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Kind: captions
Language: en

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It is everywhere.

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They own businesses that you have no idea
they own.

00:00:04.771 --> 00:00:08.742
There is this kind of narrative that the
private equity firms are corporate raider.

00:00:08.775 --> 00:00:09.809
What is private?

00:00:09.809 --> 00:00:12.078
What are you talking about?
Industry creates jobs.

00:00:12.112 --> 00:00:15.348
Ours, the economy and strengthens
the retirements of millions of Americans.

00:00:15.382 --> 00:00:19.152
We're talking about a big circle of pain
that enriches

00:00:19.152 --> 00:00:22.222
a very small, elite group of people.

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Money talks in Washington,
and they spend a lot of it.

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I just said someone asked to expose it.

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It's just not true.

00:00:38.505 --> 00:00:39.039
Hello.

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Any time you spend money, there's a decent
chance that private equity is involved.

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For example,

00:00:43.343 --> 00:00:47.414
just the other day I was eating a Cinnabon
inside of a David's bridal while playing

00:00:47.414 --> 00:00:51.885
a guitar center ukulele in a little ritual
I like to call Wednesday.

00:00:51.918 --> 00:00:55.889
I had absolutely no idea
I was actually funding three different

00:00:55.889 --> 00:00:57.090
private equity firms.

00:00:57.090 --> 00:00:58.625
Though private equity is one of the most

00:00:58.625 --> 00:01:02.595
powerful industries in America,
it tends to operate behind the scenes.

00:01:02.629 --> 00:01:06.866
But unfortunately for them, the Good Work
investigative news team specializes in

00:01:06.866 --> 00:01:10.503
bringing things that are behind the scenes
out into the front of the scene.

00:01:10.804 --> 00:01:14.541
So let's do the news.

00:01:18.578 --> 00:01:22.115
Just seconds ago, I was matrix
dodging bullets outside of here,

00:01:22.182 --> 00:01:25.385
the offices of Blackstone
one of the biggest alternative asset

00:01:25.385 --> 00:01:29.389
managers in the world, and a place
with a Bond villain ass name, I suppose.

00:01:29.389 --> 00:01:32.192
Dr. Danger's
Thunder, Doom and Luigi's Haunted

00:01:32.192 --> 00:01:35.462
Mansion were already taken
within the bowels of Blackstone and peer

00:01:35.462 --> 00:01:40.200
firms like KKR, Apollo Global Management,
the Carlyle Group and Bain Capital.

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You will find funds whose specialty
is investing in private equity,

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an industry that manages a lot of cash.

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But we're not really sure how.

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Private equity firms are everywhere.

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So what is a private equity fund?
Private equity.

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Private equity
is one of the most lucrative

00:01:54.814 --> 00:01:56.249
and interesting careers in finance.

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Understanding private equity begins with
understanding public equity, According

00:02:00.220 --> 00:02:04.224
to Good Work's forthcoming bestseller
How to Win Money and Influence Pores.

00:02:04.390 --> 00:02:07.460
Anybody can invest in public equity
in the form of stocks,

00:02:07.494 --> 00:02:09.629
but private companies are different.

00:02:09.629 --> 00:02:12.632
Average Joes like you and me
can't just go and invest in them.

00:02:12.966 --> 00:02:14.367
These companies need to raise

00:02:14.367 --> 00:02:18.104
capital from other places,
and that's where private funds come in.

00:02:18.138 --> 00:02:22.075
The big types of private funds are venture
capital, hedge funds and private

00:02:22.075 --> 00:02:22.976
equity VCs.

00:02:22.976 --> 00:02:27.013
You may remember Gamble Capital on high
risk, high reward startups, hedge funds,

00:02:27.013 --> 00:02:30.450
pool partner money together to be invested
by a professional fund manager.

00:02:30.450 --> 00:02:33.453
They focus on generating returns fast,
and though investing pretty

00:02:33.453 --> 00:02:37.190
much anything to make that happen, but
usually not directly in private companies.

