JUDY WOODRUFF: As we heard earlier, Mitt Romney’s tenure at Bain Capital has already emerged as a major issue in the campaign.
Tonight, we examine what’s known and not about Bain’s record and Romney’s.
One of the world’s largest private investment firms, Bain now manages roughly $66 billion. Romney was its founder and led the company from 1984 through 1998. During that time, Bain invested in 77 businesses. A Wall Street Journal analysis found that Bain made $2.5 billion in gains for investors from those businesses and did successfully turn around many of them.
But both The Journal and The Boston Globe also found that at least 20 percent of the businesses either filed for bankruptcy or closed down several years after Bain invested.
We look more closely at all this now with two reporters who have been examining the records. Beth Healy is with The Boston Globe. And Dan Primack is a senior editor at Fortune magazine.
Welcome to you both.
Dan Primack, first of all, for those of us who don’t work in the financial services industry, what does Bain do?
DAN PRIMACK, Fortune: Bain for the most part — they have a lot of different businesses, but their primary business is private equity, which basically means you buy a company, you try to improve it, and then you try to sell it later at a higher price, either to another private equity firm, another corporation, or, in some cases, take it public.
That’s the gist of the business. They have investors who give them the money to do it. And they take a cut basically of the profits, if there are some.
JUDY WOODRUFF: And, Beth Healy, what’s the role of borrowing in all this? Because we know that a lot of this has to do with leveraged — so-called leveraged buyouts. So what’s the role of debt in all this?
BETH HEALY, The Boston Globe: That’s right.
So when the companies buy — when companies like Bain go and buy a firm, they also borrow a lot of money from the bank. And, in fact, they borrow much more than they typically put down. You might put down $10 million and then borrow many tens of millions more or even hundreds of millions more.
JUDY WOODRUFF: Dan Primack, so the stated goal of a private equity firm involved in these buyouts like Bain, what is it? What do they say their purpose is?
DAN PRIMACK: Make money for their investors. And the investors in a firm like Bain and most other private equity firms typically are large institutions: pension funds, college endowments, private foundations, sometimes sovereign wealth funds or public pension funds.
But their primary goal is to make money for their investors. That’s — to be honest, that’s their only goal and it’s their only fiduciary responsibility.
JUDY WOODRUFF: And what is Bain’s record?
DAN PRIMACK: Bain’s record is very good.
And the way you kind of judge, you sometimes can judge on returns. But Bain — most private equity firms keep those numbers under wraps, and the only way they come out is if you have public investors. Bain really doesn’t. The way you can judge it is, Bain’s still not only in business, but they keep raising larger and larger funds.
The first fund Romney raised when he was there was $36 million, approximately. Right now, they’re raising billions, $10 billion for their funds. So they’re doing quite well.
JUDY WOODRUFF: And, Beth Healy, is it possible to isolate what — how successful Bain was during Romney’s tenure, how much money they made, how successful they were for their investors?
BETH HEALY: Yes, mainly because there’s this Deutsche Bank report, a Wall Street report that came out a number of years ago, and we were able to examine it. Others have as well. And they made 88 percent a year for their investors under Romney’s tenure, which is — was one of the best records in the business at that time, from ’84 to ’99.
JUDY WOODRUFF: So, compared to the rest of the industry, they did well?
BETH HEALY: That was an extraordinary return, to get 88 percent a year.
And they aren’t making those type of returns any more today. It was a really good time in the ’80s and early ’90s, but it was an extraordinary return then.
JUDY WOODRUFF: Dan Primack, what about the question of jobs?
This, of course, has come up from the candidates during the campaign, both — especially Rick Perry, Newt Gingrich going after Romney, saying Bain Capital when he was there — in Perry’s word, they’re like a vulture. They go in, they take a company that’s in distress and lay people off, people lose their jobs.
What is the record in terms of jobs at Bain Capital?
DAN PRIMACK: The answer is, we really don’t know.
The original claim that Romney made was that they had created over 100,000 jobs. Actually, first, it was tens of thousands. Then it became 100,000. And when he just says that, it’s true. Look, they used to be venture capitalists when they began. So they actually started businesses, not these leveraged buyouts.
So, Staples alone today has around 80,000 employees. So, saying 100,000, it is defensible. The problem is, is that Romney’s now saying that’s net. In other words, it’s not just the jobs we created. We’re subtracting the ones that were lost.
