic opportunity

_{Drew Maloney, CEO, AIC}

Drew Maloney is President and Chief Executive of the American Investment Council, an advocacy and resource organization representing over 80 major US private equity, private credit, and growth capital firms.

He has led the AIC since 2018, having previously worked as the Assistant Secretary of the Treasury for Legislative Affairs, at the Hess Corporation, and at Ogilvy Government Relations. Grant Murgatroyd, Head of Preqin News, and Shaun Beaney, Editor of Preqin First Close, spoke with him about private capital policy, tax, regulation, and having a good story to tell.

Shaun Beaney: What would you like the new President in 2025 to prioritize?

Our top policy priority under the next administration and the next Congress is economic growth and ensuring that tax policy does not hinder investment across America. The Tax Cuts and Jobs Act will expire next year, which could affect the industry. We work with policymakers on both sides of the aisle in Congress to educate them about what private equity provides in their communities, the number of jobs it supports, and the capital flows necessary to build businesses. So, no matter who wins this election, next year will be very busy for the private equity and private credit industry.

SB: What’s the private capital perspective on popular concern in the US about the cost of living?

Private equity directly supports about 12 million American jobs. And 85% of our private equity dollars go to help small businesses. In any town you visit across the country, you will be surrounded by local employers, dependent on private capital to grow and expand their businesses. In addition, private equity jobs are at higher average wages and provide excellent benefits. So, in an inflationary economy, we’re playing a very positive role in the community, and our investments are driving life-changing innovation and bringing products to market at lower costs.

Grant Murgatroyd: The AIC’s origin was a private equity lobby group, but how are you now involved in private debt?

We represent about two-thirds of the private credit industry in terms of AUM. We’ve spent the last couple of years talking to policymakers about the benefits of private credit. It’s filling a huge gap out there, where there may be too much risk for banks and small businesses don't have access to capital. Private credit is stepping in and providing that needed capital, which will be essential as we go forward under any administration for creating economic growth. Access to capital is critical. And that’s what I think is unique about the American model. We really encourage private investment. We’ve seen a lot of growth in private credit since 2007–2008 and the growth was based on demand. As long as we see growth in the economy, we’ll see continued demand.

SB: How has the Inflation Reduction Act (IRA) influenced private capital?

There are a few provisions that have had an impact on private capital. I think you've seen it in the energy transition space, where various companies have taken advantage of that. I think there will be a debate around all or some of the provisions in the IRA in the next administration. There’s a belief on one side of the aisle that the IRA has spent more money than anticipated. But I think you’re seeing a lot of growth in certain states with this energy transition money, so I think it will be a hotly debated topic in the next tax bill.

SB: You’ve mentioned tax policy. What are your concerns about corporate tax and capital gains tax?

Private equity is a significant taxpayer. In 2022, the industry paid more than $300bn in federal, state, and local taxes. What’s often misunderstood about the industry is that we’re buying and selling the companies in five to seven years and generating tax revenue during that time, whereas if you buy and hold, you’re not generating that type of tax revenue. It’s critical for economic growth to ensure that the tax policies are correct and you’re not being punitive with certain industries. We will be very engaged with lawmakers as they debate tax reform in 2025 to ensure they don’t discourage private investment.

SB: Are you arguing for the status quo on tax rates, or asking for some kind of negotiation or consultation?

We would support an extension of the 2017 Tax Cuts and Jobs Act. As your readers know, certainty is the best form of investment. Extending those provisions would provide certainty for the investment community.

GM: Do you think the private capital industry does enough to tell the story about what actually happens to the companies it backs?

Oftentimes, we talk at the AIC about encouraging our members to do a better job of engaging with their communities about the portfolio companies they own and talking about the benefits they provide. So yes, we can do a better job of telling our story. For example, we’re hosting an event with the Congressional Black Caucus. We invest a lot of capital in many minority districts. We’re bringing representatives of portfolio companies and different products to the event, so everybody can see, touch, and feel what private equity is. We must make private equity more relatable to the average person to convince them that what we’re doing out there is a very productive part of the community.

SB: The AIC has successfully challenged the SEC's Private Fund Adviser Rule. What’s the next big regulatory theme for you?

The biggest concern we have going forward is pre-merger notification in the Hart-Scott-Rodino Act. Those rules by the Federal Trade Commission have not been finalized yet. They were targeting private equity roll-ups. The current FTC viewpoint is that bigger roll-ups are not better. We've offered a lot of data to show that oftentimes you need companies to merge to provide scale to compete with large incumbents. That ultimately helps you to have a more competitive environment. We believe that if these rules go final in their current form, they will chill deal-making and hurt economic growth.

SB: In another area of regulation, the US, like several major countries, has tightened up national security rules about outward and inward investment, and about M&A, including the Committee on Foreign Investment in the United States (CFIUS). How has this affected private capital?

Long-term investment requires certainty and the rule of law. The decrease in private equity investment in China over the last decade is largely based on the rule of law. We work regularly with the US Treasury Department to ensure, on outbound and inbound investment, the rules of the road are clear. Private equity will participate in markets when the rule of law is held intact and the guardrails of what can be invested in are clear. We work very closely with the administration on these rules, and we’ll continue to do that.

GM: Are the time and expense of complying with regulations a material barrier to investment or just part of the cost of doing business?

We are a well-regulated industry. We support appropriate regulation. However, as you saw in the SEC’s proposed Private Fund Adviser Rule, the cost they were going to impose on the system was billions and billions of dollars. It’s a similar cost to the Hart-Scott-Rodino proposals. So, we believe that there are adequate rules and guardrails in place. Just adding new layers of rulemaking will only slow down and discourage economic activity. I think you hear from both presidential candidates right now a desire for economic opportunity and economic growth. But there are mixed signals from the regulatory bodies on that front.

SB: You updated the Guidelines for Responsible Investing in 2021. How has your work on ESG developed since then?

We periodically review our Guidelines for Responsible Investing. We’re proud that AIC members are responsible investors, work hard to deliver strong returns for their partners, and have a clear record of making good investments. Several of our members have launched new programs on employee ownership, which fall under this rubric. We believe it’s important that our members live these values every day, regardless of the political environment.

SB: Some people have been surprised by how heated discussions in the US have been about ESG. Is it a phrase you continue to use comfortably or something you’ve had to revisit?

We focus on values, not lingo. You can talk about sustainable investing and a lot of other responsible investing without getting caught up in that sort of lingo and the politics around it.

GM: If you could change one thing to make the industry work better, what would it be?

Our message from the AIC is that our industry must do a better job of engaging with policymakers and communicating our value, especially as we move into next year. Our industry supports jobs, small businesses, and innovations that improve lives. However, we must communicate that good work and how it affects communities across America.

GM: What’s the AIC’s key message to investors, fund managers, and professional advisors around the world about private capital in the US?

The US is the beacon of global investment. Our rule of law and history of embracing economic growth and private capital are unique. And that’s why you continue to see the US be a huge draw for foreign capital, economic growth, and innovation. That’s why dollars continue to be invested in the US.

Grant Murgatroyd is Head of News at Preqin and Shaun Beaney is the Editor of Preqin First Close. You can read all our latest coverage and free reports here. It’s quick, easy, and free to subscribe to our newsletter here.

Preqin is a member of the American Investment Council. Additional thanks to Emily Schillinger, the AIC’s Senior Vice President of Public Affairs, and Jamal Hagler, Vice President of Research.

_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.}