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In finance, private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange.^[1]

A private equity investment will generally be made by a private equity firm, a venture capital firm or an angel investor. Each of these categories of investor has its own set of goals, preferences and investment strategies; each however providing working capital to a target company to nurture expansion, new product development, or restructuring of the company’s operations, management, or ownership.^[2]

Bloomberg BusinessWeek has called private equity a rebranding of leveraged buyout firms after the 1980s. Among the most common investment strategies in private equity are: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital. In a typical leveraged buyout transaction, a private equity firm buys majority control of an existing or mature firm. This is distinct from a venture capital or growth capital investment, in which the investors (typically venture capital firms or angel investors) invest in young or emerging companies, and rarely obtain majority control.

Private equity is also often grouped into a broader category called private capital, generally used to describe capital supporting any long-term, illiquid investment strategy.

Strategies[link]

The strategies private equity firms may use are as follows, leveraged buyout being the most important.

Leveraged buyout[link]

Diagram of the basic structure of a generic leveraged buyout transaction

Leveraged buyout, LBO or Buyout refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage.^[3] The companies involved in these transactions are typically mature and generate operating cash flows.^[4]

Leveraged buyouts involve a financial sponsor agreeing to an acquisition without itself committing all the capital required for the acquisition. To do this, the financial sponsor will raise acquisition debt which ultimately looks to the cash flows of the acquisition target to make interest and principal payments.^[5] Acquisition debt in an LBO is often non-recourse to the financial sponsor and has no claim on other investment managed by the financial sponsor. Therefore, an LBO transaction's financial structure is particularly attractive to a fund's limited partners, allowing them the benefits of leverage but greatly limiting the degree of recourse of that leverage. This kind of financing structure leverage benefits an LBO's financial sponsor in two ways: (1) the investor itself only needs to provide a fraction of the capital for the acquisition, and (2) the returns to the investor will be enhanced (as long as the return on assets exceeds the cost of the debt).^[6]

As a percentage of the purchase price for a leverage buyout target, the amount of debt used to finance a transaction varies according the financial condition and history of the acquisition target, market conditions, the willingness of lenders to extend credit (both to the LBO's financial sponsors and the company to be acquired) as well as the interest costs and the ability of the company to cover those costs. Historically the debt portion of a LBO will range from 60%–90% of the purchase price, although during certain periods the debt ratio can be higher or lower than the historical averages.^[7] Between 2000–2005 debt averaged between 59.4% and 67.9% of total purchase price for LBOs in the United States.^[8]

Simple example[link]

A private equity fund, ABC Capital II, borrows $9bn from a bank (or other lender). To this it adds $2bn of equity – money from its own partners and from limited partners (pension funds, rich individuals, etc.). With this $11bn it buys all the shares of an underperforming company, XYZ Industrial (after due diligence, i.e. checking the books). It replaces the senior management in XYZ Industrial, and they set out to streamline it. The workforce is reduced, some assets are sold off, etc. The objective is to increase the value of the company for a fast sale. The stockmarket is experiencing a bull market, and XYZ Industrial is sold two years after the buy-out for $13bn, yielding a profit of $2bn. The original loan can now be paid off with interest of say $0.5bn. The remaining profit of $1.5bn is shared among the partners. Taxation of such gains is at capital gains rates. Note that part of that profit results from turning the company around, and part results from the general increase in share prices in a buoyant stockmarket, the latter often being the greater component.^[9]

Notes:

• The lenders (the people who put up the $11bn in the example) can insure their loans against default, at a cost, by selling credit derivatives, including credit default swaps (CDSs) and collateralised loan obligations (CLOs), to other institutions, such as hedge funds.
• Often the loan/equity ($11bn above) is not paid off after sale but left on the books of the company (XYZ Industrial) for it to pay off over time. This can be advantageous since the interest is typically offsettable against the profits of the company, thus reducing, or even eliminating, tax.

Growth capital[link]

Growth Capital refers to equity investments, most often minority investments, in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business.^{[citation needed]}

Companies that seek growth capital will often do so in order to finance a transformational event in their life cycle. These companies are likely to be more mature than venture capital funded companies, able to generate revenue and operating profits but unable to generate sufficient cash to fund major expansions, acquisitions or other investments. Because of this lack of scale these companies generally can find few alternative conduits to secure capital for growth, so access to growth equity can be critical to pursue necessary facility expansion, sales and marketing initiatives, equipment purchases, and new product development.^[10] The primary owner of the company may not be willing to take the financial risk alone. By selling part of the company to private equity, the owner can take out some value and share the risk of growth with partners.^[11] Capital can also be used to effect a restructuring of a company's balance sheet, particularly to reduce the amount of leverage (or debt) the company has on its balance sheet.^[12] A Private investment in public equity, or PIPEs, refer to a form of growth capital investment made into a publicly traded company. PIPE investments are typically made in the form of a convertible or preferred security that is unregistered for a certain period of time.^[13][14] The Registered Direct, or RD, is another common financing vehicle used for growth capital. A registered direct is similar to a PIPE but is instead sold as a registered security.

Mezzanine capital[link]

Mezzanine capital refers to subordinated debt or preferred equity securities that often represent the most junior portion of a company's capital structure that is senior to the company's common equity. This form of financing is often used by private equity investors to reduce the amount of equity capital required to finance a leveraged buyout or major expansion. Mezzanine capital, which is often used by smaller companies that are unable to access the high yield market, allows such companies to borrow additional capital beyond the levels that traditional lenders are willing to provide through bank loans.^[15] In compensation for the increased risk, mezzanine debt holders require a higher return for their investment than secured or other more senior lenders.^[16][17] Mezzanine securities are often structured with a current income coupon.

Venture capital[link]

Venture capital^[18] is a broad subcategory of private equity that refers to equity investments made, typically in less mature companies, for the launch, early development, or expansion of a business. Venture investment is most often found in the application of new technology, new marketing concepts and new products that have yet to be proven.^[19][20]

Venture capital is often sub-divided by the stage of development of the company ranging from early stage capital used for the launch of start-up companies to late stage and growth capital that is often used to fund expansion of existing business that are generating revenue but may not yet be profitable or generating cash flow to fund future growth.^[21]

Entrepreneurs often develop products and ideas that require substantial capital during the formative stages of their companies' life cycles.^[22] Many entrepreneurs do not have sufficient funds to finance projects themselves, and they must therefore seek outside financing.^[23] The venture capitalist's need to deliver high returns to compensate for the risk of these investments makes venture funding an expensive capital source for companies. Being able to secure financing is critical to any business, whether it’s a startup seeking venture capital or a mid-sized firm that needs more cash to grow.^[24] Venture capital is most suitable for businesses with large up-front capital requirements which cannot be financed by cheaper alternatives such as debt. Although venture capital is often most closely associated with fast-growing technology and biotechnology fields, venture funding has been used for other more traditional businesses.^[19][25]

Distressed and special situations[link]

Distressed or Special Situations is a broad category referring to investments in equity or debt securities of financially stressed companies.^[26][27][28] The "distressed" category encompasses two broad sub-strategies including:

• "Distressed-to-Control" or "Loan-to-Own" strategies where the investor acquires debt securities in the hopes of emerging from a corporate restructuring in control of the company's equity;^[29]
• "Special Situations" or "Turnaround" strategies where an investor will provide debt and equity investments, often "rescue financing" to companies undergoing operational or financial challenges.^[30]

In addition to these private equity strategies, hedge funds employ a variety of distressed investment strategies including the active trading of loans and bonds issued by distressed companies.

Secondaries[link]

Secondary investments refer to investments made in existing private equity assets. These transactions can involve the sale of private equity fund interests or portfolios of direct investments in privately held companies through the purchase of these investments from existing institutional investors.^[31] By its nature, the private equity asset class is illiquid, intended to be a long-term investment for buy and hold investors. Secondary investments provide institutional investors with the ability to improve vintage diversification, particularly for investors that are new to the asset class. Secondaries also typically experience a different cash flow profile, diminishing the j-curve effect of investing in new private equity funds.^[32][33] Often investments in secondaries are made through third party fund vehicle, structured similar to a fund of funds although many large institutional investors have purchased private equity fund interests through secondary transactions.^[34] Sellers of private equity fund investments sell not only the investments in the fund but also their remaining unfunded commitments to the funds.

Other strategies[link]

Other strategies that can be considered private equity or a close adjacent market include:

• Real Estate: in the context of private equity this will typically refer to the riskier end of the investment spectrum including "value added" and opportunity funds where the investments often more closely resemble leveraged buyouts than traditional real estate investments. Certain investors in private equity consider real estate to be a separate asset class.

• Infrastructure: investments in various public works (e.g., bridges, tunnels, toll roads, airports, public transportation and other public works) that are made typically as part of a privatization initiative on the part of a government entity.^[35][36][37]

• Energy and Power: investments in a wide variety of companies (rather than assets) engaged in the production and sale of energy, including fuel extraction, manufacturing, refining and distribution (Energy) or companies engaged in the production or transmission of electrical power (Power).

• Merchant banking: negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies.^[38]

• Fund of Funds: investments made in a fund whose primary activity is investing in other private equity funds. The fund of funds model is used by investors looking for:

• Diversification but have insufficient capital to diversify their portfolio by themselves
• Access to top performing funds that are otherwise oversubscribed
• Experience in a particular fund type or strategy before investing directly in funds in that niche
• Exposure to difficult-to-reach and/or emerging markets
• Superior fund selection by high-talent fund of fund managers/teams

History and development[link]

Early history and the development of venture capital[link]

The seeds of the US private equity industry were planted in 1946 with the founding of two venture capital firms: American Research and Development Corporation (ARDC) and J.H. Whitney & Company.^[39] Before World War II, venture capital investments (originally known as "development capital") were primarily the domain of wealthy individuals and families. ARDC was founded by Georges Doriot, the "father of venture capitalism"^[40] and founder of INSEAD, with capital raised from institutional investors, to encourage private sector investments in businesses run by soldiers who were returning from World War II. ARDC is credited with the first major venture capital success story when its 1957 investment of $70,000 in Digital Equipment Corporation (DEC) would be valued at over $355 million after the company's initial public offering in 1968 (representing a return of over 500 times on its investment and an annualized rate of return of 101%).^[41] It is commonly noted that the first venture-backed startup is Fairchild Semiconductor (which produced the first commercially practicable integrated circuit), funded in 1959 by what would later become Venrock Associates.^[42]

Origins of the leveraged buyout[link]

The first leveraged buyout may have been the purchase by McLean Industries, Inc. of Pan-Atlantic Steamship Company in January 1955 and Waterman Steamship Corporation in May 1955^[43] Under the terms of that transaction, McLean borrowed $42 million and raised an additional $7 million through an issue of preferred stock. When the deal closed, $20 million of Waterman cash and assets were used to retire $20 million of the loan debt.^[44] Similar to the approach employed in the McLean transaction, the use of publicly traded holding companies as investment vehicles to acquire portfolios of investments in corporate assets was a relatively new trend in the 1960s popularized by the likes of Warren Buffett (Berkshire Hathaway) and Victor Posner (DWG Corporation) and later adopted by Nelson Peltz (Triarc), Saul Steinberg (Reliance Insurance) and Gerry Schwartz (Onex Corporation). These investment vehicles would utilize a number of the same tactics and target the same type of companies as more traditional leveraged buyouts and in many ways could be considered a forerunner of the later private equity firms. In fact it is Posner who is often credited with coining the term "leveraged buyout" or "LBO"^[45]

The leveraged buyout boom of the 1980s was conceived by a number of corporate financiers, most notably Jerome Kohlberg, Jr. and later his protégé Henry Kravis. Working for Bear Stearns at the time, Kohlberg and Kravis along with Kravis' cousin George Roberts began a series of what they described as "bootstrap" investments. Many of these companies lacked a viable or attractive exit for their founders as they were too small to be taken public and the founders were reluctant to sell out to competitors and so a sale to a financial buyer could prove attractive. Their acquisition of Orkin Exterminating Company in 1964 is among the first significant leveraged buyout transactions.^[46] In the following years the three Bear Stearns bankers would complete a series of buyouts including Stern Metals (1965), Incom (a division of Rockwood International, 1971), Cobblers Industries (1971), and Boren Clay (1973) as well as Thompson Wire, Eagle Motors and Barrows through their investment in Stern Metals.^[47] By 1976, tensions had built up between Bear Stearns and Kohlberg, Kravis and Roberts leading to their departure and the formation of Kohlberg Kravis Roberts in that year.

