Americans for Financial Reform, a coalition of groups that advocates for tougher financial regulation, said that private-equity roll-ups of small companies have serious anticompetitive effects and need to be reined in. “The private-equity industry has become the primary driver of consolidation and merger activity in the United States and the predatory practices and economic extraction of private-equity firms from their portfolio acquisitions present unique risks to a competitive economy,” the group said in a Sept. 18 letter to the FTC and Justice Department.
“We strongly disagree that new capital requirements will undermine credit availability,” said Alexa Philo, senior policy analyst, Americans for Financial Reform, after Rep. Ayanna Pressley, D.-Mass, asked whether the new rules could protect the availability of lending in a downturn.
“Based on terms granted to similarly rated borrowers, and on our analysis of Bloomberg data on recent transactions, Simon & Schuster would have to pay interest rates above 9 percent,” wrote Andrew Park, senior policy analyst at Americans for Financial Reform. “That would cost the publisher nearly $100 million, about 40 percent of operating income in 2022, on interest alone. In raw financial terms, the transaction will weaken Simon & Schuster the moment it closes, never mind what KKR does as an owner.”
Carter Dougherty, Americans for Financial Reform communications director, says the size and reach of the private equity industry’s financial influence is having an impact on the housing market. “Private equity firms have assembled big real estate empires, and that’s one of the things driving housing prices in this country,” he explains. “Private equities buy a large number of homes in a certain area, and they have the financial muscle to muscle out homeowners who want to buy for the first time or they raise rents on people who end up renting from them.”
“History clearly shows that unfettered growth in the name of capitalistic “success” results in sustained and growing inequality, human and planetary exploitation, and worse,” wrote Ericka Taylor, popular education manager for the Take on Wall Street campaign of Americans for Financial Reform. “Yet there are other models—many that come from Black, Indigenous, and other historically marginalized communities—that take a more holistic, symbiotic approach to growth.”
The new disclosures would benefit the millions of Americans with retirement savings in pension plans, Andrew Park, a senior policy analyst at Americans for Financial Reform, a financial sector watchdog group, told DealBook.
“Not only does the rule address a lot of informational gaps investors in private funds have had, it rightfully also goes after some of the most egregious behavior that funds have been able to get away with,” said Andrew Park, senior policy analyst at Americans for Financial Reform, referring to the curbs on those particular fees.
Alexa Philo, a senior bank policy analyst at the consumer advocacy group Americans for Financial Reform and a former examiner with the Federal Reserve Bank of New York, said the shift would restore needed guardrails that should have never been removed. “If the Fed says seven banks and two IHCs are going to be impacted, my reaction to that is that they should have been in those higher categories to begin with and their current categorizations are an understatement of the systemic risk they present,” Philo said.
“Private equity is a 40-year-old Wall Street creation that thrives on cost-cutting, wealth extraction, short time horizons, and financial engineering,” wrote Aliya Sarbarhwal, campaigns manager for private equity at AFR. “It bought, sold, and liquidated its way through the American retail sector years ago, and is now jumping into traditional book publishing, a business that demands patience, an appetite for risky new authors and deft marketing.”
“Banks, investment firms, and other Wall Street titans have been allowed to secure a heightened level of control over the entire economy,” wrote Lisa Donner, executive director at Americans for Financial Reform. “With that control, they extract increasing amounts of wealth from workers and communities, and deploy an increasingly complex array of financial instruments and products that compound their revenue and their power.”