He can’t really say it, because Bain never kept track not only of the jobs created, but also the jobs lost. Bain never kept track of it. Romney’s campaign has not suggested at all that they’ve done the legwork to find it out. So Romney’s claim of net job increases, he might be right, but he has no way of knowing. And neither do we.
JUDY WOODRUFF: Beth Healy, what does your reporting show on that about Romney claiming 100,000 jobs or more were created under his leadership?
BETH HEALY: Well, we know that Bain isn’t disputing those numbers, but probably that figure is based mostly on Staples, Domino’s, Sports Authority, these kind of very big retail chains with lots of jobs and potentially lots of turnover, too, actually.
And at other companies that they invested in, they did add jobs, but they also lost jobs when they had to close factories, and when the investments didn’t work out, and when they were cutting costs.
JUDY WOODRUFF: But they would argue — in the defense of Bain Capital, they would argue that that’s what they’re designed to do, to create return for the investor. Is that correct?
BETH HEALY: Absolutely. That is absolutely their job.
And they would tell you that they’d much prefer to grow companies than to fire people. But it happens. It’s happened at a number of instances.
JUDY WOODRUFF: Dan Primack, how is success measured, then, at a company like Bain? Is it purely the profits that are earned for the investors?
DAN PRIMACK: Yeah, for the…
JUDY WOODRUFF: Go ahead.
DAN PRIMACK: It is.
Look, you obviously don’t want to have — from just from a PR perspective, but, look, these are people. Nobody likes to fire people or lay people off or shut down factories. And, ultimately, it is profits, but they kind of should go hand in hand.
You know, Bain, indeed, through some financial engineering, was able to make money on some companies that it bought that ultimately failed. It’s a tricky process, but you actually can do it. But, in general, the way private equity firms make money and the way you make those returns that Beth was talking about is by growing businesses.
And that should mean adding revenue, adding employees, et cetera. But, in the end, yes, it’s profits. That’s what firms are supposed to do. And to be honest, if that’s not what they were focused on primarily, their investors would leave, and also could theoretically sue them for it.
JUDY WOODRUFF: Beth Healy, you’ve been looking at Bain for quite some time.
I was reading today a story you worked on back in 2007 looking at the history of the country — of the company and at Mitt Romney’s involvement in the company. How would — how do you — how is it possible to quantify his success there? I mean, we’ve talked about profits. We’ve talked about jobs. What’s a fair measurement in the industry?
BETH HEALY: Well, I think the return is a big deal.
Another thing that happened is, Bain was able to raise the amount that — the cut they take on the profits to 30 percent, which is higher than most anyone else in the industry. Most people charge 20 percent, most of the firms. And because the experience was so good under Romney for his those investors, they were willing to pay that much more.
JUDY WOODRUFF: And staying with you, Beth Healy, if someone were to say, does a company that does what Bain Capital does, does it add to the economy, is it a — is it a net balance because, one side or another, money comes, money goes? I mean, is there a way to say what it means for the American economy?
BETH HEALY: I think it’s very difficult to say whether it’s a net gain or a net loss.
They would certainly argue that it’s a net gain. There are many even academics who would argue that when you have companies that are having problems and there’s an investor willing to come and put money into it and overhaul those companies, potentially you are saving jobs and growing a company, that the company could have gone away.
Sometimes, these companies were on the brink of failure, on the brink of big layoffs anyway. But, in the end, a lot of what gets created is a lot of money for the investors. Now, the investors are endowments and pensions and other people like us, who could possibly also be gaining from those — from that money.
JUDY WOODRUFF: And, just quickly, Dan Primack, on that question of helping, hurting the economy, what would you say?
DAN PRIMACK: Yeah, I agree with Beth.
On the jobs issues specifically, there was an academic study that got done a couple years ago by somebody at Harvard and somebody at University of Chicago. And they looked at a bunch of census data and IRS data. And what they found was that private equity-backed companies had a slightly worse job creation record than did non-private-equity backed companies, but it was relatively slight.
Unfortunately, the way that data got compiled, you can’t pull Bain specifically out of it. But, as Beth said, it’s really difficult to say. And, ultimately, it’s firm by firm. And you might have one huge win, like a Staples, and then you have a bunch of smaller losses, or vice versa.
JUDY WOODRUFF: All right, we will leave it there.
Dan Primack, Beth Healy, we thank you both.
BETH HEALY: Thank you.
DAN PRIMACK: Thank you.