Private equity in the 1980s[link]

In January 1982, former United States Secretary of the Treasury William Simon and a group of investors acquired Gibson Greetings, a producer of greeting cards, for $80 million, of which only $1 million was rumored to have been contributed by the investors. By mid-1983, just sixteen months after the original deal, Gibson completed a $290 million IPO and Simon made approximately $66 million.^[48][49]

The success of the Gibson Greetings investment attracted the attention of the wider media to the nascent boom in leveraged buyouts. Between 1979 and 1989, it was estimated that there were over 2,000 leveraged buyouts valued in excess of $250 million^[50]

During the 1980s, constituencies within acquired companies and the media ascribed the "corporate raid" label to many private equity investments, particularly those that featured a hostile takeover of the company, perceived asset stripping, major layoffs or other significant corporate restructuring activities. Among the most notable investors to be labeled corporate raiders in the 1980s included Carl Icahn, Victor Posner, Nelson Peltz, Robert M. Bass, T. Boone Pickens, Harold Clark Simmons, Kirk Kerkorian, Sir James Goldsmith, Saul Steinberg and Asher Edelman. Carl Icahn developed a reputation as a ruthless corporate raider after his hostile takeover of TWA in 1985.^[51][52][53] Many of the corporate raiders were onetime clients of Michael Milken, whose investment banking firm, Drexel Burnham Lambert helped raise blind pools of capital with which corporate raiders could make a legitimate attempt to take over a company and provided high-yield debt ("junk bonds") financing of the buyouts.

One of the final major buyouts of the 1980s proved to be its most ambitious and marked both a high water mark and a sign of the beginning of the end of the boom that had begun nearly a decade earlier. In 1989, KKR (Kohlberg Kravis Roberts) closed in on a $31.1 billion takeover of RJR Nabisco. It was, at that time and for over 17 years, the largest leverage buyout in history. The event was chronicled in the book (and later the movie), Barbarians at the Gate: The Fall of RJR Nabisco. KKR would eventually prevail in acquiring RJR Nabisco at $109 per share, marking a dramatic increase from the original announcement that Shearson Lehman Hutton would take RJR Nabisco private at $75 per share. A fierce series of negotiations and horse-trading ensued which pitted KKR against Shearson and later Forstmann Little & Co. Many of the major banking players of the day, including Morgan Stanley, Goldman Sachs, Salomon Brothers, and Merrill Lynch were actively involved in advising and financing the parties. After Shearson's original bid, KKR quickly introduced a tender offer to obtain RJR Nabisco for $90 per share—a price that enabled it to proceed without the approval of RJR Nabisco's management. RJR's management team, working with Shearson and Salomon Brothers, submitted a bid of $112, a figure they felt certain would enable them to outflank any response by Kravis's team. KKR's final bid of $109, while a lower dollar figure, was ultimately accepted by the board of directors of RJR Nabisco.^[54] At $31.1 billion of transaction value, RJR Nabisco was by far the largest leveraged buyouts in history. In 2006 and 2007, a number of leveraged buyout transactions were completed that for the first time surpassed the RJR Nabisco leveraged buyout in terms of nominal purchase price. However, adjusted for inflation, none of the leveraged buyouts of the 2006–2007 period would surpass RJR Nabisco. By the end of the 1980s the excesses of the buyout market were beginning to show, with the bankruptcy of several large buyouts including Robert Campeau's 1988 buyout of Federated Department Stores, the 1986 buyout of the Revco drug stores, Walter Industries, FEB Trucking and Eaton Leonard. Additionally, the RJR Nabisco deal was showing signs of strain, leading to a recapitalization in 1990 that involved the contribution of $1.7 billion of new equity from KKR.^[55] In the end, KKR lost $700 million on RJR.^[56]

Drexel reached an agreement with the government in which it pleaded nolo contendere (no contest) to six felonies – three counts of stock parking and three counts of stock manipulation.^[57] It also agreed to pay a fine of $650 million – at the time, the largest fine ever levied under securities laws. Milken left the firm after his own indictment in March 1989.^[58][59] On 13 February 1990 after being advised by United States Secretary of the Treasury Nicholas F. Brady, the U.S. Securities and Exchange Commission (SEC), the New York Stock Exchange and the Federal Reserve, Drexel Burnham Lambert officially filed for Chapter 11 bankruptcy protection.^[58]

Age of the mega-buyout 2005–2007[link]

The combination of decreasing interest rates, loosening lending standards and regulatory changes for publicly traded companies (specifically the Sarbanes-Oxley Act) would set the stage for the largest boom private equity had seen. Marked by the buyout of Dex Media in 2002, large multi-billion dollar U.S. buyouts could once again obtain significant high yield debt financing and larger transactions could be completed. By 2004 and 2005, major buyouts were once again becoming common, including the acquisitions of Toys "R" Us,^[60] The Hertz Corporation,^[61][62] Metro-Goldwyn-Mayer^[63] and SunGard^[64] in 2005.

As 2005 ended and 2006 began, new "largest buyout" records were set and surpassed several times with nine of the top ten buyouts at the end of 2007 having been announced in an 18-month window from the beginning of 2006 through the middle of 2007. In 2006, private equity firms bought 654 U.S. companies for $375 billion, representing 18 times the level of transactions closed in 2003.^[65] Additionally, U.S. based private equity firms raised $215.4 billion in investor commitments to 322 funds, surpassing the previous record set in 2000 by 22% and 33% higher than the 2005 fundraising total^[66] The following year, despite the onset of turmoil in the credit markets in the summer, saw yet another record year of fundraising with $302 billion of investor commitments to 415 funds^[67] Among the mega-buyouts completed during the 2006 to 2007 boom were: Equity Office Properties, HCA,^[68] Alliance Boots^[69] and TXU.^[70]

In July 2007, turmoil that had been affecting the mortgage markets, spilled over into the leveraged finance and high-yield debt markets.^[71][72] The markets had been highly robust during the first six months of 2007, with highly issuer friendly developments including PIK and PIK Toggle (interest is "Payable In Kind") and covenant light debt widely available to finance large leveraged buyouts. July and August saw a notable slowdown in issuance levels in the high yield and leveraged loan markets with few issuers accessing the market. Uncertain market conditions led to a significant widening of yield spreads, which coupled with the typical summer slowdown led many companies and investment banks to put their plans to issue debt on hold until the autumn. However, the expected rebound in the market after 1 May 2007 did not materialize, and the lack of market confidence prevented deals from pricing. By the end of September, the full extent of the credit situation became obvious as major lenders including Citigroup and UBS AG announced major writedowns due to credit losses. The leveraged finance markets came to a near standstill.^[73] As 2007 ended and 2008 began, it was clear that lending standards had tightened and the era of "mega-buyouts" had come to an end. Nevertheless, private equity continues to be a large and active asset class and the private equity firms, with hundreds of billions of dollars of committed capital from investors are looking to deploy capital in new and different transactions.

Investments in private equity[link]

Diagram of the structure of a generic private equity fund

Although the capital for private equity originally came from individual investors or corporations, in the 1970s, private equity became an asset class in which various institutional investors allocated capital in the hopes of achieving risk adjusted returns that exceed those possible in the public equity markets. In the 1980s, insurers were major private equity investors. Later, public pension funds and university and other endowments became more significant sources of capital.^[74] For most institutional investors, private equity investments are made as part of a broad asset allocation that includes traditional assets (e.g., public equity and bonds) and other alternative assets (e.g., hedge funds, real estate, commodities).

Most institutional investors do not invest directly in privately held companies, lacking the expertise and resources necessary to structure and monitor the investment. Instead, institutional investors will invest indirectly through a private equity fund. Certain institutional investors have the scale necessary to develop a diversified portfolio of private equity funds themselves, while others will invest through a fund of funds to allow a portfolio more diversified than one a single investor could construct.

Returns on private equity investments are created through one or a combination of three factors that include: debt repayment or cash accumulation through cash flows from operations, operational improvements that increase earnings over the life of the investment and multiple expansion, selling the business for a higher multiple of earnings than was originally paid. A key component of private equity as an asset class for institutional investors is that investments are typically realized after some period of time, which will vary depending on the investment strategy. Private equity investments are typically realized through one of the following avenues:

• an Initial Public Offering (IPO) – shares of the company are offered to the public, typically providing a partial immediate realization to the financial sponsor as well as a public market into which it can later sell additional shares;
• a merger or acquisition – the company is sold for either cash or shares in another company;
• a Recapitalization – cash is distributed to the shareholders (in this case the financial sponsor) and its private equity funds either from cash flow generated by the company or through raising debt or other securities to fund the distribution.

Liquidity in the private equity market[link]

Diagram of a simple secondary market transfer of a limited partnership fund interest. The buyer exchanges a single cash payment to the seller for both the investments in the fund plus any unfunded commitments to the fund.

The private equity secondary market (also often called private equity secondaries) refers to the buying and selling of pre-existing investor commitments to private equity and other alternative investment funds. Sellers of private equity investments sell not only the investments in the fund but also their remaining unfunded commitments to the funds. By its nature, the private equity asset class is illiquid, intended to be a long-term investment for buy-and-hold investors. For the vast majority of private equity investments, there is no listed public market; however, there is a robust and maturing secondary market available for sellers of private equity assets.

Increasingly, secondaries are considered a distinct asset class with a cash flow profile that is not correlated with other private equity investments. As a result, investors are allocating capital to secondary investments to diversify their private equity programs. Driven by strong demand for private equity exposure, a significant amount of capital has been committed to secondary investments from investors looking to increase and diversify their private equity exposure.

Investors seeking access to private equity have been restricted to investments with structural impediments such as long lock-up periods, lack of transparency, unlimited leverage, concentrated holdings of illiquid securities and high investment minimums.

Secondary transactions can be generally split into two basic categories:

• Sale of Limited Partnership Interests – The most common secondary transaction, this category includes the sale of an investor's interest in a private equity fund or portfolio of interests in various funds through the transfer of the investor's limited partnership interest in the fund(s). Nearly all types of private equity funds (e.g., including buyout, growth equity, venture capital, mezzanine, distressed and real estate) can be sold in the secondary market. The transfer of the limited partnership interest typically will allow the investor to receive some liquidity for the funded investments as well as a release from any remaining unfunded obligations to the fund.

• Sale of Direct Interests – Secondary Directs or Synthetic secondaries, this category refers to the sale of portfolios of direct investments in operating companies, rather than limited partnership interests in investment funds. These portfolios historically have originated from either corporate development programs or large financial institutions.

Private equity firms[link]

According to an updated 2011 ranking created by industry magazine Private Equity International^[75] (published by PEI Media called the PEI 300), the largest private equity firm in the world today is TPG, based on the amount of private equity direct-investment capital raised over a five-year window. As ranked by the PEI 300, the 10 largest private equity firms in the world are:

1. TPG Capital
2. Goldman Sachs Principal Investment Area
3. The Carlyle Group
4. Kohlberg Kravis Roberts
5. The Blackstone Group
6. Apollo Global Management
7. Bain Capital
8. CVC Capital Partners
9. First Reserve Corporation
10. Hellman & Friedman

Because private equity firms are continuously in the process of raising, investing and distributing their private equity funds, capital raised can often be the easiest to measure. Other metrics can include the total value of companies purchased by a firm or an estimate of the size of a firm's active portfolio plus capital available for new investments. As with any list that focuses on size, the list does not provide any indication as to relative investment performance of these funds or managers.

