Will private equity lose a part of their “WE ARE THE GOOD GUYS!” argument?

Private equity heads converge in Munich this week.  The conference has a far more somber tone than in prior years.

Limited partners at the meeting acknowledge that returns will be lower because of the credit crunch.  We won’t go into private equity’s hand in creating that phenomena; we’ll just stay with the fact that fewer deals will get done.

An interesting debate has developed regarding sovereign wealth funds and their participation as investors in private equity funds.  The head of pension fund CALPERS, (the California Public Employees’ Retirement System) acknowledged that the presence of such investors will require additional scrutiny.

Legislation is being presented this week in the California State Assembly that would preclude CALPERS from investing alongside these sovereign wealth funds.

If this passes and becomes a standard across all public pension money, private equity will lose a key foundation of its argument that the ultimate beneficiaries of their success are the millions of workers who receive these pensions.

With whom will the private equity funds side?  Clearly, the ones with the deeper pockets.