Capital Decanted Season 2, Episode 6: "Private Equity Needs a New Head of PR"

Hosts: John Bowman and Aaron Filbeck
Guests: Darren Dodson, Founder and Managing Partner of Alumin Capital, and Pete Stavros, Co-Head of Global Private Equity at KKR
Release Date: February 25, 2025

Introduction: Challenging the Private Equity Narrative

John Bowman opens the episode by highlighting the pervasive and often negative perceptions surrounding the private equity (PE) industry. He underscores the necessity of addressing these stereotypes head-on to foster a more balanced and truthful understanding of PE's role in today's economy.

John Bowman [02:35]: "It's not something we can ignore. Like it or not, private equity touches all of us now."

The Current Reputation of Private Equity

The hosts delve into the harsh criticisms leveled against private equity firms, referencing sensationalist media portrayals and derogatory terms such as "vultures" and "asset strippers." John Bowman cites Alex Blasdell's balanced piece in The Guardian to emphasize PE's significant influence on various sectors of daily life.

John Bowman [05:45]: "Private equity touches all of us now. It's the water in which our lives are swimming every day."

Understanding the Criticisms

Aaron Filbeck elaborates on the primary criticisms of PE, including excessive leverage leading to bankruptcies, asset stripping, and a "growth at all costs" mentality. He presents data suggesting that PE-backed companies account for a proportionate share of bankruptcies and discusses high-profile cases like Toys R Us to illustrate these points.

Aaron Filbeck [29:30]: "Sale leaseback strategy was employed. However, the cash that was raised... ended up just funding a dividend recap."

Balancing the Narrative: The Positive Side of PE

John Bowman and Aaron Filbeck introduce the episode's central theme: showcasing positive case studies where private equity has been leveraged for social good. They emphasize the importance of moving beyond negative stereotypes to highlight genuine efforts within the industry to drive positive change.

John Bowman [06:14]: "The extremes are doing no one any favors. Performative tactics or heads in the sand further divide and deteriorate a much-needed public discourse."

Guest Insights: Darren Dodson and Pete Stavros

Darren Dodson – Combatting Racial Bias in PE

Darren Dodson discusses his work with Alumin Capital, focusing on addressing systemic racial biases in venture capital. He references a Stanford Spark study revealing that only 1.4% of $82 trillion in assets under management (AUM) were allocated to funds led by people of color, despite their constituting approximately 30% of the U.S. population.

Darren Dodson [61:02]: "This is just a fraction of the population. So this broadens the issues not just from a social and moral issue but also a fiduciary issue."

Dodson emphasizes the economic impact of ignoring diverse talent, citing that bias leads to missed investment opportunities and broader financial market inefficiencies.

Darren Dodson [63:36]: "If you think of other prosperous ecosystems... our financial ecosystem, on the other hand, is contaminated."

Pete Stavros – Promoting Employee Ownership

Pete Stavros shares his initiative, Ownership Works, aimed at broadening employee ownership to foster wealth creation and improve company cultures. He narrates the success story of Overhead Door, where employee ownership led to significant wealth distribution among workers upon the company's profitable sale.

Pete Stavros [73:16]: "When KKR bought Overhead Doors in 2015 and dispersed ownership to all employees, it resulted in payouts of $360 million to $800 employees."

Stavros highlights the broader community benefits of employee ownership, such as enhanced tax revenues and stimulated local economies, demonstrating how equitable wealth distribution can lead to sustainable economic growth.

Pete Stavros [74:32]: "Higher tax revenue, better schools, new businesses, dignified retirements... it leads to a more resilient economy and faster economic growth."

Regulatory and Governance Considerations

The discussion shifts to the role of regulation and governance in shaping the PE landscape. Both hosts acknowledge the need for updated regulatory frameworks to ensure transparency and fairness, referencing past regulatory shortcomings and their impact on public perception.

John Bowman [05:30]: "A comprehensive new rule book is long overdue... It's really about ensuring that there's this inherent understanding and deep appreciation by the private equity industry."

Combating Negative Perceptions: Strategies and Recommendations

Darren Dodson and Pete Stavros offer strategies to improve PE's public relations and overall reputation. They advocate for genuine, impactful initiatives over superficial PR maneuvers, emphasizing authenticity and meaningful contributions as key to reshaping the industry's image.

Darren Dodson [76:04]: "If it's not genuine, people will smell that in a second and you're going to get hit with greenwashing allegations so quick your head will spin."

Pete Stavros [77:59]: "Cynicism is a tool of the status quo... Let's all try and be open-minded."

Conclusion: Changing the Narrative through Action

John Bowman concludes the episode by reiterating that altering the private equity narrative requires consistent, genuine efforts to demonstrate the industry's potential for positive impact. He commends Darren Dodson and Pete Stavros for their pioneering work and encourages listeners to support and amplify such initiatives.

John Bowman [82:32]: "You change it by actually changing the nature of the industry. And it fits the whole reputation... by actually changing things and the social value, look, that should be enough."

Key Takeaways

1. Addressing Bias: The private equity industry must actively combat racial and gender biases to unlock untapped investment opportunities and enhance overall economic health.

2. Employee Ownership: Initiatives like Ownership Works demonstrate how fostering employee ownership can lead to substantial wealth creation, improved company cultures, and community benefits.

3. Authentic Change: Genuine, impactful actions are essential for improving the industry's reputation. Superficial PR efforts are ineffective and can lead to accusations of greenwashing.

4. Regulatory Evolution: Updated and comprehensive regulatory frameworks are necessary to ensure transparency, fairness, and sustainability within private equity.

5. Economic and Social Integration: By aligning private equity practices with broader social and economic goals, the industry can play a pivotal role in fostering inclusive and resilient economies.

Notable Quotes

• John Bowman [06:14]: "The extremes are doing no one any favors. Performative tactics or heads in the sand further divide and deteriorate a much-needed public discourse."

• Darren Dodson [61:02]: "This is just a fraction of the population. So this broadens the issues not just from a social and moral issue but also a fiduciary issue."

• Pete Stavros [73:16]: "When KKR bought Overhead Doors in 2015 and dispersed ownership to all employees, it resulted in payouts of $360 million to $800 employees."

• Pete Stavros [77:59]: "Cynicism is a tool of the status quo... Let's all try and be open-minded."

Final Thoughts:
This episode of Capital Decanted provides a nuanced exploration of private equity's complex reputation. By featuring thought leaders like Darren Dodson and Pete Stavros, the discussion moves beyond superficial critiques to highlight actionable strategies for positive change. The emphasis on authenticity, governance, and inclusivity serves as a blueprint for the PE industry to reinvent its public image and contribute meaningfully to society.