Over the past two decades, there’s been a profound shift in American corporate governance and capital markets that we don’t think gets enough attention: the rise of private markets and, in particular, private equity.
The number of public companies has halved since the late 1990s. At the same time, the overall private funds industry has grown to $25 trillion and is now larger than the entire commercial banking sector. Private equity firms now own thousands of companies across every industry. As a result, they are having a more profound impact on how businesses are run and on Americans’ lives.
Private equity is a major force shaping Americans’ ability to buy or rent a home, how their healthcare is provided, and whether their employer stays afloat or goes bankrupt when economic times get tough. Yet private equity firms are far less known to the public than their public company peers and receive less attention and scrutiny from policymakers, the media, and other financial watchdogs. Few Americans even know the names of major firms like Carlyle, KKR, and Blackstone, even though they rank as the third, fourth, and fifth largest employers in the United States, once their portfolio companies are aggregated.
We think this needs to change — and that’s why we’ve made private equity a major focus of our work. Over the past two years, our goal has been to raise awareness about private equity’s role in the economy, highlight its most significant impacts on society, advocate for policies that enhance transparency and accountability, and accelerate the adoption of responsible investing practices within the industry.
We’ve learned that there are both serious challenges to address — but also promising pathways to move the industry in a positive direction. Here we share three key learnings from this work.
Sunlight is the best disinfectant.
The private equity industry is notoriously opaque. We believe the industry needs to become more transparent — both to protect the interests of retirement savers invested in the industry and to serve the public interest. In the last two years, we’ve seen that policy, research, and journalism all have important roles to play in bringing more sunlight to an industry that still lives largely in the shadows.
America has the most successful public companies and most robust stock market in the world because we have established rules and regulations that help make that market more competitive, fair, and transparent. We need to bring more of what has made our public markets successful — disclosure, investor protections, scrutiny of corporate governance — to private markets. In 2023, the SEC passed a rule requiring private fund managers to provide standardized, timely reporting of financial performance, fees, expenses, and investment terms. This is an important first step — and a win for American retirement savers. But we believe more fundamental regulatory shifts are needed to bring more private companies into public view.
We’ve also seen the impact of academic and investigative research. In response to work by Eileen Applebaum and Rosemary Batt that highlighted the role of private equity-owned hospitals in surprise medical billing,advocates mounted pressure, and Congress passed the No Surprises Act. Leading academics analyzed data to reveal that private-equity owned nursing homes had lower quality care and higher rates of fatalities, prompting the Biden Administration to move forward regulations to increase transparency of nursing home ownership. Scholarship has also produced important insights on private equity’s impacts on workers, and in industries such as local journalism, higher education, and housing.
Finally, we’ve seen the role that journalism can play both in raising awareness of the private equity industry, and as a watchdog. People should know who owns major businesses in their communities and who to hold accountable when workers, customers, or communities suffer harms. Advocacy groups and journalists investigated harms to patients in care homes and children employed in the food processing industry, which drove scrutiny from policymakers and prompted engagement from private equity owners.
Strengthening the voice and power of private equity’s stakeholders is critical.
Private equity’s business model creates intense incentives to maximize financial returns to shareholders. When incentives across different stakeholders are aligned, this focus can lead to positive outcomes for investors, companies, and their stakeholders alike. But in many cases, intense incentives to engineer and extract profits over a short time horizon can be in direct conflict with the interests of workers, customers, and local communities.
Given this context, we believe it’s critical for stakeholders of private equity-owned companies to have power and agency in decision-making that impacts them and means to defend their interests and remedy harms. Having a strong network of organizing and advocacy groups focused on private equity, fighting for stakeholders’ interests, helps to ensure accountability.
Organizing groups like African Communities Together, California Common Good, and Manufactured Housing Action are mobilizing residents of private equity-owned properties to fight for tenants’ rights — and have helped secure better conditions and policy reforms. Take Medicine Back is organizing physicians to stop private equity-owned physician practices from interfering in doctors’ clinical decisions in ways that put profits before patients. And the Private Equity Stakeholder Project partners with a range of organizing groups to uplift the voices of individuals and communities directly impacted by private equity firms and connect them with institutional investors and policy makers.
Leaders within the private equity industry can accelerate positive change.
We’ve seen that the largest investors in private equity, like public and union pension funds, have a critical role to play in driving more responsible investment practices in the industry and can help ‘raise the bar’ on specific issues. For example, CalPERS, the country’s largest public pension fund, recently adopted a private equity labor practices policy and asked its fund managers to commit to higher road labor practices sought by unions. And the Office of the New York Comptroller Brad Lander is leading a promising effort with its fund managers focused on housing investments to adopt and implement principles protecting tenants’ rights.
We’ve also seen promising examples of leadership from private equity firms on advancing responsible investing practices. For example, working with the new nonprofit Ownership Works, 29 private equity investors have made commitments to adopt broad-based worker ownership, helping ensure that workers can benefit from the value they create. And more private equity firms are helping their portfolio companies manage the most significant impacts on environmental, social and governance issues, partnering with firms like Novata, a B Corp that helps private equity firms and their portfolio companies to measure and benchmark their performance on issues like workforce safety and carbon emissions.
Corporations, capital markets, and common good: Looking ahead
As we conclude this series on what we’ve learned from our work, we are both hopeful for the future and clear about the challenges of driving meaningful, durable change. Despite the many obstacles to progress in this space, we believe that the coalition focused on harnessing the power of business to be a force for good will continue to expand.
The urgency for change is only growing as pressures on our planet, economy, and democracy intensify. But the desire for a future in which companies treat their workforce and communities with dignity and respect is shared by many. Investors recognize the significance of addressing systemic risks like climate change and inequality for the long-term health of the economy. And many within businesses, from frontline workers to CEOs, are dedicated to fostering positive change within their own organizations.
Achieving real shifts in corporate governance will require people from all walks of life to engage—community leaders and workers; researchers and policymakers; leaders of pension funds, asset managers, and businesses large and small. We’re grateful to be in partnership with so many individuals and organizations committed to building a future in which we realize the full potential of corporations and capital markets to contribute to the common good.
