Private equity: vampire capital – Michael Roberts

“Over the last two decades, the vampires of private equity have gorged themselves on the profits of labour in the companies they have sweated, while avoiding sharing those profits with their investors or with governments through taxation. They engage in various forms of ‘financial engineering’ to increase their gains. And in doing so, they have leveraged key sectors of the economy into huge debt, at the expense of productive investment. Now rising debt servicing costs are adding to the risk of a major financial crash, acting as a stake through the heart of many of these vampires.”

One example: gutting US nursing homes:

“…About 70% of nursing homes in the US are for-profit. They are increasingly amalgamated into larger chains, often owned by private equity. The basic way nursing homes generate cashflow—two out of every three dollars it earns—is through Medicaid. The company Manor Care, for example, had 25,000 beds and was the second-largest nursing home chain in the country by 2017.

“In 2011, it was bought by the private equity firm the Carlyle Group, which sold the land on which the nursing homes sat to a company that specializes in being a landlord to healthcare providers. Previously to this, the nursing homes typically owned their land. Carlyle pocketed the proceeds from that land sale, paying off the debt that it had Incurred to acquire Manor Care in the first place. So Manor Care then had to pay rent using its Medicaid revenues, while Carlyle took the profits. But with this new rent burden, Manor Care’s margins contracted. Carlyle then insisted on cutting labour and wages. The quality of care in the homes went into a downward spiral. Lawsuits from relatives spiralled and eventually Manor Care went bust in 2018…”

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