00:02:37.257 --> 00:02:38.024
Private equity

00:02:38.024 --> 00:02:41.794
firms, meanwhile, invest directly
in entities that aren't publicly traded.

00:02:42.061 --> 00:02:44.597
They acquire stakes in things
or buy them outright,

00:02:44.597 --> 00:02:47.634
then try to sell their positions
at a profit over a little bit

00:02:47.634 --> 00:02:51.004
longer of a time horizon,
usually five or seven years.

00:02:51.004 --> 00:02:54.607
And lately they've been stuffing
their privates with a whole lot of equity.

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It is everywhere.

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They own businesses that you have no idea
they own.

00:02:59.379 --> 00:03:02.348
Gretchen Morgenson is an NBC reporter
and author of the book.

00:03:02.448 --> 00:03:06.452
These Are The Plunderers How Private
Equity Runs and Wrecks America.

00:03:06.553 --> 00:03:11.424
There are thousands of private equity
firms, and I really want everyone to know

00:03:11.424 --> 00:03:16.663
that the ones I'm talking about
are the really big, very well-known

00:03:16.896 --> 00:03:21.935
private equity firms
Blackstone, Apollo, Carlyle, KKR,

00:03:22.202 --> 00:03:26.606
that use heavy debt, the largest
private equity firms in the world own

00:03:26.606 --> 00:03:27.540
or have an ownership

00:03:27.540 --> 00:03:31.344
stake in an array of stuff
that you couldn't even imagine, including

00:03:32.779 --> 00:03:35.682
Subway, Barnes and Noble, one
third of Europe's soccer teams, a Formula

00:03:35.682 --> 00:03:38.685
One team California Pizza
Kitchen, Hooters, Adweek, Neiman Marcus,

00:03:38.685 --> 00:03:41.754
FanDuel, Highways, an Indian
music of Taylor Swift Hospital Emergency

00:03:41.754 --> 00:03:45.792
rooms, tax on gastroenterology clinics,
and even oatly

00:03:46.893 --> 00:03:49.229
that would make the sickest mall ever.

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Together, private funds
now have over $25 trillion

00:03:52.365 --> 00:03:55.702
in assets under management,
a big chunk of which is private equity.

00:03:55.702 --> 00:03:59.439
And just this year, Blackstone became
the first private equity manager of over

00:03:59.439 --> 00:04:05.111
$1 trillion in amount of money
that Scrooge McDuck once called orgasmic.

00:04:05.144 --> 00:04:08.414
But as private equity has grown,
its operations have become

00:04:08.414 --> 00:04:09.782
even more controversial.

00:04:09.782 --> 00:04:13.953
And just like when me and Miranda broke
up, everyone is choosing sides.

00:04:13.987 --> 00:04:14.854
Or industry creates

00:04:14.854 --> 00:04:19.325
jobs, powers the economy, and strengthens
the retirements of millions of Americans.

00:04:19.359 --> 00:04:21.961
They're really responsible
for some of the worst

00:04:21.961 --> 00:04:24.197
and most abusive business practices
in the country.

00:04:24.264 --> 00:04:25.999
Well,
I've been friends with Emily for years,

00:04:25.999 --> 00:04:28.401
but I can't really sort of grow on me
recently.

00:04:28.434 --> 00:04:31.337
We're talking about a big circle of pain

00:04:31.537 --> 00:04:35.208
that enriches
a very small, elite group of people.

00:04:35.241 --> 00:04:37.944
It's kind of capitalism on steroids.

00:04:37.977 --> 00:04:39.812
That was actually my nickname in college.

00:04:39.812 --> 00:04:43.983
But it's strange for something so big
and controversial to be so back of mine

00:04:43.983 --> 00:04:44.784
for Americans.

00:04:44.784 --> 00:04:49.922
It's like mass shootings
or the bisexuality of Abraham Lincoln.

00:04:50.456 --> 00:04:50.957
What?

00:04:50.957 --> 00:04:54.661
Honest Abe did get the sloppiest
topy in the history of theater

00:04:54.661 --> 00:04:58.731
while sitting next to his wife, who
has conveniently named both Mary and Todd.

