August 2020
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August 2020
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PE Panorama: Private equity pile on

There’s sustained scrutiny and criticism of private equity practices by news media and lawmakers alike
By Paul Mackintosh  
July 27, 2020

Headlines about private equity continue to fly back and forth in the business media. Any hopes within the industry that the asset class will be left to quietly burn its huge mountain of dry powder have clearly been disappointed. So here are some soundings and pointers across the raft of comments and data points.

One is that US private equity’s success in scoring subsidies for portfolio companies is not passing unnoticed, or unchallenged. Of course, there may be legitimate reasons for private equity firms to get such subsidies, but headlines such as Washington Post’s “Backdoor Path to PPP Cash” – referring to loans under the pay cheque protection programme – clearly don’t heed such arguments much. The Daily Beast calls it a “pandemic cash bonanza for private equity-owned firms”.

Note that, according to the US Center for Responsive Politics, private equity and investment firms donated over US$117 million in political campaign contributions in 2016 and almost $111 million in 2018, with donations for 2020 already over $80 million. Donations run pretty evenly 50/50 between Democrats and Republicans, so the US industry may benefit whoever wins the November elections. But policies are already showing an anti-private equity slant.

As reported in Bloomberg Government, a $196.5 billion appropriations bill for funding the US departments of Health and Human Services, Labor, and Education, already approved by the House of Representatives, carries the rider that any healthcare company seeking advance payments from Medicare will have to disclose whether a private equity firm owns it and how much it pays to providers owned by private equity, as well as restricting payments to such companies if they have laid off or furloughed workers. Clearly that’s very targeted regulation that will do private equity healthcare investments no favours.

Separately, there’s no sign of opinion settling down around the controversial opening of US 401(k) pension plans to private equity firms. Marketwatch warns against it. Other reports warn that it may take years for that money to find its way to private equity coffers. There’s the definite risk that, in the interim, a policy widely seen and panned as a White House-backed favour for the industry will be reversed.

And then you’ve got Andrew Weinberg, founder and chief executive officer of mid-market private equity firm Brightstar Capital Partners, claiming in a Forbes column that private equity will help refinance and revitalise hard-hit smaller US businesses. He admits, though, that the coronavirus pandemic is a major test for the industry.

This whole industrial revitalisation/turnaround spiel that the private equity industry has been spinning for itself for decades is going to be examined and judged in the light of the recovery from the Covid-19 crisis, when that comes. Will private equity show that it can walk the walk to match the talk? It better.