US Presidential candidate Elizabeth Warren has launched a new bill looking to make private equity firms responsible for the debt and liabilities of their failed portfolio investments.
Senator Warren, a former Harvard Law School professor who specialised in bankruptcy law, said the Stop Wall Street Looting Act would look to “end corporate looting through excessive fees and dividends”, as well as “protect workers’ jobs and severance” and “safeguard the market from risky corporate debt”.
Warren unveiled the bill alongside fellow Democratic Senators Tammy Baldwin and senate banking committee member Sherrod Brown, as well as Representatives Marc Pocan and Pramila Jayapal.
She also took to Medium to detail her criticism of the private equity industry, calling it “legalised looting” which allows firms to “suck value out of the economy”.
She said, “Sometimes the companies do well. But far too often, the private equity firms are like vampires — bleeding the company dry and walking away enriched even as the company succumbs.”
A statement from Warren included in the bill added, “For far too long, Washington has looked the other way while private equity firms take over companies, load them with debt, strip them of their wealth, and walk away scot-free -leaving workers, consumers, and whole communities to pick up the pieces,
“Our bill ends these abusive practices by putting private investment funds on the hook for the decisions made by the companies they control, ending looting, empowering workers and investors, and safeguarding the markets from risky corporate debt.”
The bill was immediately condemned as an “extreme political plan” by US private equity lobby group the American Investment Council, which said private equity was “an engine for American growth and innovation – especially in Senator Warren’s home state of Massachusetts.”
It did not make any specific comment on the policy of making private equity firms responsible for the debt and liabilities of portfolio companies, on their use of fees and dividends or of the market risk of corporate debt.
A statement from the organisation said 5.8 million Americans are currently employed by 35,000 private equity-backed businesses in the US.
It added that private equity was the highest-performing asset class for public pension funds, delivering a median 10-year annualised return of 8.6 per cent.
The statement said, “These returns crucially support the retirements of schoolteachers, first-responders and other dedicated public servants nationwide at a time when public pension funds face a $1.4 trillion shortfall.”