00:04:58.831 --> 00:05:02.835
You're trying to tell me our 16th
president didn't four score both ways.

00:05:04.437 --> 00:05:05.004
Anyway, how

00:05:05.004 --> 00:05:08.141
do these private equity companies
actually go about acquiring a business?

00:05:08.174 --> 00:05:11.411
I put the question to Jeff Hook,
a business professor at Johns Hopkins

00:05:11.411 --> 00:05:14.714
University and author of the book
The Myth of Private Equity.

00:05:14.747 --> 00:05:17.850
It's just house
flipping on a much greater scale, except

00:05:17.850 --> 00:05:21.554
the companies are operating businesses,
not real estate.

00:05:21.621 --> 00:05:24.957
So instead of something big and scary
like Apollo Global Management,

00:05:25.058 --> 00:05:28.394
imagine your PE firm is called Chip
and Joanna Gaines,

00:05:28.394 --> 00:05:31.230
and instead of acquiring a business
or another entity that you think could

00:05:31.230 --> 00:05:34.300
grow, you're just looking to buy
a shitty house in a nice neighborhood.

00:05:34.334 --> 00:05:36.002
In slightly fancier financial terms.

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This is called a leveraged buyout,
and it's the type of acquisition

00:05:39.105 --> 00:05:41.441
that the private equity industry has made
famous.

00:05:41.441 --> 00:05:43.776
It basically means buying something
with borrowed cash

00:05:43.776 --> 00:05:45.645
that you will need
to pay back with interest.

00:05:45.645 --> 00:05:47.880
But we're going to fail
to borrow enough money to buy

00:05:48.881 --> 00:05:49.549
Subway.

00:05:49.549 --> 00:05:50.750
Private equity firms.

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Oxygen comes from public pension

00:05:53.119 --> 00:05:57.223
funds, endowments
and other huge institutional investors.

00:05:57.223 --> 00:06:00.360
The sugar daddies of private equity,
insanely wealthy families,

00:06:00.360 --> 00:06:02.295
insanely wealthy college endowments,

00:06:02.295 --> 00:06:04.864
and the retirement funds of middle class
firefighters.

00:06:04.897 --> 00:06:06.132
But what the hell?

00:06:06.132 --> 00:06:09.902
CalPERS, the largest pension
plan in the United States, had $457

00:06:09.902 --> 00:06:14.340
billion, has a $55 billion
private equity portfolio,

00:06:14.640 --> 00:06:17.577
which is normal practice pension funds,
which poor public sector

00:06:17.577 --> 00:06:20.046
employees retirement
funds to more effectively grow in

00:06:20.246 --> 00:06:23.349
have long invested in private markets
to meet their high return goals.

00:06:23.383 --> 00:06:27.220
But once the firms
get that institutional investor bag,

00:06:27.220 --> 00:06:29.222
what do they do with the companies
they acquire?

00:06:29.255 --> 00:06:32.558
Supporters say that they bail out
financially underperforming companies

00:06:32.558 --> 00:06:35.628
and turn them around with capital
and operational support.

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We're in a business together
for a long term, but if you walk down

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any main street in America today,
you will see private equity all around,

00:06:42.735 --> 00:06:46.472
whether you're taking an Uber to work
or you're grabbing lunch at Panera Bread.

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All of these businesses
were supported by private equity.

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That was Drew Moloney, president
and CEO of the American Investment

00:06:52.945 --> 00:06:56.616
Council, one of private equity's
main lobbying groups in the United States.

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We were this close to getting a meeting

00:06:58.418 --> 00:07:02.688
with both him and the AIC,
but at the last minute they were busy.

00:07:02.688 --> 00:07:05.224
We assume they actually just
watched our YouTube channel,

00:07:05.258 --> 00:07:06.993
or maybe they were working on their own
YouTube

00:07:06.993 --> 00:07:11.230
channel,
which includes sick clips like this.

