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Private equity comes under fire in Washington

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Via Financial Times

Private equity firms are lobbying politicians in Washington as their industry’s far-reaching role in the US economy draws fire from constituencies as diverse as unions, prison reform advocates, Hollywood screenwriters — and Taylor Swift.

Congressional hearings held this week ended a long period in which “there hasn’t been a substantial degree of political scrutiny of the private equity industry, besides that around [Bain Capital founder] Mitt Romney in 2012,” said Jim Baker, leader of the Private Equity Stakeholder Project, a pressure group targeting the industry.

“The fact that you had the chair of the house financial services committee staking out a critical position about private equity is groundbreaking,” he added.

The intensifying back-and-forth between politicians and industry figures underscores how private equity firms, once confined to backing medium-sized companies in established industries, have enlarged their scope to become owners of businesses — and political controversies — on an unprecedented scale.

“Someone on Wall Street made a series of decisions that turned our lives upside down,” Giovanna De La Rosa told the US House of Representatives committee on financial services on Tuesday.

One of five witnesses who appeared on Capitol Hill to discuss private equity’s impact on the economy, Ms De La Rosa lost her job at Toys R Us after the retail chain filed for bankruptcy in 2017. She later joined the campaign that pressed two private equity firms, Bain Capital and KKR, to create a $20m hardship fund for those who lost their jobs when their buyout of the retail chain soured. 

Other activists have targeted the private equity backers of prison-related companies, such as a bail-bond provider financed by private equity firm Endeavour Capital and a prison telephone company owned by Platinum Equity.

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And in Hollywood, screenwriters have complained about private equity-backed talent agencies which, they say, have placed themselves in conflict with the clients they are supposed to represent, by negotiating with studios to secure lucrative profit-sharing arrangements for themselves.

Conscious of the industry’s growing profile, lobbyists are racing to tell their own story. Ahead of a Democratic presidential debate in Atlanta on Wednesday night, the American Investment Council targeted Georgia residents with social media adverts pointing out that private equity-backed companies employ 250,000 workers in the state.

For a national audience, too, industry representatives have strained to portray themselves as a force of American dynamism. In a Fox Business opinion piece earlier this month, AIC boss Drew Maloney hailed Popeyes, a fast-food chain owned by 3G Capital, for reintroducing a spicy chicken sandwich it pulled from menus earlier in the year. “This was all possible because of private equity,” Mr Maloney said.

275m


Social media followers of Taylor Swift, who asked them to put pressure on Carlyle Group

If this week’s hearings in Washington illustrated how political scrutiny of the industry has intensified, they also suggested little appetite for decisive action.

Republicans lined up to praise private equity firms for investing in companies in their districts. Some Democrats, too, eschewed the harsh measures proposed by leftwingers such as presidential hopeful Elizabeth Warren, instead expressing a desire to lay their hands on investment firms’ cash.

“I have right now . . . an entrepreneur coming to me to say, ‘Can you help find somebody that would invest’,” said Gregory Meeks, a Democratic congressman from New York. “And part of my struggle is to make sure that some private equity firms are investing more in minority-owned firms.”

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That suggests Ms Warren faces a hard struggle for her Stop Wall Street Looting bill to become law. The measure would so severely curtail limited liability for private equity-backed companies that industry executives privately say it amounts to a ban on leveraged buyouts. 

Maxine Waters, chair of the financial services committee, opened the hearing by observing “there are far too many examples of private equity firms destroying companies, preying on hardworking Americans to maximise their profits”.

She was not the committee’s only sceptic. Her colleague Alexandria Ocasio-Cortez, the liberal firebrand who has nearly 6m Twitter followers of her own, was quick to see a connection between Ms Swift’s battle with her record label and more commonplace economic troubles.

The superstar singer has sought to turn her 275m social media followers against Carlyle Group, which bankrolled the $300m takeover of her old record label, a deal she claimed has prevented her from performing her own songs at a televised awards ceremony.

“Private equity groups’ predatory practices actively hurt millions of Americans,” Ms Ocasio-Cortez said in a tweet. “Now they’re holding [Ms Swift’s] own music hostage. They need to be reined in.”

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