At Hearing, Warren Pushes for Reforming the Broken Private Equity Industry and Putting an End to Their Destructive Practices
Earlier today, Senator Warren reintroduced the Stop Wall Street Looting Act to fix the private equity industry and level the playing field
Washington, D.C. - Today, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, United States Senator Elizabeth Warren (D-Mass.) delivered remarks on the need to protect companies and communities from destructive private equity practices as the industry’s growth continues to explode.
Earlier today, Senator Warren reintroduced the Stop Wall Street Looting Act, legislation that would fundamentally reform the private equity industry and level the playing field by forcing private investment firms and their managers to take responsibility for the outcomes of companies they take over, empowering workers, and protecting investors.
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Transcript: Protecting Companies and Communities
from Private Equity Abuse
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Subcommittee on Economic Policy
Remarks from U.S. Senator Elizabeth Warren
Wednesday, October 20, 2021
Senator Warren: Since I didn’t get to do an opening statement at the beginning, I just wanted to do a kind of overview as we wrap this up and say thank you to everyone who has been here. This is the first hearing that the Senate has held that is focused entirely on private equity, and it’s about time that we do this. We need to get the facts on the table about what private equity firms are doing to our economy and to our communities.
Private equity firms have plenty of money to spend on lobbyists and PR campaigns. They have their own trade association, which I know has been making the rounds in Congress ahead of this hearing. They have worked hard to portray themselves as good actors that bring jobs and investments to communities in need, and they have no problem telling their version of the story.
But their version of the story glosses over a lot of what happens to local workers, to local businesses, to local communities when some private equity firm waltzes into town. Once private equity starts buying up local stores, or hospitals, or newspapers, or prison commissaries, or for-profit colleges, or nursing homes, or hospitals, or any of dozens of other industries, the smiling private equity managers and their secret investors profit hugely while workers and local businesses and local communities too often come out as the losers.
In 2019, I opened a broad investigation of the role of private equity in the economy, and this investigation exposed how the industry is fundamentally broken. Private equity relies on a business model that pays managers to go after short-term profits, charging huge fees even as they destroy the long-term prospects of the businesses that they buy.
It is bad for workers and bad for consumers when local retailers or even large chains are bought out by private equity. These firms load up the target company with debt, as we’ve seen the examples here today, they strip out their assets, and the next thing you know, thousands of workers have lost their jobs, and the stores are shut down.
It’s also bad for seniors and their families when private equity firms buy up nursing homes and other health care providers. It’s the same pattern: assets are stripped out, cost-cutting runs rampant, and the quality of care declines – with real consequences for people’s health and for their lives.
It’s bad for students when private equity firms buy up for-profit colleges. The industry already has a bad record of ripping off students, and private equity just makes it worse.
It is bad for communities when private equity firms buy up thousands of manufactured homes and the land that they sit on. Costs skyrocket, forcing residents to choose between paying the rent and paying for basic necessities like food and medicine, and meanwhile, the investments in these communities decline and conditions get worse and worse. And by the way, we will be hearing more about that particular abuse of private equity in the housing sector tomorrow at the Banking Committee hearing, and I’m looking forward to joining Senator Brown on that.
What I see here is across the board, in industry after industry, it’s the same pattern: private equity executives make off with massive short-term gains, and they leave workers, consumers, communities, and ordinary investors with pretty much nothing to show for it.
And all of this has been magnified during the COVID pandemic. The companies that are owned by private equity firms have received over $5 billion in taxpayer money from the CARES Act. I appreciate you pointing it out in your case, Ms. Malone. Their record has only gotten worse. Private equity-owned nursing homes had a terrible safety record before the pandemic. Private equity-owned retailers were weighed down with debt and shut their doors for good. Private equity landlords laid in wait for the eviction moratorium to end so they could make more money, even if it meant kicking families out of their homes. What almost every American experienced as a crisis, private equity viewed as an opportunity.
And I know we’ve heard from the private equity industry in response to this hearing. They say this is all for the best. We hear the standard talking points that private equity firms employ millions of people and create big returns for pension funds for teachers and firefighters. But when you fact-check those claims, it just turns out they’re not true. In fact, private equity investments often result in fewer jobs and lower wages. And despite how hard they squeeze the businesses they acquire, private equity doesn’t offer an above-market return to investors.
So what are we gonna do about this? Well, I wanna set some minds at ease. I don’t want to eliminate private equity. But I do want to fix it. And that’s why I’ve introduced the Stop Wall Street Looting Act, which is groundbreaking legislation to clean up this industry. My legislation aims to make the entire industry more transparent and to end the misaligned incentives that create private equity’s “heads I win, tails you lose” business model.
So I appreciate all of the witnesses who joined us today – I very much appreciate the first-hand accounts you’ve given us about what it is like to live through this on the receiving end as an employee. I appreciate the academic perspective that’s going on, I very much appreciate the Treasurer joining us and telling us what it’s like as an investor, even someone who’s done well with private equity, how we could make improvements that make this market work better. So, thank you all for being here today, thank you for providing testimony. Before we go, I’d also like to submit a statement for the record from the Private Equity Stakeholder Project. For Senators who wish to submit Questions for the Record, those questions are due one week from today, which is Wednesday, October 27. I also want to enter into the record a statement from my friend Senator Baldwin, who has been a fighter for the workers and the communities of Wisconsin in the face of predatory private equity abuses, and so thank you Senator Baldwin, we’ll make sure that is entered into the record. And for our witnesses, you’ll have 45 days to respond to any questions. Thank you all very much, and with that, this hearing is adjourned. Thank you.
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