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But critics of the industry contend
that private equity

00:07:19.105 --> 00:07:21.574
and their leveraged buyouts
saddle companies with debt

00:07:21.574 --> 00:07:25.111
that they have to pay back over too
short of a time frame, the heavy debt

00:07:25.111 --> 00:07:29.215
that is required to make the acquisition
and the short time frame

00:07:29.215 --> 00:07:33.252
that they want the company
to be able to be more profitable

00:07:33.252 --> 00:07:36.856
and therefore be flipped
put to pressure points on the company.

00:07:36.889 --> 00:07:37.790
For example, Toys

00:07:37.790 --> 00:07:41.794
R US, which was purchased by a group of PE
firms and overwhelmed with debt, so much

00:07:41.794 --> 00:07:45.865
so that it declared bankruptcy in 2017
and since has not recovered.

00:07:46.032 --> 00:07:47.066
Noranda Aluminum,

00:07:47.066 --> 00:07:50.269
the largest power plant in New Madrid,
Missouri, who went into bankruptcy

00:07:50.269 --> 00:07:53.539
and was forced to close plants
after being acquired by Apollo.

00:07:53.539 --> 00:07:58.444
But private equity firms don't just buy
companies where there is the big money.

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That's where they're going to go.

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Why Health care?

00:08:00.813 --> 00:08:02.682
17% of GDP.

00:08:02.682 --> 00:08:04.217
It's $1,000,000,000,000 industry.

00:08:04.217 --> 00:08:06.853
Well, Flannery is an ophthalmologist
based in Oregon.

00:08:06.886 --> 00:08:08.588
He's also a comedian whose videos shine

00:08:08.588 --> 00:08:12.325
a light on the growing trend of PE
firms buying out medical practices.

00:08:12.358 --> 00:08:14.093
He also has more followers than us.

00:08:15.928 --> 00:08:18.898
But whatever, there's middle man
all over the place.

00:08:19.065 --> 00:08:22.034
Health insurance companies,
we have pharmacy benefit managers,

00:08:22.034 --> 00:08:22.935
all of these people.

00:08:22.935 --> 00:08:27.373
They're extracting billions and billions
of dollars from the health care system.

00:08:27.707 --> 00:08:28.508
So there's money there.

00:08:28.508 --> 00:08:29.809
So of course, it's going to attract

00:08:29.809 --> 00:08:33.112
anybody who wants to get money,
including private equity.

00:08:33.145 --> 00:08:36.983
By 2018, Blackstone and KKR controlled
one third of the nation's

00:08:36.983 --> 00:08:38.551
hospital emergency rooms.

00:08:38.551 --> 00:08:42.088
And while some have argued that a firm's
ownership of practices lets doctors

00:08:42.088 --> 00:08:45.057
focus on patient care
rather than running the actual business.

00:08:45.091 --> 00:08:47.326
So I said to the doctor, I said, Why?

00:08:47.360 --> 00:08:49.095
Why would you partner with private equity?

00:08:49.095 --> 00:08:51.430
And the doctor said, Well,
the best thing is

00:08:51.430 --> 00:08:55.034
I like to practice medicine
when I have a partner with private equity.

00:08:55.067 --> 00:08:58.304
They worry about the back office,
they worry about the I.T.

00:08:58.337 --> 00:08:59.539
and I don't have to worry about that.

00:08:59.539 --> 00:09:00.406
I can see patients.

00:09:00.406 --> 00:09:04.410
Others point to surprise billings,
higher costs, layoffs and overprescribing

00:09:04.410 --> 00:09:07.680
patients as examples of what happens
when a hospital is owned

00:09:07.680 --> 00:09:11.517
by a profit seeking corporate baddie
rather than a medical professional.

00:09:11.584 --> 00:09:12.919
Private practices

00:09:12.919 --> 00:09:17.089
historically there like run by physician
deep down all physicians.

00:09:17.123 --> 00:09:21.027
They got into medicine
to tell people to practice medicine.

00:09:21.093 --> 00:09:24.630
Now, though,
you're selling to this private equity firm

00:09:24.630 --> 00:09:29.535
that has no motivation to maintain
or improve patient care.

00:09:29.569 --> 00:09:32.004
They want to do
what's going to improve the bottom line.