Additionally, Preqin (formerly known as Private Equity Intelligence), an independent data provider, ranks the 25 largest private equity investment managers. Among the larger firms in that ranking were AlpInvest Partners, AXA Private Equity, AIG Investments, Goldman Sachs Private Equity Group and Pantheon Ventures. The European Private Equity and Venture Capital Association ("EVCA") publishes a yearbook which analyses industry trends derived from data disclosed by over 1, 300 European private equity funds. Finally, websites such as AskIvy.net ^[76] provide lists of London-based private equity firms.

Private equity funds[link]

This section needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (August 2009)

Private equity fundraising refers to the action of private equity firms seeking capital from investors for their funds. Typically an investor will invest in a specific fund managed by a firm, becoming a limited partner in the fund, rather than an investor in the firm itself. As a result, an investor will only benefit from investments made by a firm where the investment is made from the specific fund in which it has invested.

• Fund of funds. These are private equity funds that invest in other private equity funds in order to provide investors with a lower risk product through exposure to a large number of vehicles often of different type and regional focus. Fund of funds accounted for 14% of global commitments made to private equity funds in 2006.

• Individuals with substantial net worth. Substantial net worth is often required of investors by the law, since private equity funds are generally less regulated than ordinary mutual funds. For example in the US, most funds require potential investors to qualify as accredited investors, which requires $1 million of net worth, $200,000 of individual income, or $300,000 of joint income (with spouse) for two documented years and an expectation that such income level will continue.

As fundraising has grown over the past few years, so too has the number of investors in the average fund. In 2004 there were 26 investors in the average private equity fund, this figure has now grown to 42 according to Preqin ltd. (formerly known as Private Equity Intelligence).

The managers of private equity funds will also invest in their own vehicles, typically providing between 1–5% of the overall capital.

Often private equity fund managers will employ the services of external fundraising teams known as placement agents in order to raise capital for their vehicles. The use of placement agents has grown over the past few years, with 40% of funds closed in 2006 employing their services, according to Preqin ltd (formerly known as Private Equity Intelligence). Placement agents will approach potential investors on behalf of the fund manager, and will typically take a fee of around 1% of the commitments that they are able to garner.

The amount of time that a private equity firm spends raising capital varies depending on the level of interest among investors, which is defined by current market conditions and also the track record of previous funds raised by the firm in question. Firms can spend as little as one or two months raising capital when they are able to reach the target that they set for their funds relatively easily, often through gaining commitments from existing investors in their previous funds, or where strong past performance leads to strong levels of investor interest. Other managers may find fundraising taking considerably longer, with managers of less popular fund types (such as US and European venture fund managers in the current climate) finding the fundraising process more tough. It is not unheard of for funds to spend as long as two years on the road seeking capital, although the majority of fund managers will complete fundraising within nine months to fifteen months.

Once a fund has reached its fundraising target, it will have a final close. After this point it is not normally possible for new investors to invest in the fund, unless they were to purchase an interest in the fund on the secondary market.

Size of the industry[link]

The state of the industry as of August 2011^[update] is as follows.^[77]

Private equity funds under management totalled $2.4 trillion at the end of 2010. Funds available for investments totalled 40% of overall assets under management or some $1 trillion, a result of high fund raising volumes between 2006 and 2008. It could take another three years to invest the current volume of uninvested capital targeted for buyouts.

Nearly $180bn of private equity was invested globally in 2010, up 62% from the previous year but still down 55% on the peak in 2007. Activity in the sector is likely to build on this recovery and top $200bn in 2011 as investor sentiment continues to improve. The average cost of debt financing was still well up on pre-crisis levels, while leverage is down and private equity firms are contributing a bigger proportion of equity into their deals.

Exit activity totalled $232bn globally in 2010, a three year high. It continued to increase in 2011, to reach an all-time quarterly record of $120bn in Q2 as fund managers took advantage of relatively robust financial markets to exit investments made in years preceding the credit crisis.

The three years up to 2009 saw an unprecedented amount of fundraising activity, more than $1.4 trillion being raised. However the subsequent economic slowdown took a heavy toll, and the fundraising environment remained depressed afterwards, with only some $150bn in new funds raised in 2010, slightly up on the total raised in the previous year, but around one-third of annual funds raised in the years preceding the credit crisis. New funds raised in 2011 are likely to increase to around $180bn.

The average time taken for funds to achieve a final close fell to 15.5 months in the first half of 2011, down from over 20 months in the previous year.

Private equity fund performance[link]

Due to limited disclosure, studying the returns to private equity is relatively difficult. Unlike mutual funds, private equity funds need not disclose performance data. And, as they invest in private companies, it is difficult to examine the underlying investments. It is challenging to compare private equity performance to public equity performance, in particular because private equity fund investments are drawn and returned over time as investments are made and subsequently realized.

An oft-cited academic paper (Kaplan and Shoar, 2005)^[78] suggests that the net-of-fees returns to PE funds are roughly comparable to the S&P 500 (or even slightly under). This analysis may actually overstate the returns because it relies on voluntarily reported data and hence suffers from survivorship bias (i.e. funds that fail won't report data). One should also note that these returns are not risk-adjusted. A more recent paper (Harris, Jenkinson and Kaplan, 2012)^[79] found that average buyout fund returns in the U.S. have actually exceeded that of public markets. These findings were supported by earlier work, using a different data set (Robinson and Sensoy, 2011).^[80]

Commentators have argued that a standard methodology is needed to present an accurate picture of performance, to make individual private equity funds comparable and so the asset class as a whole can be matched against public markets and other types of investment. It is also claimed that PE fund managers manipulate data to present themselves as strong performers, which makes it even more essential to standardize the industry.^[81]

Two other findings in Kaplan and Schoar (2005): First, there is considerable variation in performance across PE funds. Second, unlike the mutual fund industry, there appears to be performance persistence in PE funds. That is, PE funds that perform well over one period, tend to also perform well the next period. Persistence is stronger for VC firms than for LBO firms.

The application of the Freedom of Information Act (FOIA) in certain states in the United States has made certain performance data more readily available. Specifically, FOIA has required certain public agencies to disclose private equity performance data directly on the their websites.^[82]

In the United Kingdom, the second largest market for private equity, more data has become available since the 2007 publication of the David Walker Guidelines for Disclosure and Transparency in Private Equity.^[83]

Recording private equity[link]

There is a burgeoning debate of the purpose behind private equity, a common misconception to treat private equity separately from foreign direct investment (FDI). The difference is blurred on account of private equity not entering the country through the stock market. Private equity generally flows to unlisted firms and to firms where the percentage of shares is relatively smaller than the promoter or investor held shares (also known as free-floating shares).

The main point of contention behind differentiating private equity from FDI is that FDI is used solely for production whereas in the case of private equity the investor can reclaim their money after a revaluation period and make speculative investments in other financial assets.

Presently, most countries report private equity as a part of FDI.^[84]

See also[link]

• History of private equity and venture capital
• Private investment in public equity
• Publicly traded private equity
• Specialized investment fund

Organizations[link]

• Private Equity Growth Capital Council – advocacy organization for the private equity industry
• Institutional Limited Partners Association – advocacy organization for investors in private equity

Notes[link]

Further reading[link]

• David Stowell (2010). An Introduction to Investment Banks, Hedge Funds, and Private Equity: The New Paradigm. Academic Press. 

• Cendrowski, Harry; Martin, James P.; Petro, Louis W. (2008). Private Equity: History, Governance, and Operations. Hoboken: John Wiley & Sons. ISBN 0-470-17846-9. 

• Davidoff, Steven M. (2009). Gods at War: Shot-gun Takeovers, Government by Deal and the Private Equity Implosion. Hoboken: John Wiley & Sons. ISBN 0-470-43129-6. 

• Maxwell, Ray (2007). Private Equity Funds: A Practical Guide for Investors. New York: John Wiley & Sons. ISBN [[Special:BookSources/0-470-02818-6|0-470-02818-6]]. 

• Leleux, Benoit; Hans van Swaay (2006). Growth at All Costs: Private Equity as Capitalism on Steroids. Basingstoke: Palgrave Macmillan. ISBN 1-4039-8634-7. 

• Fraser-Sampson, Guy (2007). Private Equity as an Asset Class. Hoboken, NJ: John Wiley & Sons. ISBN 0-470-06645-8. 

• Bassi, Iggy; Jeremy Grant (2006). Structuring European Private Equity. London: Euromoney Books. ISBN 1-84374-262-4. 

• Thorsten, Gröne (2005). Private Equity in Germany – Evaluation of the Value Creation Potential for German Mid-Cap Companies. Stuttgart: Ibidem-Verl. ISBN 3-89821-620-9. 

• Rosenbaum, Joshua; Joshua Pearl (2009). Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions. Hoboken, NJ: John Wiley & Sons. ISBN 0-470-44220-4. 

• Lerner, Joshua (2000). Venture Capital and Private Equity: A Casebook. New York: John Wiley & Sons. ISBN 0-471-32286-5. 

• Grabenwarter, Ulrich; Tom Weidig (2005). Exposed to the J Curve: Understanding and Managing Private Equity Fund Investments. London: Euromoney Institutional Investor. ISBN 1-84374-149-0. 

• Loewen, Jacoline (2008). Money Magnet: Attract Investors to Your Business. Canada, Toronto: John Wiley & Sons. ISBN 978-0-470-15575-2. 

• The Financial Page. Private Inequity by James Surowiecki| The New Yorker| 30 January 2012

v t e Topics on private equity and venture capital Basic investment types Buyout Venture Mezzanine Growth Secondaries Equity co-investment History History of private equity and venture capital Early history of private equity Private equity in the 1980s Private equity in the 1990s Private equity in the 2000s Terms and concepts Buyout Financial sponsor Management buyout Divisional buyout Buy–sell agreement Leveraged recapitalization Dividend recapitalization Venture Seed money Startup company Angel investor Venture capital financing Pre-money valuation Post-money valuation Venture round Venture debt Bootstrap funding Structure Private equity firms and funds Limited partnership Limited liability company Carried interest Management fee Publicly traded private equity Business Development Company Venture capital trust Private investment in public equity (PIPE) Pledge fund Investors Corporations Institutional investors Pension funds Insurance companies Fund of funds Endowments Foundations Investment banks Merchant banks Commercial banks High-net-worth individuals Family offices Sovereign wealth funds Related financial terms Undercapitalization Initial public offering (IPO) M&A Leverage High-yield debt Capital structure Capital call EBITDA IRR Envy ratio Private equity and venture capital investors Private equity firms Venture capital firms Angel investors Portfolio companies

v t e Corporate finance and investment banking Capital structure Senior secured debt · Senior debt · Second lien debt · Subordinated debt · Mezzanine debt · Convertible debt · Exchangeable debt · Preferred equity · Warrant · Shareholder loan · Common equity · Pari passu Transactions (terms / conditions) Equity offerings Initial public offering (IPO) · Secondary market offering (SEO) · Follow-on offering · Rights issue · Private placement · Spin out · Equity carve-out · Greenshoe (Reverse) · Book building · Bookrunner · Underwriter Mergers and acquisitions Takeover · Reverse takeover · Tender offer · Proxy fight · Poison pill · Staggered board · Squeeze out · Tag-along right · Drag-along right · Pre-emption right · Control premium · Due diligence · Divestment · Sell side · Buy side · Demerger · Super-majority · Pitch book Leverage Leveraged buyout · Leveraged recap · Financial sponsor · Private equity · Bond offering · High-yield debt · DIP financing · Project finance · Debt restructuring Valuation Financial modeling · Free cash flow · Business valuation · Fairness opinion · Stock valuation · APV · DCF · Net present value (NPV) · Cost of capital (Weighted average) · Comparable company analysis · Accretion/dilution analysis · Enterprise value · Tax shield · Minority interest · Associate company · EVA · MVA · Residual Income · Terminal value · Real options valuation List of investment banks · List of finance topics

Mitt Romney
70th Governor of Massachusetts
In office January 2, 2003 – January 4, 2007
Lieutenant	Kerry Healey
Preceded by	Jane Swift (Acting)
Succeeded by	Deval Patrick
Personal details
Born	Willard Mitt Romney (1947-03-12) March 12, 1947 (age 65) Detroit, Michigan, U.S.
Political party	Republican
Spouse(s)	Ann Romney (m. 1969) «start: (1969)»"Marriage: Ann Romney to Mitt Romney" Location: (linkback:http://en-wiki.pop.wn.com/index.php/Mitt_Romney)
Children	Taggart (b. 1970) Matthew (b. 1971) Joshua (b. 1975) Benjamin (b. 1978) Craig (b. 1981)
Residence	Belmont, Massachusetts Wolfeboro, New Hampshire San Diego, California
Alma mater	Brigham Young University (BA) Harvard University (MBA, JD)
Religion	The Church of Jesus Christ of Latter-day Saints (Mormon)
Positions	Co-founder, Bain Capital (1984–1999) CEO, Bain & Company (1991–1992) CEO, 2002 Winter Olympics Organizing Committee (1999–2002)
Signature
Website	MittRomney.com

	This article is part of a series about Mitt Romney	Mitt Romney
2012 Presidential campaign 2008 Presidential campaign Governor of Massachusetts, 2003–2007 1994 U.S. Senate election Political positions · Electoral history Public image

Willard Mitt Romney (born March 12, 1947) is an American businessman and the presumptive nominee of the Republican Party for President of the United States in the 2012 election. He was the 70th Governor of Massachusetts (2003–07).

