Public Money For Private Equity:
Pandemic Relief Went To Companies Backed By Private Equity Titans

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Executive Summary

This study estimates that at least $5.3 billion in CARES Act money went to 611 portfolio companies owned or backed by private equity firms that held $908 billion in cash reserves.

Hundreds of companies owned or backed by some of the largest, best financed private equity firms secured an estimated $5.3 billion in public funding under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Federal pandemic relief efforts provided trillions of dollars in response to the twin public health and economic crisis. Yet the legislation imposed few conditions on recipients — such as requirements to support workers and maintain business operations — and failed to prohibit recipients from using public money to enrich investors.

This lack of binding statutory requirements has enabled the private equity industry to continue its typical extractive and predatory practices. Private equity firms take over companies as investment vehicles, and then use aggressive tactics and financial engineering that often undermine the portfolio companies’ financial viability. They frequently extract substantial value from their takeover targets through debt-financed leveraged buyouts, excessive fees, dividends, and stripping out valuable assets such as real estate. Workers, consumers, and patients pay the price for the aggressive cost-cutting strategies that private equity firms use to siphon revenues from the companies they own.

Public money for private equity-backed companies not only went to companies that already had deep-pocketed backers, but also effectively allowed private equity owners to continue and even expand their predatory tactics during an economic and public health emergency. With improved balance sheets shored up by government money, private equity firms were able to finance a buyout spree during the pandemic-driven economic downturn as well as to extract dividends and fees from their portfolio companies.

The private equity industry captured funds that should have supported small, independent businesses, especially those owned by women and people of color. Private equity firms could have tapped their own cash reserves (known as dry powder) to help their portfolio companies, which would have left more public resources available to help other struggling companies, especially smaller businesses owned by women and people of color.

This study estimates that at least $5.3 billion in CARES Act loans or grants went to 611 portfolio companies owned or backed by 113 private equity firms that collectively held $908 billion in cash reserves. It is a conservative estimate, because this analysis looked only at private equity firms with more than $5 billion in assets under management and because the opacity of the private equity industry makes it impossible to make a comprehensive list of private equity-backed companies that may have received pandemic relief. Private equity firms buy and sell assets — including entire companies or single facilities — constantly and it is not possible to have a perfect list of portfolio firms based on publicly available information at any one point in time.

Our calculations rely on information on specific recipients of CARES Act funding through December 2020 from the Project on Government Oversight (POGO), which graciously shared the data collected through its COVID-19 Relief Spending Tracker.  (The data sources and analytical approach are fully described in the Methodology appendix.)

Nearly all of the funding for private equity-backed companies came through the CARES Act programs operated by the Department of Health and Human Services ($3.7 billion or 69 percent), the Small Business Administration ($1.2 billion or 23 percent), or the airline payroll protection program ($341 million or 6 percent).

Even within the private equity industry, a small number of large investors dominated access to CARES Act funds. Over $4 billion (76 percent of the total pandemic relief to the industry) went to portfolio companies owned by just 10 private equity firms. Leading the way, companies backed by the private equity firm Apollo Global Management (Apollo) received $1.4 billion. The portfolios of Cerberus Capital Management (Cerberus) received $883 million and Welsh, Carson, Anderson & Stowe received $436 million. In total, these top ten private equity firms reported $245 billion in dry powder cash reserves during 2020 that could have shored up their own portfolio companies, meaning they did not need to take public funding.

This report identifies some of the more troubling and problematic practices which were essentially tolerated or facilitated with public support. Key findings include:

• More than $5 billion in pandemic relief went to the largest private equity firms: At least $5.3 billion in CARES Act loans or grants went to 611 portfolio companies owned or backed by 113 private equity firms that each had more than $5 billion in assets.
• Private equity-backed healthcare companies received $3.9 billion but continued many practices that undermine patient health and finances: 143 private equity-backed hospitals, physician groups, and other health companies, received over $3.9 billion in pandemic support, including some troubled hospital chains and companies responsible for surprise medical billing, charging patients out-of-network fees for services like ambulance rides, emergency room visits, or x-rays at in-network hospitals or clinics. At the height of the pandemic, Cerberus’ Steward Health Care threatened to close its hospital in Easton, Pennsylvania, if it did not receive a $40 million public bailout. The state wound up having to pay the hospital $8 million to keep it open for four weeks and provide essential healthcare services.
• Private equity-backed companies secured $1.2 billion in pandemic relief that was intended for small businesses: The small business programs included exemptions that allowed private equity-backed companies to access public funding that should have gone to genuinely small and independent businesses. A large amount of this funding ($224 million) went to private equity-backed fast-food and other restaurant chains that prospered during the pandemic while thousands of independent restaurants closed forever. Some small business money went to private equity-backed chains that were already financially compromised, including Art Van Furniture and Chuck E. Cheese — both of which collapsed under private equity-imposed debt. In fact, Art Van received public support although it was already in bankruptcy.
• Largest private equity firms held $908 billion and were well positioned to thrive without public support: The private equity firms included in this study had $908 billion in cash reserves known as dry powder during 2020, meaning that they could have helped their portfolio companies to weather the pandemic without relying on public funding.
• Largest private equity firms and trade association spent $32 million in lobbying around the CARES Act: Eighteen private equity firms and the industry’s primary trade association spent almost $32 million on lobbying during 2020, including on pandemic related issues, based on lobbying disclosures data.
• Some private equity-backed companies that received support shed workers during the pandemic: Apollo-owned LifePoint Health received over $1.4 billion in public support yet furloughed workers at its hospitals around the country. Blackstone Group’s TeamHealth reduced hours for emergency room workers at a number of its facilities, and even went as far as firing one ER doctor in Seattle after he warned about the lack of personal protective equipment and unsafe working conditions. TeamHealth received more than $2.8 million in pandemic relief. The CARES Act aviation payroll protection program was the only program that did have strong provisions to make sure that workers kept their jobs and benefits during the pandemic. Private equity-backed air transport companies received $341 million in pandemic relief, but three of the firms that the House Select Committee on the Coronavirus Crisis identified as firing workers after agreeing to accept payroll support funding were backed by private equity firms. Two were owned by the Carlyle Group and one was owned by JLL Partners.
• Private equity firms whose portfolio companies received public support pursued new leveraged buyouts: The private equity industry made a wave of highly profitable leveraged buyouts in the wake of the 2008 financial crisis. During the pandemic, the industry similarly capitalized on the economic downturn by aggressively buying up companies. The 10 private equity firms whose portfolio companies received the most public money executed 230 leveraged buyouts from March to December 2020, with a disclosed value of more than $45.1 billion. For example, Roark Capital Group bought Dunkin’ in an $11.3 billion buyout in October 2020 after the chain received $27 million in public support.
• Private equity firms extracted dividends and fees from portfolio companies that received pandemic relief: There were no provisions in the CARES Act that prevented private equity firms from extracting fees or debt-funded cash dividends from their portfolio companies. At least five private equity firms extracted dividends from companies that received pandemic relief. One such company, DuPage Medical Group, received $79 million in CARES Act funding and paid a $209 million dividend to its owners, including Ares Management Corporation’s private equity arm (Ares). Private equity firms also continued to charge exorbitant management fees to their portfolio companies during the pandemic, including those that received millions in public support after claiming financial distress. Publicly traded Apollo, Blackstone, Carlyle Group, and Kohlberg, Kravis and Roberts (KKR) disclosed a combined $5.4 billion in management fees in 2020 even as their portfolio companies received $1.8 billion in public aid.
• Several private equity firms got more in pandemic aid to their portfolio companies than they pay in taxes: Private equity firms receive beneficial tax treatment that significantly lower their effective tax payments. The portfolio companies of Apollo, Ares, Carlyle, and KKR received more public support than the private equity firms paid in taxes. The Apollo portfolio companies received nearly 50 times more in pandemic relief ($1.4 billion) than the firm’s average tax payments of $30 million between 2018 and 2020.

This report first describes the main findings on the volume of pandemic relief money going to private equity backed portfolio companies, with detailed explanations of assistance given to healthcare companies and small businesses. A short history of the private equity industry on the eve of the pandemic then lays out the strong financial position that many private equity firms were in prior to receiving public money. The report then outlines five predatory practices that the private equity industry uses to enrich investors, all of which continued after CARES Act money was distributed to their portfolio companies. The report concludes with a list of recommendations to strengthen the guardrails on accessing public money from future relief efforts.