Elizabeth Warren is right to worry about private equity looting

The US Democratic politician Elizabeth Warren recently published a piece of draft legislation with the eye-catching title of the “Stop Wall Street Looting Act”. Sounds a touch light-hearted? Well, actually it is deadly serious. The “looters” in the title are private equity funds; specialist investors that buy companies using large amounts of debt. Once a minority activity, private equity has grown mightily over the past four decades on both sides of the Atlantic. As of 2017, there were around 8,000 private-equity owned businesses in the US. That is nearly twice as many as there were listed firms. Quite how this expansion has been accomplished lies at the heart of the story. Private equity executives insist their practices have spread because they run these companies better. That may be true in some cases — perhaps many. But there is a more questionable side to the buyout industry’s astonishing, Triffid-like growth. It stems from the way that private equity deals are structured. When buyout firms acquire a business, they fund the transaction primarily with borrowed money. This is then pushed down on to the portfolio company, which has to service those heavy debts.


Image by Alexander Naumann from Pixabay 

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