Private Equity Portfolio Company Political Activity

Abstract

Many private equity and venture capital firms believe that few, if any, of their funds’ portfolio companies engage in traditional governmental affairs activities such as lobbying or making political contributions to elected officials or candidates. Consequently, they often opt not to conduct a proper due diligence analysis on the political activity of a current or potential portfolio company target. We consistently find, however, that many companies across a range of industries do in fact engage in political activity to varying degrees, and the same attributes that make a company an attractive potential acquisition are also those that would lead a company to be politically active. Higher Security and Exchange Commission scrutiny on private funds will not only reveal compliance issues with regulatory consequences, but also raise issues for the fundraising for future funds.

TOPICS: Private equity, legal/regulatory/public policy, analysis of individual factors/risk premia, equity portfolio management