As Bain Capital LLC prepares to market a multibillion-dollar fund, investors say the private equity firm's performance is its biggest problem -- not the 15 years it was run by presidential hopeful Mitt Romney.

Romney's bid has led to a broad attack on the private equity industry, which is accused of raiding companies and cutting jobs at a time of high unemployment and growing income inequality.

His tenure at Bain from 1984 to 1999 has made the Boston-based firm a focus of criticism, so much so that executives and investors at an industry conference in Berlin last week wanted to hear about the impact of Romney's candidacy on Bain's business.

But Bain investors contacted by Reuters, including some of the largest public pension funds, said the criticisms have made no difference in their assessment of the private equity firm and that their focus is on returns and the fees they are being charged.

We remain focused on investment performance for all of our commitments, including Bain. Election rhetoric has neither a positive nor negative impact on our assessment of a fund's performance, said Jodi O'Neill, a spokeswoman for the Indiana Public Retirement System, a $22 billion pension fund manager that has invested in Bain's last four buyout funds.

Even investors that no longer use Bain play down the Romney factor.

While the media coverage surrounding Mitt Romney and his track record while he was the head of Bain Capital is something we might be aware of, it would not drive a decision about investing in Bain Capital or the private equity industry, said Mauricia Geissler, chief investment officer at Amherst College Endowment, which stopped investing in Bain in 2008.


Private equity has had a rough time since the financial crisis of 2008, with debt less readily available and more expensive, and profitable disposal of portfolio companies a tough proposition because of a volatile market for initial public offerings.

That means that Bain and its peers have been confined to smaller and fewer deals, and have not been able to sell off companies they bought, leading to lower returns all around.

Performance of Bain's recent funds -- Bain Capital Fund IX, Bain Capital Fund X and Bain Capital Asia Fund -- have lagged that of rivals in the last year. Bain is shortly expected to market its next global buyout fund, Fund XI, investors said.

Bain's lagging performance results, in part, from the fact that a lot of its investments are in early stages. In the past 18 months, Bain made 60 percent of the investments from its Fund X, which was launched in 2007.

The firm argues its returns -- right now, paper profits and losses -- will improve by the time it exits investments and investors will judge it against the performance of rival private equity firms.

We always welcome the opportunity to be judged on our performance, said Mike Goss, a managing director at Bain Capital. We believe that when investors evaluate our funds and the progress of our portfolio companies, they'll like what they see.

Some investors point to major profit increases in investments of Fund X such as Bright Horizons Family Solutions Inc, a provider of employer-sponsored child care and early education, and clinical research organization Quintiles Transnational Corp, as grounds to be optimistic about its performance.

The Bain commitments were selected based on INPRS's long-term investment goals and supporting asset allocation. We believe these commitments are contributing as expected, said O'Neill of the Indiana Public Retirement System.

For now, though, the numbers don't look too good relative to those of peers. A performance portfolio report by California State Teachers' Retirement System (CalSTRS) said Bain Capital Fund IX and Bain Capital Fund X posted a positive 2.9 percent and negative 1.8 percent internal rate of return, respectively, as of the end of March 2011.

Bain's first Asian fund, Bain Capital Asia Fund, had a 4.7 percent internal rate of return in that period.

This is against a 12.8 percent internal rate of return for CalSTRS's entire private equity portfolio in the same period.

Three sources at funds-of-funds -- managers allocating investor money to different private equity funds -- said Bain Capital Fund X's performance improved slightly through 2011 but that its internal rate of return was still in negative territory.

Preqin, which gathers data on private equity fund performance, currently ranks Bain Capital Fund IX in the third of four quartiles, Bain Capital Asia Fund as second quartile and Bain Capital Fund X as fourth quartile, the lowest ranking.

The performance is reflected in Bain's fees, which have traditionally been on the high end of the private equity industry. The company's second Asian fund, Bain Capital Asian Fund II, currently trying to raise $2 billion, has been forced to temper its fee structure. Launched last year, Asia Fund II had raised at least $1.2 billion from investors as of December 2.

Private equity firms have traditionally followed the 2/20 model, seeking a management fee of 2 percent on committed capital and taking 20 percent of a fund's profits, known as carried interest. Bain historically asked for 30 percent of profits, boasting a top quartile performance.

For its second Asia Fund, investors said Bain has offered investors a choice -- a 2/20 fee structure with a 7 percent hurdle return rate, meaning the carry fee kicks in after the investment earns 7 percent, or a 1/30 fee set-up with a 10 percent hurdle return rate.


The focus of investors on performance shows that Bain has successfully managed to sidestep negative publicity stemming from Romney's bid. Over the years, Bain has avoiding inserting itself in political issues when some of its executives ran for public office.

Pension funds across the country have been struggling to meet their targets for returns, which is threatening their ability to meet obligations to myriad numbers of teachers, firefighters, police officers and other public workers.

That has made private equity firms with their record of outsized returns ever more attractive. Average U.S. buyout fund returns have exceeded those of public markets in most cases since 1984, according to a 2011 study by University of Virginia's Robert Harris, Oxford University's Tim Jenkinson and University of Chicago's Steven Kaplan.

Buyout funds have outperformed the S&P 500 by 20 percent to 27 percent over the life of the funds and more than 3 percent per year, the study found.

Because CalSTRS' determination of the appropriateness of any fund deal is assessed on its own merits, the past involvement of any politician with a firm does not necessarily have an impact on how CalSTRS will view the attractiveness of any future offering by that firm, CalSTRS spokesman Ricardo Duran said.

(Reporting by Greg Roumeliotis in New York and Berlin; Editing by Paritosh Bansal and Steve Orlofsky)