Private Equity’s Secret Plunder: What It Is and Why You Don’t Know About It
Private Equity, or PE, is another nice-sounding phrase to disguise a few pale males, who are strip-mining US businesses, loading up company debt, while eliminating jobs and services. PE targets our most vulnerable, capturing hospitals, nursing homes, day care centers, trailer parks, and retail stores, hollowing out communities.
Learn how private equity enriches a few behind closed doors — and what you can do to help stop a very real steal.
We talked with Aliya Sabharwal, who spotlights Private Equity at the educational nonprofit network Americans for Financial Reform, and Jess Newman of United for Respect, a multiracial movement working to hold Wall Street accountable for what they more accurately name Private Piracy. Carmen Rios — feminist superstar and AEOO’s Digital Director — facilitated the conversation.
This event was recorded live. As some feminist epistemologists (Gilligan, Belenky et al.) have taught us, seeing and seeking connections seems to be women’s ways of knowing. Our economics is lived in real complex communities. Our goal is to model how women can talk together and learn together about traditionally male territory still new to most women. Together we can construct a fuller knowledge and set of values now omitted from the mainstream “free market.” To that end, we’re making the webinar — and will make all of them moving forward — available here for viewing forevermore.
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Resources for Further Learning
Financiers and investors have traditionally been male and remain so when we’re talking about the culture of global investors on Wall Street and offshore hedge funds. If you or your state or your company are growing pensions, it’s possible you’re invested in private equity firms without knowing it. Probably you haven’t noticed their indefensible business model or its language because of their deliberate obfuscation. Here’s an example from The New Tycoons: Inside the Trillion Dollar Private Equity Industry that Owns Everything by Jason Kelly:
“TPG and KKR aren’t likely to exit the TXU LBO through an IPO. There was no way they could do a recap, and the LPs will be lucky to get their money back. The GPs can probably forget about carry and it’s going to make a huge dent in the funds’ IRRs.”
DEFINITIONS (or Translation!)
TPG and KKR: If you have to ask, you’re clearly not in the private equity (PE) club. TPG, formerly Texas Pacific Group and TPG Capital is a PE firm with subsidiaries like TPG Growth, TPG Real Estate and more. Because PE loves acronyms and big egos, KKR stands for Kohlberg Kravis Roberts, the founders’ names of an American global investment firm managing asset classes like PE, energy, infrastructure, real estate, credit, and hedge funds, worth $85 billion.
TXU LBO: Private Equity investors led by KKR and TPG purchased TXU, a Texas energy giant, with a $45 billion LBO, or Leveraged Buy Out. It’s a fancy way of saying they borrowed funds raised by Wall Street and investors to purchase a company. The PE invested only $8.3 billion in this effort, then saddled TXU with $45 billion to pay off. In 2014, TXU, renamed Energy Future Holdings, went bankrupt, along with 70 affiliated companies. KKR & TPG lost the least, and more often PE firms profit from selling off captured company assets and real estate, and firing workers, cutting benefits and services, then selling off what’s left. PE LBOs often go bankrupt, \ even giants like Toys R Us, Friendly’s Restaurants, Samsonite Luggage, and Zales Jewelry.
Recap: Often PE firms follow up their LBOs with a Recap Dividend quickly paid to the PE owners with more captured company’s debt.
LPs and GPs: A private equity firm is called a general partner (GP) and its investors who invest the lion’s share of capital are called limited partners (LPs) and sometimes junior partners (JPs).
Carry: In PE firms, this is short for Carried Interest, the compensation for executives, taxed as long-term capital gains, not the tax rate for wages or salary that workers pay. Historically Carry has been 20% of project profits but has sometimes been as high as 44%.
IRR: The Internal Rate of Return, a measure of Profit. Most PE and venture capital firms aim for an IRR of 20 percent or more. What IRR do you get on your IRA, small business, or savings?
Articles, Books, and Websites for inspiration and guidance!
Rickey Gard Diamond in Ms. Magazine, Women Unscrewing Screwnomics column, Feb. 21, 2024. “Private Equity Firms Profit Off the Backs of Working Women and Families: How ‘Carried Interest’ Hurts You — and Enriches Billionaires.”
Russ Choma and Ian Gordon in Mother Jones, May 9, 2022. “These Are Congress’ Biggest Private Equity Investors; Featuring Some of DC’s Wealthiest Politicians.
Gretchen Morgenson and Joshua Rosner. These Are the Plunderers: How Private Equity Runs — and Wrecks — America. New York, Simon & Schuster, 2023.
Brendan Ballou. Plunder: Private Equity’s Plan to Pillage America. New York, Public Affairs; Hachette Book Group, 2023.
2021, US Senators Elizabeth Warren (D-MA), Tammy Baldwin (D-WI), Sherrod Brown (D-Ohio) and US Representatives Mark Pocan (D-WI) and Pramila Jayapal (D-WA) reintroduce Bold Legislation to Fundamentally Reform the Private Equity Industry. You can find a PDF of the bill here, as well.
November 27, 2023: US Senators Elizabeth Warren (D-MA) and Richard Blumenthal (D-CT) Call on Private Equity-Backed US Anesthesia Partners to Answer for its Anticompetitive Tactics and Impacts on Prices, Patients, and Providers.
February 14, 2024: US Senator Elizabeth Warren’s Valentine’s Letter to Private Equity Firm Bregal Partners on Blue Harvest Bankruptcy and Impact on New Bedford Fishing Industry. This includes a long list of Warren’s efforts with colleagues to curb private piracy, dating back to 2018.
Financial Review, Street Talk, February 26, 2024: Global Bigwigs Fly In for BGH Capital’s Annual Love-In
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