00:09:32.038 --> 00:09:34.707
Which is a sentiment Gretchen
echoed about nursing homes.

00:09:34.740 --> 00:09:37.710
Nursing homes that are owned by private
equity companies

00:09:37.777 --> 00:09:42.481
have the residents
encounter 10% higher mortality rates.

00:09:42.481 --> 00:09:43.716
Now, why is that?

00:09:43.716 --> 00:09:47.453
Well, because they cut staff,
because they're trying to make

00:09:47.453 --> 00:09:49.722
the thing more profitable
to sell outside of health care.

00:09:50.623 --> 00:09:52.925
You can find
lots of examples of private equity

00:09:52.925 --> 00:09:56.629
getting all up in things that are commonly
thought of as public services,

00:09:56.629 --> 00:10:00.433
like when water bills rose 28% in Bayonne,
New Jersey, following KKR, its

00:10:00.466 --> 00:10:02.301
acquisition of the town's water system.

00:10:02.301 --> 00:10:03.369
Or when pandemic relief

00:10:03.369 --> 00:10:07.173
money found its way to PE firms, despite
being intended for small business support.

00:10:07.206 --> 00:10:11.310
Or the state of California had to evacuate
dozens of boys from an abusive Michigan

00:10:11.310 --> 00:10:15.748
rehab facility for troubled youth that was
owned by a Bay Area private equity firm.

00:10:15.748 --> 00:10:15.781
the thing more profitable
to sell outside of health care.

00:10:15.781 --> 00:10:20.219
But if we look at all of these troubling
examples of private equity, massive growth

00:10:20.219 --> 00:10:24.323
and entanglement into public services,
one thing remains clear.

00:10:25.057 --> 00:10:27.293
These guys fucking rock at making money.

00:10:27.326 --> 00:10:30.763
2012 Private funds as a whole,
a lot of which

00:10:30.763 --> 00:10:33.766
is private equity in the net, $9.8
trillion.

00:10:33.799 --> 00:10:36.836
Now, ten years later, it's $27 trillion.

00:10:36.836 --> 00:10:40.840
So the private funds industry,
which again includes hedge funds and DC,

00:10:40.840 --> 00:10:44.677
is now bigger than the commercial banking
sector, according to Gensler.

00:10:44.710 --> 00:10:45.811
Indeed, private equity

00:10:45.811 --> 00:10:50.282
has had an even more meteoric career
rise than euphoria hottie Jacob Elordi.

00:10:50.349 --> 00:10:54.286
But what, besides Ivy League grads burning
desire to own a helipad yacht

00:10:54.286 --> 00:10:57.189
has contributed to this industry's
startling growth.

00:10:57.390 --> 00:10:59.558
Low interest rates, zero cost of money.

00:10:59.558 --> 00:11:01.127
Big reason.

00:11:01.127 --> 00:11:05.965
Huge easy money
means you can borrow at low rates.

00:11:05.998 --> 00:11:09.268
This gave private equity
a cheap source of debt, which is like new

00:11:09.268 --> 00:11:11.671
could juice for leveraged buyouts,
combined with the fact

00:11:11.671 --> 00:11:15.274
that private markets haven't historically
been very regulated by the FCC.

00:11:15.541 --> 00:11:18.577
The industry has been able to expand
pretty much unchecked.

00:11:18.711 --> 00:11:22.248
So you've got this really big part
of the economy that is

00:11:22.448 --> 00:11:25.718
more or less operating in the shadows
because there's not really

00:11:25.718 --> 00:11:28.721
systematic there
hasn't been systematic disclosure on it.

00:11:28.754 --> 00:11:31.590
So why does the government
ignore these asset managers?

00:11:31.590 --> 00:11:33.059
It's not like they're some annoying ass

00:11:33.059 --> 00:11:36.395
public school teacher asking for money
to buy a protractor that works.

00:11:36.495 --> 00:11:41.901
The SCC or the government's first response
would be, okay, we supervise

00:11:41.901 --> 00:11:45.171
the public markets where we have
to protect widows and orphans.

