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Is private equity good for the economy? Is private equity good for the economy?
Private equity leads to higher default rates and more bankruptcies and worse outcomes for customers and workers Private equity leads to higher default rates and more bankruptcies and worse outcomes for customers and workers
Private equity leads to more economic growth and imporovements in efficiency Private equity leads to more economic growth and imporovements in efficiency
Private equity may help investors in its funds, but at the expense of workers, customers and the economy Private equity may help investors in its funds, but at the expense of workers, customers and the economy
Private equity is a debt driven model Private equity is a debt driven model
Defaults for private equity (leveraged buyouts) can be 10x higher than for non-LBO firms Defaults for private equity (leveraged buyouts) can be 10x higher than for non-LBO firms
Private equity is behind most recent big retail bankruptcies Private equity is behind most recent big retail bankruptcies
Customer care deteriorates when private equity buys companies Customer care deteriorates when private equity buys companies
Most claims of growth by private equity are false Most claims of growth by private equity are false
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Is private equity good for the economy?
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Private equity leads to higher default rates and more bankruptcies and worse outcomes for customers and workers

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Customer care deteriorates when private equity buys companies

In a major stomach-churning investigation titled, “Overdoses, bedsores, broken bones: What happened when a private-equity firm sought to care for society’s most vulnerable,” theWashington Post chronicled the horrific practices that preceded the bankruptcy of ManorCare. In 2007, the Carlyle Group, a pirate equity group, bought ManorCare nursing homes for $6.1 billion and $4.8 billion of that was financed with debt.
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The Argument

There are countless examples of poor customer service after private equity buys companies. Here is one from the healthcare sector. Under the ownership of the Carlyle Group, one of the richest private-equity firms in the world, the ManorCare nursing-home chain struggled financially until it filed for bankruptcy in March. During the five years preceding the bankruptcy, the second-largest nursing-home chain in the United States exposed its roughly 25,000 patients to increasing health risks, according to inspection records analyzed by The Washington Post. The number of health-code violations found at the chain each year rose 26 percent between 2013 and 2017, according to a Post review of 230 of the chain’s retirement homes. Over that period, the yearly number of health-code violations at company nursing homes rose from 1,584 to almost 2,000. The number of citations increased for, among other things, neither preventing nor treating bed sores; medication errors; not providing proper care for people who need special services such as injections, colostomies and prostheses; and not assisting patients with eating and personal hygiene. Here is the educational sector. We have seen the same story in industry after industry where outcomes of care worsen and prices rise. A study of the education industry that examined 88 buyout deals found that not only did tuition costs rise when they were bought by pirate equity groups, but learning outcomes fell as well. Student debt also rose, as did defaults due to the substandard education that was offered. Everyone lost, except for the pirate equity groups, which extracted fees and dividends.

Counter arguments

Premises

Rejecting the premises

Further Reading

When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3371413

References

In the Wild

This page was last edited on Thursday, 27 Feb 2020 at 14:57 UTC

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