These companies now own everything from nurseries to care homes, squeezing vital services for profit while we foot the bill… As a style of ownership, private equity resembles the opposite of democracy. It concentrates power among a small group of exceptionally wealthy dealmakers who reap the benefits of society’s failure to hold them accountable. It’s no surprise that Republicans have been pushing for legislation that would strengthen this industry’s grip over the US economy. The term itself is a kind of camouflage, involving no mention of the vast amounts of debt involved in most of its deals. The basic mechanism at their heart involves something known as a “leveraged buyout”. It works like this: you, a fund manager, buy a company using a sliver of your own money and borrow the rest. Then, you load this debt on to the company you just bought
It was the free croissants that gave it away. And the Scandinavian-style furniture. And the tasteful pastel walls. It was different from other nurseries I’d viewed: marginally more expensive, the aesthetic equivalent of a WeWork for toddlers. I was eight months pregnant, on a tour of various nurseries in south-east London for my daughter. At the time, I didn’t realise that this wasn’t just a nursery, but a prototype for an immense experiment that is quietly playing out across Britain.
The nursery I visited is backed by private equity, a surreptitious and tremendously powerful realm of finance that now has its hands on just about everything. Private equity funds and related asset managers own water companies, apartment blocks, student accommodation, care homes, children’s homes, funeral parlours and more. The titans of this industry have perfected a cradle-to-grave model of investment focused on the places we live, work, grow old, and eventually die, capturing these core services and squeezing them for profit.
To be clear, I have no problem with free croissants. The problems emerge when fund managers get to decide the fate of the institutions that hold society together. Nurseries backed by private equity have sprouted up across the UK over the last five years, taking over independent businesses and merging them into gigantic chains. To an outside eye, many of these look the same as before, but they report profits that are as much as seven times greater than the surplus made by non-profit nurseries, spend up to 14% less on staff, and have far higher rates of staff turnover than nurseries run from schools. Their zealous search for profit means such nurseries are less likely to open in poorer areas, and can close at a moment’s notice, as parents in Hackney recently discovered when their nursery suddenly closed down. This isn’t any way to run a vital social service.
I’ve spent the last four years researching private equity, and during that time I’ve been blown away by both the sheer scale of its involvement in our lives, and by what it reveals about how power and wealth now operate. A clue lies in its name: private equity deals in companies that are private. Unlike publicly listed companies, private equity-owned firms publish as little as possible about their activities and accounts, making it hard to follow the money and see how your childcare fees are spent, or whether a company is loss-making or not.
“The light of day is the best disinfectant,” the supreme court judge and liberal reformer Louis Brandeis once said. When information disappears, so does effective scrutiny. As a style of ownership, private equity resembles the opposite of democracy. It concentrates power among a small group of exceptionally wealthy dealmakers who reap the benefits of society’s failure to hold them accountable. It’s no surprise that Republicans have been pushing for legislation that would strengthen this industry’s grip over the US economy.
The term itself is a kind of camouflage, involving no mention of the vast amounts of debt involved in most of its deals. The basic mechanism at their heart involves something known as a “leveraged buyout”. It works like this: you, a fund manager, buy a company using a sliver of your own money and borrow the rest. Then, you load this debt on to the company you just bought. If the deal goes well, you pocket the winnings. If not, it is the company, not you, that is on the hook. In theory, this debt is supposed to create leaner, meaner, more efficient businesses. In practice, it can have disastrous effects on public services. In the case of nurseries, despite amassing vast debts, private equity-backed nursery chains have done little to address the shortage of childcare places, and may be more vulnerable to collapse. This leaves parents without childcare and workers without jobs….
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Vulture Capitalism: Corporate Crimes and the Death of Freedom
‘Here lives the monster’s brain’: the man who exposed Switzerland’s dirty secrets
Ntina Tzouvala, Capitalism as Civilisation: A History of International Law
Lynn Paramore: Our Economic System is Making Us Mentally Ill
After the truth-shower 