Why Cory Booker is Private Equity’s Unlikely BFF

Photograph by Jeff Zelevansky/Getty Images

Newark, New Jersey Mayor Cory Booker.

Henry Kravis and Steve Schwarzman should be scribbling thank you notes to Cory Booker today.

The Newark mayor ignited a campaign firestorm over the weekend, calling for a stop to attacks on private equity, going so far as to call them “nauseating” and defending both Bain Capital and the industry in general. Why would a key Obama supporter break ranks like that?

The answer: New Jersey has a lot riding on private equity.

The state’s pension system in December agreed to a sweeping $1.8 billion deal with private equity giant Blackstone Group that will comprise investments in real estate, energy and debt funds. That brought New Jersey’s total commitments over 12 months to $2.5 billion to Blackstone alone, the most Schwarzman’s New York firm has attracted from a single investor in a single year since its creation.

There’s another reason Booker may have spoken up. While he doesn’t control New Jersey’s state pension, as the mayor of a big city Booker has a deep interest in economic development. The Private Equity Growth Capital Council was quick to seize on that angle. In an email this morning, the industry’s main lobbyist, amid a campaign to defend its practices, noted that New Jersey drew $3 billion in private equity investment last year into the state economy.

New Jersey is far from alone in its ties to private equity, a business that counts on scores of public pensions as key funders. Kravis’s KKR won a $3 billion commitment from Teachers Retirement System of Texas last year.

Even presumed liberal bastions are playing. No less than California — a deep blue state in presidential terms — has been a major source for buyout funds for more than two decades. Just last week, the California Public Employees’ Retirement System cut a deal with Blackstone similar to the New Jersey pact, committing $500 million to the New York firm in a so-called separate account. Some of the industry’s longest-standing backers are pensions in the decidedly crunchy states of Washington and Oregon.

All of these pensions are betting that Blackstone and its brethren can deliver returns that far outstrip what investors could reap from the public markets.

That money ultimately goes to fund retirement accounts — with a generous cut to Schwarzman, Kravis and Romney’s former colleagues at Bain, to be sure. That wealth, along with accusations that private equity firms generate their profits by slashing jobs and shuttering factories, have become a dominant theme during the 2012 campaign. Romney’s Republican rivals and now Obama have bludgeoned the Bain Capital founder with buyout fueled criticism that’s spilled into the industry at large.

Booker’s nausea moment may ultimately mean even more to Romney’s erstwhile private equity colleagues than to the candidate himself. In assembling their defense against the inevitable political attacks, executives inside the biggest buyout funds have been desperate for their ultimate investors to step forward.

Few have opted to take that plunge. Could Cory Booker help change that calculus?

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