But how will the election outcome affect your portfolio companies? Independent research firm Washington Analysis issued a very helpful side-by-side comparison chart on the ways each candidate’s policies might affect various industries, and even specific, publicly-traded companies.

In short, the survey predicts bad news for tax preparers like H&R Block and Jackson Hewitt under either of the candidate’s tax plans. Managed care operators may face risks under Obama’s universal health care plan, while those companies would receive a boost under McCain’s. Likewise McCain’s Medicare plan looks good for Medicare Advantage companies and bad for hospitals, nursing homes, home health agencies, oxygen suppliers. The inverse is true for Obama.

Leiber warns that ethanol producers like Archer Daniels Midland, Aventine, VeraSun and Pacific Ethanol might be in trouble is McCain is able to lift the tariff on foreign ethanol. Those same companies (and others in the ethanol and renewable and alternative energy industry) would benefit from Obama’s plan to continue with business as usual. It’s the major oil companies facing more pressure from Obama’s proposed policies.

For more of Lieber’s breakdown, including specifics on labor (this affects restaurants and retail), tobacco taxes, network neutrality, mortgage loans and defense spending, download the report here.

It’s been pretty quiet on that front since that story, with news hogs like KKR and Mervyns taking up our attention. But I wanted to briefly share the feedback of a couple of PE pros on the topic.

But first, let’s revisit the three main options the Fed is discussing, according to the report:

Option A: Buyout firms make bank investments separate from their other investments, to avoid applying extra federal oversight to a firm’s entire portfolio.

Option B: Give the PE firms more control over their banking investments.

Option C: Encourage clubs or teams of PE firms for bank investments.
Based on a couple of conversations, I got the sense that PE firms are happy—some ravenous even—to put money behind struggling banks. Any kind of encouragement from the Fed in the form of more control and less regulation is not only welcomed but required. Said one PE pro: “If the regulations make it easier to properly influence the investment, it would favorably include our decisions to invest.”

Others suggested that the need for money is driving the change in regulation. Banks need money. Private equity firms have it. Since banks didn’t need the money before, the stringent rules about investing in them weren’t ever much of an issue.

Before, the banks only received capital from the public markets. As that supply and demand shifts toward private equity, the regulation needs to make the appropriate shift as well.

***Lazard is getting some negative attention from the SEUI. A Web site for the group says that Wasserstein “buys companies, cuts costs, and drives up their value – often for a quick profit at the expense of customers, consumers and workers.” I’m curious as to how cost cutting that drives value can be a bad thing. I mean, yes, cutting to the bone is bad. Job loss is never great. But the simplified arguments typically presented by the SEUI often leave me a bit unmoved to date.

***For a completely opposing view, look for my roundup of Ernst & Young’s annual exit study later today. Hint: It’s in favor of “value creation.”

***A colleague of mine directed my attention to a PE fundraising report he was perusing. In a subsection on hospitality events, the report details the results of a small survey.

News flash: People in the PE business have expensive tastes.

Examples of specific GP hospitality events mentioned by LPs include:

  Box at the U.S. Open
Cocktail parties and dinners
Golf (varying from outings to entire weekends)
Museum/art gallery visits
Night at a sports bar to watch a football game
Race meetings
Sailing
Shooting days
Theatre
Tours of historic venues
Trips to the Ryder Cup
Wimbledon
Wine tasting.

Does anyone have a story of the most highbrow or lowbrow GP hospitality event they’ve been to? What is a “race meeting”? And for some reason the juxtaposition here of “museum/art gallery visits” and “night at a sports bar to watch a football game” is entertaining to me.

***Dealscape shows us this week’s PE exit activity. While there’s only a handful, most of them have pretty stellar return multiples. Platinum blows everyone out of the water with their 25X homerun on Preferred Freezer. How did they do it? Three add-ons and a CEO.

**Sentiment is mixed between humour and distain on Valleywag’s message board regarding the resignation of Flickr founder Stewart Butterfield. With new employment opportunities in the finance sector hard to come by, not many of us have the luxury of telling our bosses to shove it these days, let alone in a clever, ridiculous parody. Personally, I’m a fan.

*** Speaking of job loss, Credit Suisse adds to the body count. The New York Post writes, “While the exact scope and timing could not be learned, one person familiar with the plan described this round of layoffs as cutting “muscle, not just fat.” Ouch. My very very lowball estimate of layoffs was around 31,000 last count. Anyone have a more accurate number?

***Carl Icahn and his blog are being monitored, analyzed and critiqued like the tabloids on a troubled young starlet. I counted 14 reviews though I’m sure they’re many, many more.

Seriously though, people. I know Dan proposed a few good theories as to our fascination with his blog, but are the internet musings of Carl Icahn worthy of this much commentary? Oddly enough, trolling through these reviews doesn’t feel like a walk down an echo chamber. Most notable is Silicon Alley Insider’s list of suggested blog topics for the world’s richest blogger is notably clever.

