This site is intended to pick up where the Buyout of America book leaves off.

The topic of private equity is still timely. There is a renewed focus on how private equity firms mostly hurt businesses, with two recent critical books on the subject, Gretchen Morgenson and Joshua Rosner’s These are the Plunderers and Brendan Ballou’s Private Equity’s Plan to Pillage America.  New York Times in its review of the 2023 books said these works reminded them of The Buyout of America (respect!).

Congress could help reduce the deficit by closing the carried interest loophole (taxing the 20 percent commission from buying and selling companies as capital gains instead of ordinary income) and limiting the ability of companies acquired in leveraged buyouts from reducing the interest they pay on loans from their taxes (interest tax deductibility).

Closing carried interest would raise about $18 billion over a decade.

But we shouldn’t hold our breath during President Trump’s new term in office.

In fact, there is hope that Trump’s regulators will relax rules so private equity firms can tap some of the $8 trillion held in 401(k) savings accounts, according to the WSJ.

The private equity industry, too, got a break in England when the Labor Government in October 2024 raised the rates on carried interest from 28 percent to only 32 percent, much less than they had feared.

Private equity industry lobbyists in 2022 successfully got Arizona Senator Kyrsten Sinema to hold up the Inflation Reduction Act at the last minute unless the Senate Democrats agreed to keep both these loopholes open. Private equity professionals had donated nearly $1 million to her over the prior twelve months. The Senate relented.

The Inflation Reduction Act also imposes a 15 percent minimum tax on companies earning more than $1 billion a year. The plan was that since an individual private equity firm owns many companies that the earnings of these businesses would be combined and for many firms would have exceeded $1 billion. Then all of their companies would have been required to pay the 15 percent minimum rate. That would have been costly for private equity firms since their companies are often heavily in debt and take the interest they pay on loans off their taxes often lowering their rates to below 15 percent.

However, the Senate pushed by Senator Sinema changed the law so private equity firm-owned companies earning less than $1 billion would be treated individually costing the government $35 billion over a decade.

President Biden likely was not going to fight Senator Sinema too hard considering he and his family celebrated Thanksgiving in 2021 at Carlyle Group Co-Founder David Rubenstein’s Nantucket home.

President Trump too has private equity connections, often consulting Blackstone Group’s Stephen Schwarzman.

To give President Biden credit, though, he proposed in March 2024 to crack down on private equity firms and corporations who own hundreds of thousands of single-family homes and charge high rents (like Blackstone) through the Strike Force on Unfair and Illegal Pricing. “Private equity firms across the country have been accused of illegal information sharing, price fixing, and inflating rents.”

But now that is probably dead.

In March 2020, the New York Times published a Sunday Magazine story reporting that Blackstone, and other Wall Street investors, made money by purchasing single-family homes taking the chance of home-ownership away from many ending their chances at wealth creation.

The Carlyle Group and other private equity firms in 2019 get roasted by John Oliver for buying mobile home parks and increasing rents. Carlyle is run by the same Rubenstein who hosted President Biden in 2021 for Thanksgiving.

The 2017 Trump Tax Cuts & Job Acts did make it more expensive for private equity firms to load their companies with debt by allowing companies to deduct interest equal to only 30 percent of their EBIT (earnings before taxes and interest). That law expires at the end of 2025 and private equity firms are hoping that heavily leveraged companies will be able to take all their interest payments off taxes again. This article describes the issue well. (the Wyden tax bill discussed in the article never passed).

Now, the expectation is Trump will extend the 2017 bill which could be disappointing, at least in that respect, for private equity firms.

Eliminating interest tax deductibility altogether in leveraged buyouts might raise more than $10 billion a year. Also, it would pressure private equity firms to really build their companies and not just make money through financial engineering.

Here is a revealing study on how PE-owned businesses paid much less in taxes than their peers. A 2012 article covered the same ground.

The six last US Treasury Secretaries: Steven Mnuchin,  Jacob Lew, Tim Geithner, Henry Paulson, John Snow, and Paul O’Neill have all worked for private equity firms giving the industry an air of respectability.

Private equity funds globally raised a near record $448 billion in 2023 giving them $1.2 trillion in dry powder, according to Bain & Co.

But they had trouble exiting their existing investments. Forty-six percent of private equity owned companies have been owned at least four years, and firms historically buy and sell companies within five years, according to Bain & Co.’s annual private equity study.  PE firms have $3.2 trillion in unexited assets. The market, Bain & Co. says, has “stalled” as private equity firms in 2023 had lots to spend but were not deploying much capital in a high interest rate environment, and could not sell many companies at a profit.

There has been much attention paid to how private equity firms have been sucking money out of hospitals. The prime example is Cerberus Capital Management that took most of a $790 million dividend from Steward Health Care Systems for themselves. Steward in May 2024 filed for bankruptcy.

(Cerberus Capital, run by the former chair of President Trump’s Intelligence Advisory Board, is also acting like a slumlord in the way it handles tenants who rent from its single-family homes.)