The son of Lenore and George W. Romney (Governor of Michigan, 1963–69), he was raised in Bloomfield Hills, Michigan. In 1966, after one year at Stanford University, he left the United States to spend thirty months in France as a Mormon missionary. In 1969, he married Ann Davies, and the couple had five children together. In 1971, he earned a Bachelor of Arts degree in English from Brigham Young University and, in 1975, a joint Juris Doctor and Master of Business Administration from Harvard University as a Baker Scholar. He entered the management consulting industry, which in 1977, led to a position at Bain & Company. Later serving as Chief Executive Officer, he helped bring the company out of financial crisis. In 1984, he co-founded the spin-off Bain Capital, a private equity investment firm that became highly profitable and one of the largest such firms in the nation. His net worth is estimated at $190–250 million, wealth that has helped fund his political campaigns. Active in The Church of Jesus Christ of Latter-day Saints, he served as Ward Bishop and later Stake President in his area near Boston. He ran as the Republican candidate in the 1994 U.S. Senate election in Massachusetts, losing to long-time incumbent Ted Kennedy. In 1999, he was hired as President and CEO of the Salt Lake Organizing Committee for the 2002 Winter Olympics and Paralympics; and he helped turn the fiscally troubled games into a success.

He was elected Governor of Massachusetts in 2002 but did not seek re-election in 2006. During his term he presided over a series of spending cuts and increases in fees that eliminated a projected $1.5 billion deficit. He also signed into law the Massachusetts health care reform legislation, the first of its kind in the nation, which provided near-universal health insurance access via state-level subsidies and individual mandates.

Romney ran for the Republican nomination in the 2008 U.S. presidential election, winning several primaries and caucuses but losing the nomination to John McCain. In the following years, he gave speeches and raised campaign funds on behalf of his fellow Republicans. In June 2011, he announced that he would seek the 2012 Republican presidential nomination; as of May 2012, he has won enough caucuses and primaries to become the party's presumptive nominee.

Early life and education[link]

Heritage and youth[link]

Willard Mitt Romney^[1] was born at Harper Hospital in Detroit, Michigan,^[2] the youngest child of George W. Romney, a self-made man who by 1948 had become an automobile executive, and Lenore Romney (née LaFount), an aspiring actress turned homemaker.^[3][4][5] His mother was a native of Logan, Utah, and his father was born in a Mormon colony in Chihuahua, Mexico, to American parents.^[6][7] He is of primarily English descent, and also has more distant Scottish and German ancestry.^[8][9][10] He is a fifth-generation member of The Church of Jesus Christ of Latter-day Saints (LDS Church).^[11][12] A great-great-grandfather, Miles Romney, converted to the faith in its first decade, and another great-great-grandfather, Parley P. Pratt, was an early leader in the church during the same time.^[13]

He was preceded in birth by three siblings: Margo Lynn, Jane LaFount, and G. Scott. Mitt followed after a gap of nearly six years. He was named after family friend, hotel magnate J. Willard Marriott, and his father's cousin Milton "Mitt" Romney, a former quarterback for the Chicago Bears.^{[14][nb 1]} In 1953, the family moved from Detroit to the affluent suburb of Bloomfield Hills.^[16] In 1954, his father became the chairmen and CEO of American Motors, a company he helped avoid bankruptcy, and return to profitability.^[16] By the time Mitt was twelve, his father had become a nationally known figure in print and on television,^[17] and Mitt idolized him.^[18]

Mitt Romney began attending Cranbrook School in the seventh grade.

He attended public elementary schools^[15] until the seventh grade, when he began commuting to Cranbrook School in Bloomfield Hills, a traditional private boys' preparatory school where he was one of only a few Mormons and where many students came from backgrounds even more privileged than he.^[19][20] He was not particularly athletic and at first did not excel academically.^[18] During his sophomore year he participated in the 1962 campaign in which his father was elected Governor of Michigan.^{[nb 2]} When his parents moved to the state capitol as part of George Romney taking office, Mitt took up residence at Cranbrook's Stevens Hall.^[19] George Romney was re-elected twice; Mitt worked for him as an intern in the governor's office, and was present at the 1964 Republican National Convention when his moderate father battled conservative party nominee Barry Goldwater over issues of civil rights and ideological extremism.^[18][22] During these years, Romney had a steady set of chores and summer jobs, including working as a security guard at a Chrysler plant.^[23]

At Cranbrook he was a manager for the ice hockey team and a member of the pep squad,^[19] and during his final year joined the cross country running team.^[15] He belonged to eleven school organizations and school clubs, and started the Blue Key Club boosters group.^[19] During his final year at Cranbook, Romney improved academically, but was still not a star pupil.^[18][20] He won an award for those "whose contributions to school life are often not fully recognized through already existing channels".^[20] Romney was involved in many pranks.^{[nb 3]}

In March of his senior year, he began dating Ann Davies, two years his younger, whom he had first met in elementary school; she attended the private Kingswood School, the sister school to Cranbrook.^[27][20] The two informally agreed to marriage around the time of his June 1965 graduation.^[18]

University, France mission, marriage and children: 1965–1975[link]

Romney attended Stanford University for a year,^{[18][nb 4]} where he worked as a night security guard in order to pay for trips home to see Ann.^[28] Although the campus was becoming radicalized with the beginnings of 1960s social and political movements, he kept a well-groomed appearance and participated in pre-Big Game actions designed to protect the Stanford Axe.^[18] In May 1966, he was part of a counter-protest against a group staging a sit-in in the university administration building in opposition to draft status tests.^[18][29]

In July 1966, he left for a thirty-month stay in France as a Mormon missionary,^[18][31] a traditional rite of passage that his father and many other relatives had volunteered for.^{[nb 5]} He arrived in Le Havre with ideas about how to change and promote the French Mission, while facing physical and economic deprivation in their cramped quarters.^[33][13] Rules against drinking, smoking, and dating were strictly enforced.^[13] Most individual Mormon missionaries do not gain many converts,^[35] and Romney was no exception:^[33] he later estimated ten to twenty for his entire mission.^[36] The nominally Catholic but secular, wine-loving French people were especially resistant to a religion that prohibits alcohol.^[18][13][30] He became demoralized, and later recalled it as the only time when "most of what I was trying to do was rejected."^[33] In Nantes, he suffered a bruised jaw while defending two female missionaries who were being bothered by a group of local rugby players.^[13] He continued to work hard; having grown up in Michigan rather than the more insular Utah world, Romney was better able to interact with the French than other missionaries.^[37][13] He was promoted to zone leader in Bordeaux in early 1968, then in the spring of that year became assistant to the mission president in Paris, the highest position for a missionary.^[33][13][38] In the Mission Home in Paris he enjoyed palace-like accommodations.^[38] Romney's support for the U.S. role in the Vietnam War was only reinforced when the French greeted him with hostility over the matter and he debated them in return.^[13][33] He witnessed the May 1968 general strike and student uprisings and was upset by the breakdown in social order.^[39]

In June 1968, an automobile he was driving in southern France was hit by another vehicle, seriously injuring him and killing one of his passengers, the wife of the mission president.^{[nb 6]} Romney, who was not at fault in the accident,^{[nb 6]} became co-acting president of a mission demoralized and disorganized by the May civil disturbances and by the car accident.^[37] He rallied and motivated the others and they met an ambitious goal of 200 baptisms for the year, the most for the mission in a decade.^[37] By the end of his stint in December 1968, he was overseeing the work of 175 fellow members.^[33][40] Romney developed a lifelong affection for France and its people, and speaks French.^[42] The experience in the country instilled in him a belief that life is fragile and that he needed seriousness of purpose.^[18][37][13] It also represented a crucible, after having been an indifferent Mormon growing up: "On a mission, your faith in Jesus Christ either evaporates or it becomes much deeper ... For me it became much deeper."^[33]

While he was away, Ann Davies had converted to the Mormon faith, guided by George Romney, and had begun attending Brigham Young University (BYU).^[18] Mitt was nervous that she had been wooed by others while he was away, and she had indeed started dating popular campus figure Kim S. Cameron and had sent Romney in France a "Dear John letter", greatly upsetting him; he wrote to her to in an attempt to win her back.^[43][15] At their first meeting following Romney's return they reconnected, and decided to get married immediately but agreed to wait three months to appease their parents.^[44] At Ann's request, Romney began attending Brigham Young too, in February 1969.^{[43][nb 4]} The couple were married on March 21, 1969, in a civil ceremony at Ann's family's home in Bloomfield Hills that was presided over by a church elder.^[46][47][48] The following day, the couple flew to Utah for a wedding ceremony at the Salt Lake Temple.^[46][47]

While Mitt attended Harvard, his father George W. Romney (pictured here with Richard M. Nixon) served as United States Secretary of Housing and Urban Development.

Romney had missed much of the tumultuous American anti-Vietnam War movement while away, and was surprised to learn that his father had turned against the effort during his unsuccessful 1968 presidential campaign.^[33] Regarding the military draft, Romney had initially received a student deferment, then, like most Mormon missionaries, a ministerial deferment while in France, and then a student deferment.^[33][49] When those ran out, his high number in the December 1969 draft lottery (300) ensured he would not be selected.^[33][49][50]

At culturally conservative BYU, he remained isolated from much of the upheaval of the era, and did not join in protests against the war, or the LDS Church's policy at the time of denying full membership to blacks.^[24][33][43] He became president of, and an innovative fundraiser for, the all-male Cougar Club booster organization and showed a new-found discipline in his studies.^[33][43] In his senior year, he took leave to work as driver and advance man for his mother Lenore Romney's eventually unsuccessful 1970 campaign for U.S. Senator from Michigan.^[24][46] He earned a Bachelor of Arts in English with highest honors in 1971,^[43] and gave commencement addresses to both the College of Humanities and to the whole of BYU.^{[nb 7]}

The Romneys' first son, Taggart, was born in 1970^[46] while they were undergraduates at Brigham Young^[52] and living in a basement apartment.^[33][43] Ann subsequently gave birth to Matt (1971), Josh (1975), Ben (1978), and Craig (1981).^[46] Her work as a homemaker would enable her husband to pursue his career.^[53]