My question is—do you think he reads the comments? Some people have posted long comments that read like love letters, some even in letter form. (Highlight: Someone named Sue Mazir writes, “Will you marry me, lol?!!!! It’s like you have my thoughts…eh…or me yours is more like it. I absolutely MUST become under your employ.”

Depends on who you ask. But industry insiders say that LPs are becoming more selective about who they do business with even as they continue to plow loads of capital into private equity funds. Firms hitting the road with their hands out would do well to remember that.

“Some LPs are dissatisfied with [the] private equity sector and are seeking exits from their positions,” a partner at a New York fund placement agent wrote in a recent internal memo. The current trend indicates bifurcation of the general partner market “into branded ‘haves’ and ‘have nots’ who struggle to raise capital.” Combined with a squeeze on allocations, the memo said, fundraising right now is a zero-sum equation where one GP’s gain is another’s loss.

Wait a sec. Don’t we hear all the time about the popularity of private equity among investors? Didn’t Coller Capital’s latest private equity report say that over a third of LPs (38%) are planning to increase their allocations to private equity over the next year—way more than the 3 percent of respondents who say they plan a reduction?

Yes, but many of them are in “re-up only” mode, a trend the New York partner noted in his memo that has been echoed by others in the placement business. Those LPs that aren’t immediately re-upping are looking for longer-term relationships (leading to eventual re-ups) rather than seeking out faddish funds that may give high returns but are probably one-and-done affairs.

Michael Sotirhos, a partner at Connecticut-based placement agent Atlantic-Pacific, said that some firms try to jam opportunities down too many of their LPs throats on the road show, instead of “recognizing the holes in their portfolios” and honing the pitch to fill those gaps. Firms should also be mindful of the dreaded “strategy drift”—a tendency in unsteady markets to stray into unaccustomed areas. It can scare investors away.

Two other placement agent partners said that “middle-market” is spanning a larger section of private equity shops than it has before. “That makes differentiation on the product, rather than the firm or the individual selling it, more important,” one added.

If you’re looking for the take-away, there it is: less swinging for the fences, more judicious persuasion on road shows. I wouldn’t have guessed it on my own, but apparently it’s a mistake partners often make.

If anyone has anecdotes about other ways partners are likely to screw up when they’re in fundraising mode, making pitches, leave it in the comments section below, or better yet, shoot me an email at andrew.scurria@thomsonreuters.com. I swear on my keyboard to protect the names of the innocent, and the guilty.

A handful of today’s PE-related headlines.

Factbox: By my calculations, three of the top ten widest M&A spreads are LBO-backed. That seems like good news until you realize LBOs only make up 20% of the total pending deals tracked by Reuters (its 35 total). That means just slightly less than half of the pending public-to-private LBOs have very little investor confidence in their completion. Penn National is rocking a 52-point spread, not helped by the fast-approaching one-year anniversary of its announced sale to Bain Capital Partners and Thomas H. Lee Partners. Still, the top spot was nabbed by corporates: With a 90 point spread, the struggling Blockbuster’s attempt to buy Circuit City looks like wishful thinking to investors.

CNN and WSJ: In a matter of a few days, Jones Day lawyer Robert Profusek told the press that

(A) Leverage is gone for good,(WSJ) and

(B) Strategic mega-deals are the next merger boom (CNN).

Regarding the former, Profusek very quotably told WSJ’s Heidi N. Moore, “Private equity is going to be just plain equity. The “L” won’t be there in “LBO” any more.”

As for the latter, I have to say I buy it. Just look at the four $10 billion-plus mega tie-ups of 2008: Verizon/Alltel, InBev/Anheuser, Mars/Wrigley and HP/EDS. I don’t have the data in front of me but I’m fairly certain the largest four deals of the first half of 2007 were not corporate mergers. In fact, I’d be interested to see if any strategic tie-ups during that time crossed the $10 billion mark. First Reserve is the only PE firm to even come close to that kind of deal volume (accounting for 25% of all LBOs this year, Buyouts reported), even though The Blackstone Group’s Tony James recently alluded to a larger-than-$2 billion deal in the near future at a conference hosted by The Deal.

Reuters: Private Equity’s 2008 Q4 returns improved around 1% over Q3

Reuters: Cerberus is raising an international distressed fund and is not looking at loan and property portfolios.

dealReporter: In case you missed it, Borders asked for its first round bids Monday… According to this report, there were 30 initial IOIs. With only two obvious strategic bidders (Amazon.com, and the favored candidate, Barnes & Noble), that means PE firms might see this as a steal. It is, after all, down about 30% from where it traded a year ago. It’s unclear if Amazon is actually interested, but according to The AP, Borders’s minority shareholder isn’t playing coy. Aside from Barnes & Noble’s potential antitrust issues, its market cap is only slightly higher than that of Borders. Why doesn’t a PE firm help ‘em out? Anyone?