But under pressure California Democratic Governor Gavin Newsom in September 2024 vetoed a bill that would have given the state the ability to block private equity-led buyouts of health care facilities and service providers. That will make it much harder to pass a similar proposed bill on a national level.

Lawmakers in June 2020 criticized Los Angeles-based Leonard Green & Partners for taking $658 million in fees and dividends from a struggling safety-net hospital operator and wanted it to give the money back to the company.

Federal Trade Commission Chair Lina Khan in 2022 said nursing homes typically experience an increase in mortality rates after being acquired by private equity. Khan announced that the FTC would take a “muscular” approach to regulating these kinds of transactions moving forward.

DOJ Deputy Attorney General Andrew Forman expressed similar thoughts saying private equity ownership can “lead to disastrous patient outcomes and, depending on the facts, may create competition concerns.”

New Yorker in August 2022 has a great story on how a thinly staffed nursing home proved to be no match for Covid and resulted in unnecessary deaths.

The National Bureau of Economic Research in Feb. 2021 found that private equity-owned nursing homes had a 10 percent higher mortality rate than their peers.

MSNBC in April 2021 aired the documentary “Children That Pay” which shows how private equity-owned Sequel Youth Services cuts costs while making big money from government reimbursement. Their actions endanger and even kill kids.

My appearance is at the 16-minute mark.

Senator Elizabeth Warren on Oct. 20, 2021 with several co-sponsors introduced the Stop Wall Street Looting Act to curtail leveraged buyouts.  The bill (explained here) would make the private equity firm partners responsible when their companies go bankrupt. Also, it would limit interest tax deductibility.

Private equity firms buy companies the way that homebuyers acquire houses. They make a down payment, say 25 percent, and finance the rest. The critical difference, though, is while homeowners pay the mortgages on their houses, the PE firms have the businesses they buy take out the loans, making them responsible for payment. Much of the interest the companies pay on the loans is reduced from taxes, interest deductibility.

I explain in a video (clip is from the documentary CorporateFM) how private equity works, and that ending interest tax deductibility completely in takeovers would end destructive buyouts.

This 2022 video from More Perfect Union also does a good job explaining how private equity works…comparing it to a mafia operation.

The Senate Banking Committee held a hearing on Oct. 20, 2021 titled “Protecting Companies and Communities from Private Equity Abuse”.

Private equity owned companies this century have largely found ways around impending debt maturities and succeeded in refinancing what typically are seven-year loans. During the 2008 recession quantitative easing helped save many PE-owned companies. The next great credit crisis my book predicated did not materialize.

Guy Hands from British PE firm Terra Firma in a June 2011 speech said the reason private equity firms bounced back after the recession has little do with their own efforts. Instead, it is because the Government bailed out the banks through TARP and they, in turn, were able to refinance debt in PE portfolio companies. Connection to speech highlighted here Boston SuperReturn – FINAL.

Still in 2023 4o percent of the companies that went bankrupt had previously been in bankruptcy and most of these 2023 filers were owned by private equity firms.

Private Equity At Work, published in May 2014 by two economists finds private equity-owned companies are twice as likely as public companies to file for bankruptcy.

Three of the seven largest LBOs done between 2004 and 2008 were run with containing costs in mind and went bust — including radio station giant iHeart Media (formerly Clear Channel), Caesars Entertainment (formerly Harrah’s), and utility Energy Future Holdings (formerly TXU).

Much of the debt today is held by the shadow banking system and not the JPMorgans of the world so the government would find it harder to fix the problem through quantitative easing or a TARP like program if a recession occurred.

NBC in October 2021 reported about job loss at private equity-owned companies.

A 2019 study by the National Bureau of Economic Research analyzed almost 10,000 debt-fueled buyouts between 1980 and 2013 and found that employment fell by 13 percent when a private-equity firm took over a public company. Employment declined by even more — 16 percent — when private equity acquired a unit or division of a company.

This study was published by academics sympathetic to the industry. Still, it shows US companies bought in leveraged buyouts reduce employment over two years by 4.4 percent compared to their peers, and wages by 1.7 percent.

The new PE study covers roughly 7 million workers. That’s 616,000 American workers needlessly fired.

Private equity firms through LBOs own companies employ at least 12 million Americans, more than one of every 10 Americans in the private sector.

New York Times writes a great story in November 2022 about how a Blackstone Group-owned company lends money at 30 percent interest rates to exonerated convicts waiting for settlement.

Blackstone was behind Montana Senator Tim Sheehy’s Bridger Aerospace, that charges governments to help fight fires. Bridger in May 2022 paid Blackstone $300 million, double its $150 million investment, according to a source close to the situation. That is despite Bridger in 2022 losing $42 million, according to public records. Bridger is now struggling to pay its loans. Still, Blackstone Founder Stephen Schwarzman through a Super Pac contributed $5 million to Sheehy’s successful 2024 senate campaign.

Private equity firms are diversifying.