Romney still wanted to pursue a business path, but his father, by now serving in President Richard Nixon's cabinet as U.S. Secretary of Housing and Urban Development, advised him that a law degree would be valuable to his career.^[54][55] Thus he became one of only fifteen students to enroll at the recently created joint Juris Doctor/Master of Business Administration four-year program coordinated between Harvard Law School and Harvard Business School.^[56] Fellow students considered him guilelessly optimistic, noting his solid work ethic and buttoned-down demeanor and appearance.^[56][57] He readily adapted to the business school's pragmatic, data-driven case study method of teaching, participated in class well, and led a study group whom he pushed to get all A's.^[55] He had a different social experience from most of his classmates, since he lived in a Belmont, Massachusetts, house with Ann and two children.^[46][55] He was non-ideological and did not involve himself in the political or social issues of the day.^[46][55] He graduated in 1975 cum laude from the law school, in the top third of that class, and was named a Baker Scholar for graduating in the top five percent of his business school class.^[51][56]

Business career[link]

Management consulting[link]

Romney was recruited by several firms and chose to remain in Massachusetts to work for Boston Consulting Group (BCG), reasoning that working as a management consultant to a variety of companies would better prepare him for a future position as a chief executive.^{[54][58][nb 8]} He was part of a 1970s wave of top graduates who chose to go into consulting rather than join a major company directly.^[60] His legal and business education proved useful in his job^[54] while he applied BCG principles such as the growth-share matrix.^[61] He was viewed as having a bright future there.^[54][62]

In 1977, he was hired away by Bain & Company, a management consulting firm in Boston that had been formed a few years earlier by Bill Bain and other former BCG employees.^[61][54][63] Bain would later say of the thirty-year-old Romney, "He had the appearance of confidence of a guy who was maybe ten years older."^[64] With Bain & Company, Romney learned what writers and business analysts have dubbed the "Bain way",^[54][63][65] which consisted of immersing the firm in each client's business,^[54][64] and not just issuing recommendations but staying with the company until changes were put into place.^[61][63][66] Romney became a vice president of the firm in 1978,^[15] and worked with clients such as the Monsanto Company, Outboard Marine Corporation, Burlington Industries, and Corning Incorporated.^[58] Within a few years, he was one of Bain & Company's best consultants and was sought after by clients over more senior partners.^[54][67]

Private equity[link]

Romney was restless for a company of his own to run, and in 1983, Bill Bain offered him the chance to head a new venture that would buy into companies, have them benefit from Bain techniques, and then reap higher rewards than consulting fees.^[54][61] He initially refrained from accepting the offer, and Bain re-arranged the terms in a complicated partnership structure so that there was no financial or professional risk to Romney.^[54][64][68] Thus, in 1984, Romney left Bain & Company to co-found the spin-off private equity investment firm, Bain Capital.^[66] In the face of skepticism from potential investors, Bain and Romney spent a year raising the $37 million in funds needed to start the new operation, which had fewer than ten employees.^[58][64][69] As general partner of the new firm, Romney spent little money on costs such as office appearance, and saw weak spots in so many potential deals that by 1986, few had been done.^[54] At first, Bain Capital focused on venture capital opportunities.^[54] Their first big success was a 1986 investment to help start Staples Inc., after founder Thomas G. Stemberg convinced Romney of the market size for office supplies and Romney convinced others; Bain Capital eventually reaped a nearly sevenfold return on its investment, and Romney sat on the Staples board of directors for over a decade.^[54][69][70]

Romney soon switched Bain Capital's focus from startups to the relatively new business of leveraged buyouts: buying existing firms with money mostly borrowed against their assets, partnering with existing management to apply the "Bain way" to their operations (rather than the hostile takeovers practiced in other leverage buyout scenarios), and selling them off in a few years.^[54][64] Existing CEOs were offered large equity stakes in the process, owing to Bain Capital's belief in the emerging agency theory that CEOs should be bound to maximizing shareholder value rather than other goals.^[70] Bain Capital lost most of its money in many of its early leveraged buyouts, but then started finding deals that made large returns.^[54] The firm invested in or acquired Accuride, Brookstone, Domino's Pizza, Sealy Corporation, Sports Authority, and Artisan Entertainment, as well as lesser-known companies in the industrial and medical sectors.^[54][64][71] He ran Bain Capital for fourteen years, during which time the firm's average annual internal rate of return on realized investments was 113 percent.^[58] Much of this profit was earned from a relatively small number of deals; Bain Capital's overall success–to–failure ratio was about even.^{[nb 9]}

Less an entrepreneur than an executive running an investment operation,^[67][72] Romney was skilled at presenting and selling the deals the company made.^[68] The firm initially gave a cut of its profits to Bain & Company, but Romney persuaded Bain to give that up.^[68] Within Bain Capital, Romney spread profits from deals widely within the firm to keep people motivated, often keeping less than ten percent for himself.^[73] Viewed as a fair manager, he received considerable loyalty from the firm's members.^[70] Romney's wary instincts were still in force at times, and he was generally data-driven and averse to risk.^[54][70] He wanted to drop a Bain Capital hedge fund that initially lost money, but other partners prevailed and it eventually gained billions.^[54] He also personally opted out of the Artisan Entertainment deal, not wanting to profit from a studio that produced R-rated films.^[54] Romney was on the board of directors of Damon Corporation, a medical testing company later found guilty of defrauding the government; Bain Capital tripled its investment before selling off the company, and the fraud was discovered by the new owners (Romney was never implicated).^[54] In some cases, Romney had little involvement with a company once acquired.^[69]

Bain Capital's leveraged buyouts sometimes led to layoffs, either soon after acquisition or later after the firm had left.^[61][68][69] How jobs added compared to those lost due to these investments and buyouts is unknown, due to a lack of records and Bain Capital's penchant for privacy on behalf of itself and its investors.^[74][75][76] In any case, maximizing the value of acquired companies and the return to Bain's investors, not job creation, was the firm's fundamental goal, as it was for most private equity operations.^[69][77] Bain Capital's acquisition of Ampad exemplified a deal where it profited handsomely from early payments and management fees, even though the subject company itself ended up going into bankruptcy.^[54][70][77] Dade Behring was another case where Bain Capital received an eightfold return on its investment, but the company itself was saddled with debt and laid off over a thousand employees before Bain Capital exited (the company subsequently went into bankruptcy, with more layoffs, before recovering and prospering).^[74] Bain was among the private equity firms that took the most fees in such cases.^[64][70]

In 1990, Romney was asked to return to Bain & Company, which was facing financial collapse.^[66] He was announced as its new CEO in January 1991^[78][79] but drew only a symbolic salary of one dollar.^[66] He managed an effort to restructure the firm's employee stock-ownership plan, real-estate deals and bank loans, while rallying the firm's thousand employees, imposing a new governing structure that included Bain and the other founding partners giving up control, and increasing fiscal transparency.^[54][58][66] Within about a year, he had led Bain & Company through a turnaround and returned the firm to profitability without further layoffs or partner defections.^[58] He turned Bain & Company over to new leadership and returned to Bain Capital in December 1992.^[54][79][80]

Romney took a leave of absence from Bain Capital in February 1999 to serve as the President and CEO of the 2002 Salt Lake City Olympic Games Organizing Committee.^[54][81] By that time, Bain Capital was on its way to being one of the top private equity firms in the nation,^[68] having increased its number of partners from 5 to 18, with 115 employees overall, and $4 billion under its management.^[64][69] Bain Capital's approach of applying consulting expertise to the companies it invested in became widely copied within the private equity industry.^[25][69] Economist Steven Kaplan would later say, "[Romney] came up with a model that was very successful and very innovative and that now everybody uses."^[70]

Personal wealth[link]

In August 2001, Romney announced that he would not return to Bain Capital.^[81] He transferred his ownership to other partners and negotiated an agreement that allowed him to receive a passive profit share as a retired partner in some Bain Capital entities, including buyout and investment funds.^[73][82] Because the private equity business continued to thrive, this deal brought him millions of dollars in annual income.^[73] As a result of his business career, by 2007, Romney and his wife had a net worth of between $190 and $250 million, most of it held in blind trusts since 2003.^[82] In 2012, it was estimated that he had amassed twice the net worth of the last eight presidents combined,^[83] and would rank among the four richest in American history if elected.^[83][84]

An additional blind trust existed in the name of the Romneys' children and grandchildren that was valued at between $70 and $100 million as of 2007.^[85] The couple's net worth remained in the same range as of 2011, and was still held in blind trusts.^[86] In 2010, Romney and his wife received $21.7 million in income, almost all of it from investments, of which about $3 million went to federal income taxes (a rate of 13.9 percent, based upon the beneficial rate accorded investment income by the U.S. tax code) and almost $3 million to charity, including $1.5 million to the LDS Church.^[87] Romney has always tithed to the church, including stock from Bain Capital holdings.^[13][88][89] In 2010, the Romney family's Tyler Charitable Foundation gave out about $650,000, with some of it going to organizations that fight specific diseases such as cystic fibrosis and multiple sclerosis.^[90]

Local LDS Church leadership[link]

During his years in business, Romney also served in the local lay clergy (consisting of all Mormon men over the age of 12).^[13] Around 1977, he became a counselor to the president of the Boston Stake.^[91] He later served as bishop of the ward (leader of the congregation) at Belmont, Massachusetts, from 1981 to 1986, acting as the ecclesiastical and administrative head of his congregation.^[92][93] As such, in addition to home teaching, he also formulated Sunday services and classes using LDS scriptures to guide the congregation.^[94] He forged bonds with other religious institutions in the area when the Belmont meetinghouse was destroyed by a fire of suspicious origins in 1984; the congregation rotated its meetings to other houses of worship while it was rebuilt.^[88][93]

From 1986 to 1994, he presided over the Boston Stake, which included more than a dozen wards in eastern Massachusetts with about 4,000 church members altogether.^[67][94][95] He organized a team to handle financial and management issues, sought to counter anti-Mormon sentiments, and tried to solve social problems among poor Southeast Asian converts.^[88][93] An unpaid position, his local church leadership often took 30 or more hours a week of his time,^[94] and he became known for his tireless energy in the role.^[67] He generally refrained from overnight business travel owing to his church responsibilities.^[94]

He took a hands-on role in general matters, helping in maintenance efforts in- and outside homes, visiting the sick, and counseling troubled or burdened church members.^[92][93][94] A number of local church members later credited him with turning their lives around or helping them through difficult times.^[88][93][94] Some others were rankled by his leadership style and desired a more consensus-based approach.^[93] Romney tried to balance the conservative dogma insisted upon by the church leadership in Utah with the desire of some Massachusetts members to have a more flexible application of doctrine.^[67] He agreed with some modest requests from the liberal women's group Exponent II for changes in the way the church dealt with women, but clashed with women whom he felt were departing too much from doctrine.^[67] In particular, he counseled women not to have abortions except in the rare cases allowed by LDS doctrine, and also in accordance with doctrine, encouraged prospective mothers who were not in successful marriages to give up children for adoption.^[67] Romney later said that the years spent as an LDS minister gave him direct exposure to people struggling in economically difficult circumstances, and empathy for those going through problematic family situations.^[96]

1994 U.S. senatorial campaign[link]

By 1993, Romney had been thinking about entering politics, partly based upon Ann's urging and partly to follow in his father's footsteps.^[46] He decided to challenge incumbent Democratic U.S. Senator Ted Kennedy, who was seeking re-election for the sixth time. Kennedy was potentially vulnerable that year – in part because of the unpopularity of the Democratic Congress as a whole, and in part because this was Kennedy's first election since the William Kennedy Smith trial in Florida, in which Kennedy had suffered some negative public relations regarding his character.^[97][98][99] Romney changed his affiliation from Independent to Republican in October 1993 and formally announced his candidacy in February 1994.^[46] He took a leave of absence from Bain Capital in November 1993, and stepped down from his church leadership role during 1994, due to the campaign.^[100][94]

Radio personality Janet Jeghelian took an early lead in polls among candidates for the Republican nomination for the Senate seat, but Romney proved the most effective fundraiser.^[101][102] He won 68 percent of the vote at the May 1994 Massachusetts Republican Party convention; businessman John Lakian finished a distant second and Jeghelian was eliminated.^[103] Romney defeated Lakian in the September 1994 primary with over 80 percent of the vote.^[15][104]