Reuters: Friday the 13^th is actually safer than other Fridays. Seems like the markets weren’t too scary today if that’s any further evidence…

With the bankruptcy rate wavering below 1 percent in recent years, a workout banker’s services were rarely called upon. “They were on vacation for five or six years,” one lender said. Many of the field’s experienced professionals moved on, winding up at buyout shops, investment banking departments, or loan origination.

“Entire lending institutions got rid of their workout groups,” said Lorie Beers, managing director with the Special Situations Advisory Group at KPMG Corporate Finance.

But with a recession taking hold, bankruptcy rates are up: 2008 could see a five percent default rate, based on an annualized first quarter. As of the start of May, 15 companies defaulted on their loans. Institutional lenders seeking to renegotiate sour loans have noticed holes in their staff. Filling that personnel void is a slew of fresh faces new to downturns. Even those working out the bankruptcies of 2002 and 2003 saw fewer cases of systemic business failure, Beers said. The major cases in that cycle were industry-specific, or related to fraud, she said.
According to several industry veterans, the lack of expert special situation lenders means two things for deals-gone-awry. For one, workouts are more complicated. Second, they take longer than they should. “There’s not a lot of institutional memory on how to deal with these types of transactions,” Beers said.

The learning curve for negotiating a distressed loan is steep. New faces at institutional lenders, and the hedge funds that bought the syndicated loans, approach workout negotiations as though they’re bargaining for new loans, the industry veterans said. “Its hard to have a logical conversation about things like rates and terms and covenants with a company’s that’s on the verge of a liquidity crisis,” one industry veteran said.

Fund managers without experience in distressed companies miss red flags, one banker added. Companies in decline often see the wheels fall off in a non-linear fashion, and without the right skill set, a lender won’t know its raining till its pouring, the banker said.

And that affects the timeline—a seasoned workout banker knows that when a company is in trouble, there’s no time to waste. Investment banker Rocky Pontikes of Mesirow Financial Inc. said his firm noticed a slower-than-usual pace on a number of recent transactions. “Loans are staying with the relationship bankers longer than they historically have, when they should be going to the special situations groups,” he said. The difference—relationship bankers tend to delay a sale, hoping the company will pull through. “The special situation guys are unemotional about the banks position,” he said, leading to a deal happening sooner.

Such was the career advice dispensed this morning by Bain Capital’s Stephen Pagliuca at Buyouts Madness ’08, a networking event hosted today by Buyouts Magazine and peHUB. A co-owner of the Boston Celtics, Pagliuca also talked about Beantown’s home team with moderator and inveterate Boston fan Dan Primack.

In today’s market, when deals have vanished along with debt, analysts and associates at LBO shops can stand out by brainstorming ways to boost the performance of portfolio companies. That may mean identifying acquisition targets, churning out innovative suggestions to cut costs or finding productive ways to inject capital into the companies. “At Bain, we don’t measure people on how many deals they close. It’s how do they add value on a deal, finding different ways to do things. Don’t just run models,” Pagliuca advised.

Young buyout pros would also do well to accept responsibility for their failures as well as successes, and to conduct themselves with integrity. In Pagliuca’s view, that means “doing what you you say you’re going to do, and doing it well.” He urged analysts not to cut corners on reports and to be honest about their methods. “People who are successful jump in and proactively take responsibility for decisions, especially when things go wrong,” he said.

Bain Capital has no plans to skimp on hiring. The Boston-based buyout firm brought on a record number of new employees last year and will likely hire even more this year. “We take the 20-year view,” Pagliuca said, adding that he expects the industry to grow tremendously in the future. About today’s shaky economy he added, “It’s only a phase, but it feels like forever” when you’re living it.

Now, about those Celtics.

When Pagliuca bought the team, along with other investors, he wasn’t looking to make money. It was motivated more by his passion for the team and for Boston. But that didn’t stop him from applying private equity-style analysis to turn the team around. He even brought in The Parthenon Group’s consulting team to study the organization.

Pagliuca, who played for Duke University’s basketball team when he was a freshman there, set three goals for the Celtics when he took over: improve the fan experience, boost the team’s performance and strengthen ties to the community. By replacing the old scoreboard with a new $5 million state-of-the-art version and rolling out promotional activities, Pagliuca hoped to curry favor with fans. That he added cheerleaders to the TD Banknorth Garden didn’t hurt. Pagliuca and his fellow owners also invested $17 million, up from $4.5 million, to beef up the coaching and staff ranks. They brought on legendary Celtics player Danny Ainge to manage the team and stuck with Coach Glenn Anton (Doc) Rivers, despite intense calls for his head from the public. And by buidling a team of hungry young players, some just out of high school, Pagliuca and his partners built a team that went from having the second worst record in the NBA last year to clinching the division title this season.