Hedge Funds and Private Equity: The Hottest Game in Town
“One of the most ruthless, predatory industries in America, private equity, now controls 1 in 5 U.S. companies. These firms buy up businesses, strip them for parts, fire workers, slash wages, and leave destruction in their wake.”-Americans for Tax Fairness
Economists have called them, ‘the hottest game in town’.
Their threat is huge. Hedge Fund and Private Equity are quietly acquiring an enormous number of the businesses in America: 80 large retail chains in the last decade. They are a cause of high housing costs and rents. More concerning, they are targeting the healthcare industry. Investigations show their slash and burn tactics caused the premature death of 20,000 patients in the private nursing home area, while the PE firms profited in the billions.
Especially after 2008, PE entered into the residential housing market and has been a major factor that has pushed the rents and values of houses beyond the reach of the average American.
These vampire financiers secretly own one out of five businesses in America. There are now more of these PE companies — which operate in the dark, mind you — then public companies. Meanwhile, most of America is completely unaware of this stealth takeover of American businesses.
Congress provides these financial hyenas a special lower tax rate on the income that they earned by slashing jobs and looting pensions called by the obfuscating name ‘carried interest’ so the public will have no idea what it does.
The Billionaire Factory
Hedge Funds and Private Equity (PE) funds are the new billionaire factory. Forbes reports in 2024 they are the most successful way to get really rich.[1]
PE has helped drive the growth in income inequality since 1980. One study found that there are more PE managers who make at least $100 million annually than investment bankers, top financial executives, and professional athletes combined, while another found the number of PE multibillionaires rose from three in 2005 to 22 in 2020.
While they are super money makers for their managers, they are not good investments for their investors who are usually institutional investors: pension funds, university endowments and some wealth management groups.
Businesses taken over by private equity often go bankrupt. They tend to make their profit, not by better management skill, but by firing employees and underfunding worker pension plans.
You have seen iconic brand names like Sears, Toys “R” Us once so successful suddenly going into bankruptcy. They were captured by these funds.
• PE owned firms are twice as likely to go bankrupt as public companies
• Nearly 2/3 of retail companies that went bankrupt between 2015 and 2019 were PE owned.
• 10 of the 14 largest retail chain bankruptcies were PE owned.
In every case, when companies go bankrupt, the workers pension plan is underfunded and the government plan must step in and pay the pensions. Yet, the PE firms are permitted to keep every cent of the money they extracted by management fees and other charges from the businesses they helped bankrupt .
Despite the evidence that Hedge Funds and PE slash jobs and gut worker pension plans, and that they are poor investments, managers of worker pension funds invest heavily in them.
Once PE could only solicit funds from institutional investors, but the Trump administration removed that restriction allowing employers to invest their worker 401k pension plans in job killing PE funds. PE has a whole new and massive source of trillions to expand their takeovers of businesses.
I am starting a section on who these hedge funds and private equity firms are, when their methods are harmful, and what can be done to restrain their predatory tactics. First article with support of all said above, tomorrow.
