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Though the Private Equity Council is backed by one of the richest industries in America, its office doesn’t show it. The yellow walls in the rented space are bare. It doesn’t even have its name on the door. But the modest appearance of the newly created Washington face of the multibillion-dollar behemoth is misleading. This newcomer wields the political clout of a veteran heavyweight. Next month, the council will move out of its temporary quarters on Pennsylvania Avenue Northwest to a new home on F Street Northwest. The move establishes a beachhead near the Capitol for an industry that hasn’t spent a lot of time worrying about Washington but now finds itself in the heart of a political maelstrom. Some Democrats have drawn a bead on the booming private equity industry, alleging it isn’t paying its fair share of tax on its skyrocketing profits. The tax talk has the industry paying attention — which means the new kid in town is busy mounting a major lobbying effort. In fact, some question why it didn’t come sooner. “Hindsight is 20/20,” says Doug Lowenstein, president of the council. “If everyone knew there was going to be a direct effort to change the tax treatment of carried interest . . . that wasn’t on anyone’s radar screen.” The group has been in the works for more than a year; Lowenstein’s appointment was announced last December, and he started in February. The rest of the staff was hired this spring. The learning curve shouldn’t be too steep. Lowenstein founded and ran the Entertainment Standards Association for more than a decade, representing the industry through high-profile flaps over video game violence and other issues. Vice President of Public Affairs Robert Stewart worked in Washington for years before starting his own communications firm. And the council’s vice president of government relations, Steve Judge, previously held a similar position at the Securities Industry Association. The group has also hired a half-dozen of Washington’s best-known lobbying firms, including Akin Gump Strauss Hauer & Feld, Capital Tax Partners, and Brownstein Hyatt Farber Schreck, registrations show. That’s in addition to the lobbyists retained separately by each of the group’s member firms. The lobbyists include Public Strategies Washington Inc., Ogilvy Government Relations, and others. All that firepower adds up, though no one would say how much money the industry has pumped into the council and other lobbying efforts. Right now, the industry’s hired guns are trained on legislation that, backers say, would eliminate a loophole in the tax code that lets private equity managers, who take a percentage of profits, pay capital gains rather than income tax on their money. The industry says the change could result in smaller profits for pension funds and other investors, and it’s unfair to single them out. Supporters say it’s a matter of tax policy and the highest earners shouldn’t be paying less. Hilarie Chambers, chief of staff to Rep. Sander Levin (D-Mich.), who filed one of the bills focusing on the industry, says Levin wants more discussion about the substance of the issue “because, quite frankly, we think the facts are on our side. . . . People understand compensation for services.” BIG PROFITS, BIG TARGET The burst of attention to private equity profits is partly the result of an industry that has grown rapidly, making more and more high-profile deals and generating profits with so many zeros that they could fill a singles bar. Where private equity firms once snapped up small companies or divisions of larger ones, they now launch multibillion-dollar bids for such well-known names as Dunkin’ Donuts and Chrysler. In an effort to raise even more cash, certain firms, such as the Blackstone Group, are going public. But the higher profile creates a bigger target in Washington. Until very recently, people involved with the issue say, private equity firms went about their business without thinking much about Washington, and Washington seemed to have little to say about private equity. The idea of a trade group had been floating around for years with no particular urgency. Enough firms had to sign off on a plan to move forward together. The 11-member list of companies includes industry names such as Bain Capital, Hellman & Friedman, and the Texas Pacific Group. “It was only a matter of time before we reached a critical mass of agreement on the subject,” says Christopher Ullman, director of global communications for the Carlyle Group, a private equity firm that has joined the council. And Lowenstein says there are some advantages to starting up while private equity is a hot topic of debate. After all, he says, “it does focus the mind. In some ways the bright side of this is, it’s absolutely validated for all the members the reason why this organization is needed.” A TAXING QUESTION In the meantime, the proposed tax change has drawn support from some leading Democrats. Rep. Charles Rangel (D-N.Y.), chairman of the key House Ways and Means Committee, has said he wants the committee to hold a hearing on the issue before the August recess. That’s a pretty ambitious agenda for a newly hatched lobbying operation. “We have a certain mission we need to accomplish,” Lowenstein says. “We need to raise awareness about private equity, develop a story, fund research. We need to do a whole bunch of things that you calendar out over a 12-month period. You wind up taking a whole series of activities that you had projected to carry out over a 12-month period, and now you’re trying to get this done with a much greater sense of urgency, on top of doing all the standard operational launch tasks you would face anyway.” The council has already posted white papers on its new Web site. Lobbyist Smith Davis of Akin Gump says the industry is working to gather case studies to put the impact of private equity in “real-life terms.” “Most people don’t understand their role in taking companies, rehabilitating them, and putting them back in the market,” he says. And Lowenstein says for a new organization, the Private Equity Council has been thorough in its lobbying effort. “We’ve developed a very broad-based lobbying program, certainly in key committees with primary jurisdiction over our issues,” he says. “I don’t think there’s anyone at the staff level or many of the members [on those committees] who hasn’t had some interaction.” In other words, Washington might be private equity’s biggest takeover target of all.
Carrie Levine can be contacted at [email protected].

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