In the general election, Kennedy faced the first serious re-election challenger of his career in the young, telegenic, and well-funded Romney.^[97] Romney ran as a fresh face, as a businessperson who stated he had created ten thousand jobs, and as a Washington outsider with a solid family image and moderate stances on social issues.^[97][105] When Kennedy tried to tie Romney's policies to those of Ronald Reagan and George H. W. Bush, Romney responded, "Look, I was an independent during the time of Reagan-Bush. I'm not trying to take us back to Reagan-Bush."^[106] Romney stated: "Ultimately, this is a campaign about change."^[107] After two decades out of public view, his father George re-emerged during the campaign.^[108][109]

Romney's campaign was effective in portraying Kennedy as soft on crime, but had trouble establishing its own positions in a consistent manner.^[110] By mid-September 1994, polls showed the race to be approximately even.^{[97][111][112]} Kennedy responded with a series of attack ads, which focused on Romney's seemingly shifting political views on issues such as abortion and on the treatment of workers at the Ampad plant owned by Romney's Bain Capital.^{[97][113][114]} The latter was effective in blunting Romney's momentum.^[70] Kennedy and Romney held a widely watched late October debate without a clear winner, but by then, Kennedy had pulled ahead in polls and stayed ahead afterward.^[115] Romney spent $3 million of his own money in the race and more than $7 million overall.^{[116][nb 10]} In the November general election, despite a disastrous showing for Democrats overall, Kennedy won the election with 58 percent of the vote to Romney's 41 percent,^[54] the smallest margin in Kennedy's eight re-election campaigns for the Senate.^[119]

2002 Winter Olympics[link]

Romney, president and CEO of the Salt Lake Organizing Committee for the 2002 Winter Olympics, speaking before a curling match

Romney returned to Bain Capital the day after the election, but the loss had a lasting effect; he told his brother, "I never want to run for something again unless I can win."^[46][120] When his father died in 1995, Mitt donated his inheritance to BYU's George W. Romney Institute of Public Management and joined the board and was vice-chair of the Points of Light Foundation (which had incorporated his father's National Volunteer Center).^[45][81] His mother died in 1998. Romney felt restless as the decade neared a close; the goal of simply making more money was losing its appeal to him.^[46][120] He no longer had a church leadership position, although he still taught Sunday School.^[92] During the long and controversial approval and construction process for the $30 million Mormon temple in Belmont, he feared that as a political figure who had opposed Kennedy, he would become a focal point for opposition to the structure.^[93] He thus kept to a limited, behind-the-scenes role in attempts to ease tensions between the church and local residents, but locals nonetheless sometimes referred to it as "Mitt's Temple".^[88][92][93]

Ann Romney was diagnosed with multiple sclerosis in 1998; Mitt described watching her fail a series of neurological tests as the worst day of his life.^[46] After two years of severe difficulties with the disease, she found while living in Park City, Utah (where the couple had built a vacation home) a mixture of mainstream, alternative, and equestrian therapies that gave her a lifestyle mostly without limitations.^[53] When the offer came for him to take over the troubled 2002 Winter Olympics and Paralympics, to be held in Salt Lake City in Utah, she urged him to take it, and eager for a new challenge, he did.^[120][121] On February 11, 1999, Romney was hired as the president and CEO of the Salt Lake Organizing Committee for the Olympic and Paralympic Winter Games of 2002.^[122]

Before Romney came on, the event was running $379 million short of its revenue benchmarks.^[122] Plans were being made to scale back the Games to compensate for the fiscal crisis, and there were fears the Games might be moved away entirely.^[123] The Games had also been damaged by allegations of bribery involving top officials, including prior Salt Lake Olympic Committee president and CEO Frank Joklik. Joklik and committee vice president Dave Johnson were forced to resign.^[124] Romney was chosen by Utah figures looking for someone with expertise in business and law and with connections to the state and the LDS Church.^[125] The appointment faced some initial criticism from non-Mormons, and fears from Mormons, that it represented cronyism or gave the Games too Mormon an image.^[30]

Romney ran the planning for the Games like a business.^[126] He revamped the organization's leadership and policies, reduced budgets, and boosted fundraising, alleviated the concerns corporate sponsors and recruited many new ones.^[120][125] He appealed to Utah's citizenry with a message of optimism that helped restore confidence in the effort.^[120][126] He worked to ensure the safety of the Games following the September 11, 2001 terrorist attacks by coordinating a $300 million security budget.^[121] Overall, he oversaw a $1.32 billion budget, 700 employees, and 26,000 volunteers.^[122] The federal government provided between approximately $400 million^{[125][127][128]} and $600 million^[126][129] of that budget, much of it a result of Romney's having aggressively lobbied Congress and federal agencies.^{[129][130][131]} It would prove to be a record level of federal funding for the staging of a U.S. Olympics, a fact Romney would cite as a selling point during his campaign for the Massachusetts governorship.^[128][130] An additional federal $1.1 billion was spent on indirect support in the form of highway and transit projects.^[132]

Romney emerged as the public face of the Olympic effort, appearing in photographs, news stories and Olympics pins.^[120] Robert H. Garff, the chair of the organizing committee, later said that "It was obvious that he had an agenda larger than just the Olympics,"^[120] and that Romney wanted to use the Olympics to propel himself into the national spotlight and a political career.^[125][133] Garff believed the initial budget shortfall was not as bad as Romney portrayed, given there were still three years to reorganize.^[125] Utah Senator Bob Bennett said that much of the needed federal money was already in place and an analysis by The Boston Globe stated that the committee already had nearly $1 billion in committed revenues.^[125] Olympics critic Steve Pace, who led Utahns for Responsible Public Spending, thought Romney exaggerated the initial fiscal state in order to lay the groundwork for a well-publicized rescue.^[133] Kenneth Bullock, another board member of the organizing committee and also head of the Utah League of Cities and Towns, often clashed with Romney at the time, and later said that Romney deserved some credit for the turnaround but not as much as he claimed:^[120] Bullock said: "He tried very hard to build an image of himself as a savior, the great white hope. He was very good at characterizing and castigating people and putting himself on a pedestal."^[125]

Despite the initial fiscal shortfall, the Games ended up clearing a profit of $100 million.^[134] His performance as Olympics head was rated positively by 87 percent of Utahns.^[135] Romney and his wife contributed $1 million to the Olympics, and he donated to charity the $1.4 million in salary and severance payments he received for his three years as president and CEO.^[136]

Romney was widely praised for his efforts with the 2002 Winter Olympics^[121] including by President George W. Bush,^[25] and it solidified his reputation as a turnaround artist.^[125] Harvard Business School taught a case study based around his actions.^[61] He wrote a book about his experience titled Turnaround: Crisis, Leadership, and the Olympic Games, published in 2004. The role gave Romney experience in dealing with federal, state, and local entities, a public persona he had previously lacked, and the chance to re-launch his political aspirations.^[120] He was mentioned as a possible candidate for statewide office in both Massachusetts and Utah, and also as possibly joining the Bush administration.^{[121][137][138]}

Governor of Massachusetts[link]

2002 gubernatorial campaign[link]

In 2002, Republican Acting Governor Jane Swift's administration was plagued by political missteps and personal scandals.^[135] Many Republicans viewed her as a liability and considered her unable to win a general election.^[139] Prominent party figures – as well as the White House – wanted Romney to run for governor,^[137][140] and the opportunity appealed to him for its national visibility.^[141] One poll taken at that time showed Republicans favoring Romney over Swift by more than 50 percentage points.^[142] On March 19, 2002, Swift announced she would not seek her party's nomination, and hours later Romney declared his candidacy,^[142] for which would face no opposition in the primary.^[143] In June 2002, Massachusetts Democratic Party officials contested Romney's eligibility to run for governor, citing residency issues involving his time in Utah for the Olympics.^[144] That same month, the bipartisan Massachusetts State Ballot Law Commission unanimously ruled that he was an eligible candidate.^[145]

He again ran as a political outsider,^[135] saying he was "not a partisan Republican" but rather a "moderate" with "progressive" views.^[146] Supporters of Romney hailed his business success, especially with the Olympics, as the record of someone who would be able to bring a new era of efficiency into Massachusetts politics.^[143] The campaign was the first to use microtargeting techniques, in which fine-grained groups of voters were reached with narrowly tailored messaging.^[147] Nevertheless, Romney initially had difficulty connecting with voters and fell behind his Democratic opponent, Massachusetts State Treasurer Shannon O'Brien, in polls before rebounding.^[148] During the election he contributed over $6 million – a state record at the time – to the nearly $10 million raised for his campaign overall.^[149][150] Romney was elected governor on November 5, 2002, with 50 percent of the vote to O'Brien's 45 percent.^[151]

Tenure, 2003–2007[link]

Massachusetts State House portrait of Governor Mitt Romney, by artist Richard Whitney

When Romney was sworn in as the 70th governor of Massachusetts on January 2, 2003, ^[152] both houses of the Massachusetts state legislature held large Democratic majorities.^[153] He picked his cabinet and advisors more on managerial abilities than partisan affiliation.^[23] Upon entering office in the middle of a fiscal year, he faced an immediate $650 million shortfall and a projected $3 billion deficit for the next year.^[138] Unexpected revenue of $1.0–1.3 billion from a previously enacted capital gains tax increase and $500 million in unanticipated federal grants decreased the deficit to $1.2–1.5 billion.^[154][155] Through a combination of spending cuts, increased fees, and removal of corporate tax loopholes,^[154] the state ran surpluses of around $600–700 million for the last two full fiscal years Romney was in office, although it began running deficits again after that.^{[nb 11]}

Romney supported raising various fees by more than $300 million, including those for driver's licenses, marriage licenses, and gun licenses.^[138][154] He increased a special gasoline retailer fee by two cents per gallon, generating about $60 million per year in additional revenue.^[138][154] (Opponents said the reliance on fees sometimes imposed a hardship on those who could least afford them.)^[154] Romney also closed tax loopholes that brought in another $181 million from businesses over the next two years and over $300 million for his term.^[138][160] Romney did so in the face of conservative and corporate critics that considered them tax increases.^[160]

The state legislature, with Romney's support, also cut spending by $1.6 billion, including $700 million in reductions in state aid to cities and towns.^[161] The cuts also included a $140 million reduction in state funding for higher education, which led state-run colleges and universities to increase tuition by 63 percent over four years.^[138][154] Romney sought additional cuts in his last year as governor by vetoing nearly 250 items in the state budget, but all were overridden by the heavily Democratic legislature.^[162]

The cuts in state spending put added pressure on localities to reduce services or raise property taxes, and the share of town and city revenues coming from property taxes rose from 49 to 53 percent.^[138][154] The combined state and local tax burden in Massachusetts increased during Romney's governorship but remained below the national average.^[138]

Romney sought to bring near-universal health insurance coverage to the state. This came after Staples founder Stemberg told him at the start of his term that doing so would be the best way he could help people,^{[163][164][165]} and after the federal government, owing to the rules of Medicaid funding, threatened to cut $385 million in those payments to Massachusetts if the state did not reduce the number of uninsured recipients of health care services.^{[23][163][166]} Although he had not campaigned on the idea of universal health insurance,^[165] Romney decided that because people without insurance still received expensive health care, the money spent by the state for such care could be better used to subsidize insurance for the poor.^[164][165]

After positing that any measure adopted not raise taxes and not resemble the previous decade's failed "Hillarycare" proposal, Romney formed a team of consultants from diverse political backgrounds.^{[23][163][166]} Beginning in late 2004, they came up with a set of proposals more ambitious than an incremental one from the Massachusetts Senate and more acceptable to him than one from the Massachusetts House of Representatives that incorporated a new payroll tax.^{[23][163][166]} In particular, Romney pushed for incorporating an individual mandate at the state level.^[21] Past rival Ted Kennedy, who had made universal heath coverage his life's work and who, over time, had developed a warm relationship with Romney,^[167] gave the plan a positive reception, which encouraged Democratic legislators to cooperate.^[163][166] The effort eventually gained the support of all major stakeholders within the state, and Romney helped break a logjam between rival Democratic leaders in the legislature.^[163][166]

