Portfolio Firms Want Cut Of Coronavirus SMB Rescue Funds

Industry lobbyists and executives from major private equity firms are asking the federal government for a piece of the coronavirus small business stimulus funds, the Financial Times (FT) reported on Wednesday (April 1), citing seven sources familiar with the talks.

A letter sent to Treasury Secretary Steven Mnuchin, which FT saw, indicated that “regulations effectively prevent the small business portfolio companies owned by venture capital or private equity funds from accessing” the rescue program.

The affiliation rule states that some small businesses can be prevented from using stimulus monies “if they are backed by a private equity firm whose portfolio companies collectively have a workforce that exceeds the 500-person limit.”

“We see no reason why being owned in a fund structure should result in these businesses having less access to the capital needed to keep their employees on the payroll,” said the letter from Steve Nelson, chief executive of the Institutional Limited Partners Association. Its membership includes public pension funds that have invested in funds run by Apollo, Blackstone, and other big Wall Street firms.

Private equity executives have warned both the Treasury and the White House that denying portfolio companies access to the $2 trillion stimulus package will force companies to fire workers to save their own investments, according to people familiar with the conversations.

“We need to act in the best interest of our own investors, which include pension funds,” said an adviser to one large private equity firm. “If the government wants to limit funding for companies we own just to punish the private equity industry, we will have to take drastic measures . . . That means cutting costs aggressively, and restructuring.”

The American Investment Council, which represents many leading private equity firms, said it would “continue to work with the administration, the Federal Reserve and Congress to request that federal programs support all businesses, regardless of ownership structure, and their workers.”

Washington reached an agreement Wednesday morning (March 25) on a $2 trillion bill to rescue the economy, the largest economic stimulus package in American history. A $367 billion program for small businesses is intended to help them pay workers forced to stay home.