With the Democrat blue wave officially starting today, Democrat progressives are getting ready to crack down on private equity firms. Wall Street investors joined President Joe Biden’s bandwagon during the campaign, giving six times more money than what they gave Trump and the GOP. Their ROI is now in serious question as progressive Democrats in Congress are poised to implement a series of reforms they say are long overdue.
Senator Warren and Company
Democratic lawmakers led by Senator Elizabeth Warren (MA) say that equity firms threaten both the economy and workers through debt-laden takeovers, which then leads to restructuring and mass layoffs. Warren aims to stop “Wall Street looting” by introducing a sweeping set of reforms.
Joining Warren in her quest is Democrat Senators Sherrod Brown (OH), who will assume the chairmanship of the powerful Senate Banking Committee. Brown vows to hold hearings and wants legislation bills aimed at tightening industry rules. Another Democrat, Senator Ron Wyden (OR) will use his position as chairman of the Finance committee to scale back on tax benefits that can hit companies’ bottom lines.
Clash with Moderate Democrats
Not all Democrats are in sync with the progressives’ plans. Moderate Democrats think that private equity is important in keeping capital flowing. Also, private equity is key to sustaining economic growth, especially during this pandemic. However, progressives already got their foot in the door. They're not about to stop.
Warren said that “We need reforms to rein in the private equity industry.” She wants worker empowerment, financial system safeguards, and protection for small businesses. Warren wants an end to “abusive practices that line the pockets of the wealthy at the expense of everyone else.” In particular, Warren is targeting leveraged buyouts, which use loans to fund takeovers. Her stand against the Toys “R” Us takeover, which laid off 33,000 American workers, gained her support for the progressive movement. Also, Warren highlighted concerns that investment firms abuse consumers. Acquisitions also hasten corporate consolidation.
Equity Executives Supported Biden
Prior to the election, private equity pivoted from Trump to Biden. They gave $3.5 million to the Democrat campaign versus $560,000 for Trump. Major donors include Blackstone's Jonathan Gray and Bain Capital's Joshua Bekenstein. Despite their support, private equity is bracing for some setbacks. Recently, Biden called for a raise on capital gains taxes for people making $1 million or more.
Things aren’t all bleak for equity firms though. For one, Biden appointed some key staff that used to be industry players. Ron Klain, the new White House chief of staff, was general counsel at venture firm Revolution. The new National Economic Council director, Brian Deese, headed sustainable investing in BlackRock. Former Cranemere CEO Jeff Zients Biden is now the White House COVID-19 response czar.
Tit for Tat
Private equity representatives hope that Biden will at least give them an ear. In addition, they will need the administration’s support to keep capital flowing. In return, they will support commitments to diversity and climate change. “The private equity industry is working in Ohio, Massachusetts, and across America to save jobs and strengthen companies during the Covid economic downturn,” remarked Drew Maloney, American Investment Council president, and CEO. “It is more important than ever that policymakers encourage private investment that creates jobs, builds better businesses, supports sustainable energy projects, and delivers more secure retirements.”
Warren’s crusade against private equity started during her presidential campaign in 2019. Now, she’s preparing to reintroduce it by introducing legislation. The proposal places liability to private equity for debt placed on acquired companies. They should also assume pension obligations of employees and any pending government litigation. Meanwhile, lobbyists hope that moderates will stand their ground.
The Timing May Not Be Right
Some lobbyists think that the timing isn’t right to crack down on private equity. However, Representative Mark Pocan (WI) begged to differ. “This is not the time to let corporations and private equity continue to run unchecked,” he said. He said that regulations should prevent private equity “from making out like bandits.” He hopes private equity firms put the American people above bottom lines. “This crisis has only continued to expose private equity’s willingness to profit off disaster,” he added.
Watch the Bloomberg QuickTake: Now reporting that Wall Street is torn on whether a Biden win would bring joy or misery:
Do you agree that with the Democrat blue wave, is now a good time to crack down on private equity firms? Let us know what you think about the progressives' plans to restrict equity firms?