Apollo Global Management and others are becoming bigger shadow lenders moving in to fill the void being left by banks.

In May 2020, Apollo said it was raising $20 billion for distressed opportunities.

KKR has started raising tens of billions to invest in infrastructure, and billions more to invest in its new growth area, Asia.

Private equity firms used to raise about a third of their money from state and corporate pensions.

Large public pensions have 14 percent of their money in private equity funds, and corporate pensions about 13 percent, according to a June 2024 WSJ story. 

New York City Chief Investment Officer Steven Meier in Sept. 2024 said private equity fees were too high and “he never met so many billionaires in my life” until he started reviewing private equity funds, according to trade publication PEI.

PE firms having nearly tapped out pensions are now buying life insurance companies and some of those insurance assets are being invested in their funds creating a permanent pool of capital. The Center of Economic and Policy Research in 2022 released an informative report saying PE firms controlled 9.6 percent of US life insurance assets—a total of $471 billion.

The largest private equity firms from 2006 through 2015 collected $230 billion in fees and delivered returns to investors that were about the same as stock market index funds, according to an Oxford Business School professor who said in June 2020 it was a giant transfer of wealth.

New York Times reports in December 2021 that private equity returns might be overrated. “Since the [2008] financial crisis the industry has had a tougher time outperforming public equity benchmarks,” JPMorgan Asset Management Chair of Market and Investment Strategy Michael Cembalest noted. He also asked if today’s returns were high enough “given the illiquidity of private equity.”

Wall Street Journal reports that Blackstone, Apollo, Carlyle and KKR collectively reported roughly $9 billion in management fees from their private-equity businesses between 2008 and the end of 2013, regulatory filings show. The amount compares with only $12.2 billion in “carried interest,” their 20 percent share of deal profits.

Warren Buffett in May 2019 said private equity fund returns were not as great as advertised. “We have seen a number of proposals from private equity funds where the returns are really not calculated in a manner that I would regard as honest.”

In Feb. 2019, Buffett said private equity was really “private debt” since private equity firms put little equity in their businesses. Start watching the “I would like buying a business” video at 1:15.

Think tank American Compass, run by conservative-leaning founders in May 2020 said private equity invents, creates, and builds nothing.

The New York Times in a great January 2020 column shows how private equity reduces real productivity cutting to shreds the only positive shown in the private equity study.

This January 2020 article from Vox explains how private equity puts companies at risk. Great opening about how the private equity industry lobbying group complained in 2010 to the PBS NewsHour after it airs a segment with me criticizing leveraged buyouts. The lobbying group in 2010 says Toys R US is a perfect example the NewsHour could have used to show how PE firms help companies. Yet Toys R US in 2017 ends up liquidating costing 33,000 jobs.

“Leveraged buyouts—such as those facilitated by your companies—often result in mass job loss, closure of profitable businesses and unnecessary financial burdens for local government,” a letter from 19 Democratic Senators about Toys R Us to its private equity owners states.

Bain and KKR, as a result put $20 million in a fund that in December 2018 started paying severance to the 33,000 Toys workers who lost their jobs.

The Spectacular Failures podcast, in which I am interviewed, does a nice job detailing the Toys fall.

There have been recent Congressional investigations of private equity firms that invest in the private prison industry to determine if their ownership leads to lower service; private equity firms that invest in colleges and universities; and those that own physician practices including KKR and the Blackstone Group whose companies present surprise billing to emergency room patients.

H.I.G. Capital owned Wellpath that provides health care to prisoners and has been accused of providing poor service in November 2024 filed for bankruptcy.

California doctors in December 2021 sued to stop private equity firms including Envision from running emergency rooms.

The New Yorker in April 2020 wrote a very good story about how the private equity firms have fought against legislation stopping surprise medical billing.

Amazingly, KKR Managing Director Vini Letteri in an April 2019 Fortune question-and-answer profile admitted that his firm has not grown companies. “We made a strategic decision to shift towards what we would call growth-oriented buyouts. That is, going after companies that have high revenue growth but still have the opportunity to scale—versus “financial buyouts of legacy, cash-rich, slow-growth companies, where you put leverage on them and make your return by containing costs.”

US Congresswoman Rashida Talib (D-Mich.) in April 2020 asked Thomas H. Lee Partners to pay Van Art Furniture employees health insurance after quickly shutting down.

“This is yet another example of private equity firms destroying companies, while screwing over workers and leaving communities to suffer,” she said.

In December 2018, The Washington Post does a nice job detailing how private equity firms including Sun Capital sometimes make money while bankrupting pensions, such as with Marsh Supermarkets.

I detailed in a 2017 New York Post article how the Supreme Court ruled that Sun Capital shafted workers and how Sun often made money at the expense of workers.

See more current news Under The News Tab including how private equity firms hurt health care companies

Portfolio published the paperback of the Buyout of America  Nov. 30, 2010.

There are updates throughout the book, which is more timely than ever with the public concerned about how Wall Street impacts Main Street.