On April 12, 2006, Romney signed the resulting Massachusetts health reform law, commonly called "Romneycare", which requires nearly all Massachusetts residents to buy health insurance coverage or face escalating tax penalties, such as the loss of their personal income tax exemption.^[168] The bill also establishes means-tested state subsidies for people who do not have adequate employer insurance and whose income is below a threshold, with funds that were previously used to compensate for the health costs of the uninsured.^{[169][170][171]} He vetoed eight sections of the health care legislation, including a controversial $295-per-employee assessment on businesses that do not offer health insurance and provisions guaranteeing dental benefits to Medicaid recipients.^[168][172] The legislature overrode all eight vetoes, but the governor's office said the differences were not essential.^[172] The law was the first of its kind in the nation and became the signature achievement of Romney's term in office.^{[166][nb 12]}

At the beginning of his governorship, Romney opposed same-sex marriage and civil unions, but advocated tolerance and supported some domestic partnership benefits.^{[166][174][175]} Faced with the dilemma of choosing between same-sex marriage or civil unions after the November 2003 Massachusetts Supreme Judicial Court decision legalizing same-sex marriages (Goodridge v. Department of Public Health), Romney reluctantly backed a state constitutional amendment in February 2004 that would have banned same-sex marriage but still allow civil unions, viewing it as the only feasible way to ban same-sex marriage in Massachusetts.^[176] In May 2004, Romney instructed town clerks to begin issuing marriage licenses to same-sex couples, but citing a 1913 law that barred out-of-state residents from getting married in Massachusetts if their union would be illegal in their home state, no marriage licenses were to be issued to out-of-state same-sex couples not planning to move to Massachusetts.^[174][177] In June 2005, Romney abandoned his support for the compromise amendment, stating that the amendment confused voters who oppose both same-sex marriage and civil unions.^[174] Instead, Romney endorsed a petition effort led by the Coalition for Marriage & Family that would have banned same-sex marriage and made no provisions for civil unions.^[174] In 2004 and 2006, he urged the U.S. Senate to vote in favor of the Federal Marriage Amendment.^[178][179]

In 2005, Romney revealed a change of view regarding abortion, moving from the "unequivocal" pro-choice position expressed during his 2002 campaign to a pro-life one in opposition to Roe v. Wade.^[166] He subsequently vetoed a bill on pro-life grounds that would expand access to emergency contraception in hospitals and pharmacies^[180] (the veto was overridden by the legislature).^[181]

Romney generally used the bully pulpit approach towards promoting his agenda, staging well-organized media events to appeal directly to the public rather than pushing his proposals in behind-doors sessions with the state legislature.^[166] Romney dealt with a public crisis of confidence in Boston's Big Dig project – that followed a fatal ceiling collapse in 2006 – by wresting control of the project from the Massachusetts Turnpike Authority.^[166]

During 2004, Romney spent considerable effort trying to bolster the state Republican Party, but it failed to gain any seats in the state legislative elections that year.^[138][182] He was given a prime-time appearance at the 2004 Republican National Convention, and was already being discussed as a potential 2008 presidential candidate.^[183] Midway through his term, Romney decided that he wanted to stage a full-time run for president,^[184] and on December 14, 2005, announced that he would not seek re-election for a second term.^[185][186] As chair of the Republican Governors Association, Romney traveled around the country, meeting prominent Republicans and building a national political network;^[184] he spent part or all of more than 200 days out of state during 2006, preparing for his run.^[187]

He had a 61 percent job approval rating in public polls after his initial fiscal actions in 2003, but it began to sink after that.^[188] His frequent out-of-state travel contributed to a decline in his approval rating towards the end of his term;^[189][188] at 34 percent in November 2006, his rating level ranked 48th of the 50 U.S. governors.^[190] Dissatisfaction with Romney's administration and the weak condition of the Republican state party were among several factors that led to Democrat Deval Patrick's lopsided win over Republican Kerry Healey, Romney's Lieutenant Governor, in the 2006 Massachusetts gubernatorial election.^[191][189]

Romney filed to register a presidential campaign committee with the Federal Election Commission on his penultimate day in office as governor.^[192] His term ended January 4, 2007.

2008 presidential campaign[link]

Holding an "Ask Mitt Anything" session in Ames, Iowa, in May 2007

Romneys on Mackinac Island at the 2007 Republican Convention

At a rally in Battle Creek, Michigan, in mid-January 2008

Romney formally announced his candidacy for the 2008 Republican nomination for president on February 13, 2007, at the Henry Ford Museum in Dearborn, Michigan.^[193] In his speech, he frequently invoked his father and his own family and stressed experiences in the private, public, and voluntary sectors that had brought him to this point.^[193][194] He said, "Throughout my life, I have pursued innovation and transformation,"^[194] and casting himself as a political outsider, said, "I do not believe Washington can be transformed from within by a lifelong politician."^[195]

Romney's campaign initially emphasized his résumé of a highly profitable career in the business world and his stewardship of the Olympics.^{[184][196][nb 13]} He also had political experience as governor, together with a political pedigree courtesy of his father, and had a reputation for a strong work ethic and energy level.^{[184][196][65]} Ann Romney, who had become an outspoken advocate for those with multiple sclerosis,^[199] was in remission and would be an active participant in his campaign,^[200] helping to soften his political personality.^[65] Moreover, a number of commentators noted that with his square jaw and ample hair graying at the temples, the 6-foot-2-inch (1.88 m)^[201] Romney – referred to as handsome in scores of media stories^[202] – physically matched one of the common images of what some believed a president should look like.^{[66][203][204][205]} Romney's liabilities included having run for senator and served as governor in one of the nation's most liberal states, having taken some positions there that were opposed by the party's conservative base, and subsequently shifting those positions.^{[184][196][200]} His religion was also viewed with suspicion and skepticism by some in the Evangelical portion of the party.^[206]

Romney assembled for his campaign a veteran group of Republican staffers, consultants, and pollsters.^[196][207] He was little-known nationally, though, and stayed around the 10 percent range in Republican preference polls for the first half of 2007.^[184] He proved the most effective fundraiser of any of the Republican candidates;^[208] his Olympics ties helped him with fundraising from Utahns and from sponsors and trustees of the games.^[136] He also partly financed his campaign with his own personal fortune.^[196] These resources, combined with the mid-year near-collapse of nominal front-runner John McCain's campaign, made Romney a threat to win the nomination and the focus of the other candidates' attacks.^[209] Romney's staff suffered from internal strife and the candidate himself was indecisive at times, constantly asking for more data before making a decision.^[196][210]

During all of his political campaigns, Romney has generally avoided speaking publicly about specific Mormon doctrines, referring to the U.S. Constitution prohibition of religious tests for public office.^[211] But persistent questions about the role of religion in Romney's life in this race, as well as Southern Baptist minister and former Governor of Arkansas Mike Huckabee's rise in the polls based upon an explicitly Christian-themed campaign, led to the December 6, 2007, "Faith in America" speech.^[212] He said should neither be elected nor rejected based upon his religion,^[213] and echoed Senator John F. Kennedy's famous speech during his 1960 presidential campaign in saying, "I will put no doctrine of any church above the plain duties of the office and the sovereign authority of the law."^[212] Instead of discussing the specific tenets of his faith, he said that he would be informed by it and that, "Freedom requires religion just as religion requires freedom. Freedom and religion endure together, or perish alone."^[212][213] Academics would later study the role religion had played in the campaign.^{[nb 14]}

In the January 3, 2008, Iowa Republican caucuses, the first contest of the primary season, Romney received 25 percent of the vote and placed second to the vastly outspent Huckabee, who received 34 percent.^[216][217] Of the 60 percent of caucus-goers who were evangelical Christians, Huckabee was supported by about half of them while Romney by only a fifth.^[216] Two days later, Romney won the lightly contested Wyoming Republican caucuses.^[218]

At a Saint Anselm College debate, Huckabee and McCain pounded away at Romney's image as a flip flopper.^[216] Indeed, this label would stick to Romney through the campaign^[196] (but was one that Romney rejected as unfair and inaccurate, except for his acknowledged change of mind on abortion).^[65][219] Romney seemed to approach the campaign as a management consulting exercise, and showed a lack of personal warmth and political feel; journalist Evan Thomas wrote that Romney "came off as a phony, even when he was perfectly sincere."^[65][220] Romney's staff would conclude that competing as a candidate of social conservatism and ideological purity rather than of pragmatic competence had been a mistake.^[65]

Romney finished in second place by 5 percentage points to the resurgent McCain in the next-door-to-his-home-state New Hampshire primary on January 8.^[216] Romney rebounded to win the January 15 Michigan primary over McCain by a solid margin, capitalizing on his childhood ties to the state and his vow to bring back lost automotive industry jobs which was seen by several commentators as unrealistic.^{[nb 15]} On January 19, Romney won the lightly contested Nevada caucuses, but placed fourth in the intense South Carolina primary, where he had effectively ceded the contest to his rivals.^[225] McCain gained further momentum with his win in South Carolina, leading to a showdown between him and Romney in the Florida primary.^[226][227]

For ten days, Romney campaigned intensively on economic issues and the burgeoning subprime mortgage crisis, while McCain repeatedly, and inaccurately, asserted that Romney favored a premature withdrawal of U.S. forces from Iraq.^{[nb 16]} McCain won key last-minute endorsements from Florida Senator Mel Martinez and Governor Charlie Crist, which helped push him to a 5 percentage point victory on January 29.^[226][227] Although many Republican officials were now lining up behind McCain,^[227] Romney persisted through the nationwide Super Tuesday contests on February 5. There he won primaries or caucuses in several states, including Massachusetts, Alaska, Minnesota, Colorado, and Utah, but McCain won more, including large states such as California and New York.^[229] Trailing McCain in delegates by a more than two-to-one margin, Romney announced the end of his campaign on February 7 during a speech before the Conservative Political Action Conference in Washington.^[229]

Altogether, Romney had won 11 primaries and caucuses,^[230] received about 4.7 million total votes,^[231] and garnered about 280 delegates.^[232] He spent $110 million during the campaign, including $45 million of his own money.^[233]

Romney endorsed McCain for president a week later.^[232] He became one of the McCain campaign's most visible surrogates, appearing on behalf of the GOP nominee at fundraisers, state Republican party conventions, and on cable news programs.^[234] His efforts earned McCain's respect and the two developed a warmer relationship; he was on the nominee's short list for the vice presidential running mate slot, where his economic expertise would have balanced one of McCain's weaknesses.^[235] McCain, behind in the polls, opted instead for a high-risk, high-reward "game changer", and selected Alaska Governor Sarah Palin.^[236] McCain lost the election to Democratic Senator Barack Obama.

