Elizabeth Warren says "private equity guts everything" from Red Lobster to hospitals. The impact of a $6-trillion sector

"Greed, for lack of a better word, is good.”

With this infamous line from the 1987 classic Wall Street, the fictional CEO Gordon Gekko summed up private equity culture, suggesting corporate greed could even provide the motivation to save “that other malfunctioning corporation called the U.S.A.”

So, nearly 40 years on, have private equity firms saved America? Far from it, says Sen. Elizabeth Warren.

Must Read

• Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how

• Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and 3 simple steps to fix it ASAP

• I’m almost 50 years old and have nothing saved for retirement. What do I do? Don’t panic. Here are 6 easy ways to catch up (and fast)

In a video uploaded to her website, Warren argues “private equity guts everything” — from Red Lobster, Sears, Payless and ToysRUs to nursing homes, apartment complexes and prisons (1).

“A few wealthy investors buy the outfit, load it up with debt, strip out the assets and suck money out of it until it collapses,” she says.

“Then, after thousands upon thousands of workers have been laid off, after pensions get raided, after stores close, those private equity firms walk away with their pockets stuffed with cash.”

She says private equity takeovers build enormous wealth for financiers and dealmakers at the expense of the vast majority of Americans.

Her criticism echoes the growing concern of policymakers and the general public surrounding the impact of private equity on American life. Here’s a closer look at just how far-reaching that impact is.

Calculating private equity’s cost to businesses and individuals

By the end of 2023, the private-equity industry held $5.8 trillion in assets under management (AUM), according to the investment data company Preqin. By 2029, that figure is expected to double to $12 trillion (2).

That makes it a sizable part of the U.S. economy, with far-reaching impacts — and those impacts are not all positive. For example:

Read More: Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself

• Businesses owned by private equity are 10 times likelier to declare bankruptcy, according to the CFA Institute (3).

• Workers tend to earn less and have a greater risk of getting laid off after a private-equity buyout, according to The Center for Economic Policy Research (4).

Moody’s Ratings says the industry’s use of leveraged buyouts (LBOs) (5) is behind the layoffs and bankruptcies.

This is a strategy in which a private equity firm uses a large amount of debt to buy another company, using the acquired company’s own assets as security against the loan.

Unfortunately it’s the acquired company, not the private equity firm, that’s left on the hook for paying the loan back.

“Look, this isn't a business model,” Warren says. “It's legalized looting, and it's wrong.”

Some of the industry’s practices can be deadly.

Harvard Medical School, the University of Pittsburgh, and University of Chicago collaborated on a study looking at patient outcomes in private-equity-owned hospitals versus non-private-equity-owned facilities.

They found patient deaths to be 13% higher in emergency rooms at private-equity-owned hospitals, suggesting the mortality rate was due to dramatic cuts in staffing and salaries (6).

Warren says private equity firms use similar tactics to save costs at private prisons nationwide

“What [does] cutting corners on healthcare at a prison look like? Well, they outright denied care to patients in pain,” she says.

“They didn't follow basic treatment plans. They threw people into solitary confinement instead of spending the time to treat them.”

In an effort to hold the industry accountable, Warren and a team of Democratic lawmakers introduced the Stop Wall Street Looting Act in 2024 (7).

Meanwhile, states like California, New Mexico and Washington have introduced a patchwork of different laws to limit the industry’s impact on local health care (8).

Calculating private equity’s cost to businesses and individuals

Private equity firms are not uniformly disruptive, but if your company is acquired by one of these institutional investors you should be aware of the heightened risk of layoffs and bankruptcy.

Secure yourself by acquiring new skills that make you indispensable to the firm and document your work to provide evidence while negotiating your pay.

In the meantime, you may want to start looking for another job after the buyout.

Build up your emergency fund to protect yourself from a financial shock in the event of a layoff.

If you’re seeking medical attention, the Private Equity Stakeholder Project offers an online dashboard to track 488 PE-backed healthcare facilities across the country (9).

You can also check local databases and the U.S Centers for Medicare & Medicaid Services for service quality reports before you check into a new facility (10).

Not all private equity firms are run by ruthless corporate raiders like Gordon Gekko.

And as Fortune reports, Red Lobster actually bounced back from bankruptcy this year under the leadership of CEO Damola Adamolekun (11).

But it’s wise to be prepared.

You May Also Like

• Become the landlord of Whole Foods and Walmart without lifting a finger. Here’s why wealthy investors are leaning in — and what to consider before investing

• Warren Buffett used 8 solid, repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)

• Robert Kiyosaki says this 1 asset will surge 400% in a year — and he begs investors not to miss its ‘explosion’

• Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich — and ‘anyone’ can do it

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Sen. Elizabeth Warren (1, 7); Preqin (2); CFA Institute (3) Center for Economic Policy Research (4); Bloomberg Law (5); Harvard (6); Troutman Pepper Locke (8); Private Equity Stakeholder Project (9); Data.CMS.gov (10); Fortune (11)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.