The NY Times has an excellent Op/Ed piece on the scourge of private equity by Brendan Ballou. When I started out in banking in New York in the 1980s there were only a handful of PE firms (called “buy-out firms) at the time. They were considered exotic and slightly scandalous (you may remember the book Barbarians at the Gate about how the excessive greed of the buyout firm Kravis Kohlberg Roberts destroyed the iconic American company Nabisco). Today there are thousands of private equity firms in the US, and they have reached into every sector of American business.
It is bad enough that private equity like Bain Capital drove companies like Toys R US into insolvency. But now nursing homes, dental offices, medical practices, hospital emergency rooms, — entire hospital chains — are being snapped up by private equity — with predictably terrible outcomes:
In nursing homes, where the firms have been particularly active, private equity ownership is responsible for an estimated — and astounding — 20,000 premature deaths over a 12-year period, according to a recent working paper from the National Bureau of Economic Research. Similar tales of woe abound in mobile homes, prison health care, emergency medicine, ambulances, apartment buildings and elsewhere. Yet private equity and its leaders continue to prosper, and executives of the top firms are billionaires many times over.
Most private equity deals are done with significant amounts of debt — and the debt service is carried by the acquired company. But there is no risk to the private equity investors in the case of bankruptcy (see Toys R Us). As interest on debt has risen to unsustainable levels over the past 12 months, we can expect a wave of PE-owned firms becoming insolvent — leading to massive layoffs of the employees.
One of the most egregious tax loopholes for private equity investors is the Carried Interest provision which allows the profits paid to the billionaire private equity executives to be taxed at the much lower capital gains rate — much lower rate than what you and I pay on our IRS 1040. The Biden Administration attempted to eliminate carried interest in the Inflation Reduction Act, It was the “Democrat” Krysten Sinema who held the bill hostage until the carried interest elimination was cut from the bill. This was no surprise: Sinema has received over $2 million in campaign contributions from private equity firms — including a huge chunk from KKR (Kohlberg Kravis Roberts — the original barbarians).