Activity between presidential campaigns[link]

Both Mitt Romney and his wife Ann (pictured) spoke at the Conservative Political Action Conference in 2011

Following the election, Romney paved the way for a possible 2012 presidential campaign by using his Free and Strong America political action committee (PAC) to raise money for other Republican candidates and to pay his existing political staff's salaries and consulting fees.^[237][238] An informal network of former staff and supporters around the nation were eager for him to run again.^[239] He continued to give speeches and raise funds for Republicans,^[240] but turned down many potential media appearances, fearing overexposure.^[219] He also spoke before business, educational, and motivational groups.^[241] He served on the board of directors of Marriott International from 2009 to 2011 (having earlier served on it from 1993 to 2002).^[242]

In 2009, the Romneys sold their primary residence in Belmont and their ski chalet in Utah, leaving them an estate along Lake Winnipesaukee in Wolfeboro, New Hampshire, and an oceanfront home in the La Jolla district of San Diego, California, which they had bought the year before.^{[219][243][244]} The San Diego home was beneficial in location and climate for Ann Romney's multiple sclerosis therapies and for recovering from her late 2008 diagnosis and lumpectomy for mammary ductal carcinoma in situ.^{[243][245][246]} Both it and the New Hampshire location were near some of their grandchildren,^[243] who by 2011 numbered sixteen.^[247] Romney maintained his voting registration in Massachusetts, however, and bought a smaller condominium in Belmont during 2010.^{[245][248][nb 17]} In February 2010, Romney had a minor altercation with LMFAO member Skyler Gordy, known as Sky Blu, on an airplane flight.^{[nb 18]}

Romney's book, No Apology: The Case for American Greatness, was released in March 2010; an 18-state book tour was undertaken.^[255] The book, which debuted atop The New York Times Best Seller list,^[256] avoided anecdotes about his personal or political life in favor of a presentation of his economic and geopolitical views.^[257][258] Earnings from the book were donated to charity.^[86]

In nationwide opinion polling for the 2012 Republican Presidential primaries, Romney led or placed in the top three with Palin and Huckabee. A January 2010 National Journal survey of political insiders found that a majority of Republican insiders, and a plurality of Democratic insiders, predicted Romney would be the party's 2012 nominee.^[259] Romney campaigned heavily for Republican candidates in the 2010 midterm elections,^[260] raising more money than the other prospective 2012 Republican presidential candidates.^[261] Beginning in early 2011, Romney presented a more relaxed visual image, including rarely wearing a necktie.^[262][263]

2012 presidential campaign[link]

Romney making an appearance in Livonia, Michigan, days after his June 2011 formal campaign announcement

On April 11, 2011, Romney announced in a video taped outdoors at the University of New Hampshire that he had formed an exploratory committee for a run for the Republican presidential nomination.^[264][265] A Quinnipiac University political science professor stated, "We all knew that he was going to run. He's really been running for president ever since the day after the 2008 election."^[265]

Romney stood to gain from the Republican electorate's tendency to nominate candidates who had previously run for president and appeared to be "next in line" to be chosen.^{[239][266][267]} The early stages of the race found him as the apparent front-runner in a weak field, especially in terms of fundraising prowess and organization.^{[268][269][270]} Perhaps his greatest hurdle in gaining the Republican nomination was party opposition to the Massachusetts health care reform law that he had shepherded five years earlier.^{[263][265][267]} As many potential Republican candidates decided not to run (including Mike Pence, John Thune, Haley Barbour, Mike Huckabee, and Mitch Daniels), Republican party figures searched for plausible alternatives to Romney.^[268][270]

On June 2, 2011, he formally announced the start of his campaign. Speaking on a farm in Stratham, New Hampshire, he focused on the economy and criticized President Obama's handling of it.^[271] He said, "In the campaign to come, the American ideals of economic freedom and opportunity need a clear and unapologetic defense, and I intend to make it – because I have lived it."^[267]

Giving an interview at a supporters rally in Paradise Valley, Arizona

Romney raised $56 million during 2011, far more than any of his Republican opponents,^[272] and refrained from spending any of his own money on his campaign.^[273] He initially ran a low-key, low-profile campaign.^[274] Michele Bachmann staged a brief surge in polls, then by September 2011, Romney's chief rival in polls was a recent entrant, Texas Governor Rick Perry.^[275] Perry and Romney exchanged sharp criticisms of each other during a series of debates among the Republican candidates.^[276] The October 2011 decisions of Chris Christie and Sarah Palin not to run finally settled the field.^[277][278] Perry faded after poor performances in those debates, while Herman Cain's long-shot bid gained popularity until allegations of sexual misconduct derailed him.^[279][280]

Romney continued to seek support from a wary Republican electorate; at this point in the race, his poll numbers were relatively flat and at a historically low level for a Republican frontrunner.^{[277][281][282]} After the charges of flip-flopping that marked his 2008 campaign began to accumulate again, Romney declared in November 2011 that "I've been as consistent as human beings can be."^{[283][284][285]} In the final month before voting began, Newt Gingrich enjoyed a major surge, taking a solid lead in national polls and in most of the early caucus and primary states,^[286] before settling back into parity or worse with Romney following a barrage of negative ads from Restore Our Future, a pro-Romney Super PAC.^[287]

In the initial 2012 Iowa caucuses of January 3, Romney was announced as the victor on election night with 25 percent of the vote, edging out a late-gaining Rick Santorum by eight votes (with an also-strong Ron Paul finishing third),^[288] but sixteen days later, Santorum was certified as the winner by a 34-vote margin.^[289] Romney decidedly won the New Hampshire primary the following week with a total of 39 percent; Paul finished second and Jon Huntsman third.^[290]

In the run-up to the South Carolina Republican primary, Gingrich launched attack ads criticizing Romney for causing job losses while at Bain Capital, Perry referred to Romney's role there as "vulture capitalism", and Sarah Palin questioned whether Romney could prove his claim that 100,000 jobs were created during that time.^[291][292] Many conservatives rallied in defense of Romney, rejecting what they inferred as criticism of free-market capitalism.^[291] However, during two debates, Romney fumbled questions about releasing his income tax returns, while Gingrich gained support with audience-rousing attacks on the debate moderators.^[293][294] Romney's double-digit lead in state polls evaporated and he lost to Gingrich by 13 points in the January 21 primary.^[293] Combined with the delayed loss in Iowa, Romney's admitted bad week represented a lost chance to end the race early, and he decided to release his tax returns quickly.^[293][295] The race turned to the Florida Republican primary, where in debates, appearances, and advertisements, Romney unleashed a concerted, unrelenting attack on Gingrich's past record and associations and current electability.^[296][297] Romney enjoyed a big spending advantage from both his campaign and his aligned Super PAC, and after a record-breaking rate of negative ads from both sides, Romney won Florida on January 31, gaining 46 percent of the vote to Gingrich's 32 percent.^[298]

At local voting station on Super Tuesday 2012

There were several caucuses and primaries during February, and Santorum won three in a single night early in the month, propelling him into the lead in national and some state polls and positioning him as Romney's main rival.^[299] Romney won the other five, including a closely fought contest in his home state of Michigan at the end of the month.^[300][301] In the Super Tuesday primaries and caucuses of March 6, Romney won six of ten contests, including a narrow victory in Ohio over a greatly outspent Santorum, and although he failed to win decisively enough to end the race, still held a more than two-to-one edge over Santorum in delegates.^[302] Romney maintained his delegate margin through subsequent contests,^[303] and Santorum stopped his campaign on April 10.^[304] Following a sweep of five more contests on April 24, the Republican National Committee put its resources behind Romney as the party's presumptive nominee.^[305] Romney clinched a majority of the delegates with a win in the Texas primary on May 29.

Political positions and public perceptions[link]

For much of his business career, Romney did not take public political positions.^[306][307] While he had kept abreast of national politics during college,^[33] and the circumstances of his father's presidential campaign loss would irk him for decades,^[24] his early philosophical influences were often non-political, as during his missionary days when he read Napoleon Hill's pioneering self-help tome Think and Grow Rich, and encouraged his colleagues to do the same.^[13][61] Until his 1994 U.S. Senate campaign, he was registered as an Independent.^[46] In the 1992 Democratic Party presidential primaries, he voted for the Democratic former senator from Massachusetts, Paul Tsongas.^[306][308]

In the 1994 Senate race, Romney aligned himself with Republican Massachusetts Governor William Weld, saying "I think Bill Weld's fiscal conservatism, his focus on creating jobs and employment and his efforts to fight discrimination and assure civil rights for all is a model that I identify with and aspire to."^[309] As a gubernatorial candidate in 2002, and then initially as Governor of Massachusetts, he generally operated in the mold established by Weld and followed by Weld's two other Republican successors, Paul Cellucci and Jane Swift: restrain spending and taxing, be tolerant or permissive on social issues, protect the environment, be tough on crime, try to appear post-partisan.^[308][310]

Later during his time as governor, Romney's position on abortion changed in conjunction with a similar change of position on stem cell research.^{[166][nb 19]} Also during that time, his position or choice of emphasis on some aspects of gay rights,^{[nb 20]} and some aspects of abstinence-only sex education,^{[nb 21]} moved in a more conservative direction. The change in 2005 on abortion was the result of what he described as an epiphany experienced while investigating stem cell research issues.^[166] He later said, "Changing my position was in line with an ongoing struggle that anyone has that is opposed to abortion personally, vehemently opposed to it, and yet says, 'Well, I'll let other people make that decision.' And you say to yourself, but if you believe that you're taking innocent life, it's hard to justify letting other people make that decision."^[166]

Romney speaking in October 2007 to the Values Voter Summit in Washington, D.C.

This increased alignment with traditional conservatives on social issues coincided with Romney's becoming a candidate for the 2008 Republican nomination for President.^[317][318] He joined the National Rifle Association and portrayed himself as a lifelong hunter.^{[nb 22]} He downplayed the Massachusetts health care law,^{[21][308][318]} became a convert on signing an anti-tax pledge,^[61][21] and backed away from further closings of corporate tax loopholes.^[160] There was a display of aggressiveness on foreign policy matters, such as wanting to double the number of detainees at the Guantanamo Bay detention camp.^[318] Skeptics, including some Republicans, charged Romney with opportunism and having a lack of core principles.^{[166][196][308]} The fervor with which Romney adopted his new stances and attitudes contributed to the perception of inauthenticity which hampered that campaign.^[61][262]

While there have been many biographical parallels between the lives of George and Mitt Romney,^{[nb 23]} one particular difference is that while George was willing to defy political trends, Mitt has been much more willing to adapt to them.^[21][23] Mitt Romney has said that learning from experience and changing views accordingly is a virtue, and that, "If you're looking for someone who's never changed any positions on any policies, then I'm not your guy."^[324] Romney responded to criticisms of ideological pandering with the explanation that "The older I get, the smarter Ronald Reagan gets."^[200]

Journalist Daniel Gross sees Romney as approaching politics in the same terms as a business competing in markets, in that successful executives do not hold firm to public stances over long periods of time, but rather constantly devise new strategies and plans to deal with new geographical regions and ever-changing market conditions.^[308] Political profiler Ryan Lizza notes the same question regarding whether Romney's business skills can be adapted to politics, saying that "while giving customers exactly what they want may be normal in the corporate world, it can be costly in politics".^[61] Writer Robert Draper holds a somewhat similar perspective: "The Romney curse was this: His strength lay in his adaptability. In governance, this was a virtue; in a political race, it was an invitation to be called a phony."^[65] Writer Benjamin Wallace-Wells sees Romney as a detached problem solver rather than one who approaches political issues from a humanistic or philosophical perspective.^[70] Journalist Neil Swidey views Romney as a political and cultural enigma, "the product of two of the most mysterious and least understood subcultures in the country: the Mormon Church and private-equity finance," and believes that has led to the continued interest in a 1983 episode in which Romney kept his family dog on the roof of his car during a long road trip.^{[nb 24]} Political writer Joe Klein views Romney as actually more conservative on social issues than he portrayed himself during his Massachusetts campaigns and less conservative on other issues than his presidential campaigns have represented, and concludes that Romney "has always campaigned as something he probably is not."^[328]

Immediately following the March 2010 passage of the Patient Protection and Affordable Care Act, Romney attacked the landmark legislation as "an unconscionable abuse of power" and said the act should be repealed.^[329] The antipathy Republicans felt for it created a potential problem for the former governor, since the new federal law was in many ways similar to the Massachusetts health care reform passed during Romney's term; as one Associated Press article stated, "Obamacare ... looks a lot like Romneycare."^[329] While acknowledging that his plan was an imperfect work in progress, Romney did not back away from it, and has consistently defended its underpinning state-level health insurance mandate.^[329][330] He has focused on its bipartisan support in the state legislature, the absence of Congressional Republican support for Obama's plan,^[329] and has contended that it was the right answer to Massachusetts' specific problems at the time.^[329][331] While Romney has not explicitly argued for a federally imposed mandate, and as of 2010 explicitly opposes one, during his 1994 Senate campaign he indicated he would vote for an overall health insurance proposal that contained one.^[332][333] He suggested during his time as governor and during his 2008 presidential campaign that the Massachusetts plan was a model for the nation and that, over time, mandate plans might be adopted by most or all of the nation.^{[334][335][336]}