00:11:45.204 --> 00:11:47.573
They don't know what they're doing.
So we got to protect them.

00:11:47.606 --> 00:11:48.507
There's also lobbying.

00:11:48.507 --> 00:11:51.077
Private equity
spends more time in Washington, D.C.

00:11:51.077 --> 00:11:52.945
than the worst kid
you went to college with.

00:11:52.945 --> 00:11:57.249
For example, the industry
spent $70 million on lobbying in the run

00:11:57.249 --> 00:11:59.218
up to the 2020 presidential election,

00:11:59.218 --> 00:12:03.422
while they donated $262
million directly to political campaigns.

00:12:03.422 --> 00:12:04.623
And it turns out that private

00:12:04.623 --> 00:12:08.360
equity in Washington have a few mutual
LinkedIn connections as well.

00:12:08.394 --> 00:12:12.364
Lawyers that work at the FCC,
they don't want to work at the FCC.

00:12:12.698 --> 00:12:15.601
They want to work on Wall Street,
make triple what they're making now.

00:12:15.601 --> 00:12:18.871
How are you going to get a job
on Wall Street if you're a pain in the ass

00:12:19.138 --> 00:12:21.474
that you prosecute PR firms?

00:12:21.907 --> 00:12:24.043
You know, that's not the way
you get a job on Wall Street.

00:12:24.143 --> 00:12:27.179
Looks like the revolving door
between Washington and private equity.

00:12:27.279 --> 00:12:28.948
His gun, too, needs some maintenance

00:12:29.915 --> 00:12:31.183
because it revolves a lot.

00:12:31.183 --> 00:12:31.917
Jerome Powell,

00:12:31.917 --> 00:12:35.087
the current chief of the Federal Reserve,
was a partner at the Carlyle Group,

00:12:35.087 --> 00:12:38.324
and three months after finishing his stint
as Donald Trump's S.E.C.

00:12:38.324 --> 00:12:42.328
chair, Jay Clayton became Apollo's
first ever lead independent director

00:12:42.461 --> 00:12:43.629
of its board of directors.

00:12:43.629 --> 00:12:46.098
And those are just the head honchos.

00:12:46.132 --> 00:12:48.901
Private equity's money
and political influence is so immense

00:12:48.901 --> 00:12:51.637
that it's been difficult for regulators
to square up with.

00:12:51.704 --> 00:12:55.574
The government is reluctant
to bring a case against the big name like

00:12:55.574 --> 00:12:59.178
Blackstone or Carlyle private Equity,
because they think they can't win a case.

00:12:59.178 --> 00:13:01.547
They just don't think
they got the horsepower

00:13:02.248 --> 00:13:06.986
to go up against these gigantic
blue chip Wall Street law firms.

00:13:07.019 --> 00:13:09.555
So you're saying that the S.E.C.

00:13:09.789 --> 00:13:12.992
feels less powerful
than some private equity firms?

00:13:13.893 --> 00:13:14.426
Right.

00:13:14.426 --> 00:13:18.597
And as you might imagine, this unchecked
growth in private equity has also somehow

00:13:18.597 --> 00:13:22.601
correlated with the unchecked growth
of P executives bank accounts.

00:13:22.601 --> 00:13:26.806
In 2005, there were three
multi-billionaires among the executive

00:13:26.806 --> 00:13:27.373
class.

00:13:27.373 --> 00:13:31.811
In 2020 it was 20 to 22 multibillionaires.

00:13:31.811 --> 00:13:34.480
Just think of how s their group chat is.

00:13:34.513 --> 00:13:37.249
You can chalk all this up to the way
the industry pays itself.

00:13:37.249 --> 00:13:38.517
Regardless of how investments

00:13:38.517 --> 00:13:43.155
perform, a private equity firm will charge
a management fee of about 2% each year.

00:13:43.189 --> 00:13:47.860
So a fund with $2 billion in management
will baseline make $40 million annually.

00:13:47.893 --> 00:13:51.764
But the real claims come from the second
thing called the performance fee.

00:13:51.797 --> 00:13:56.702
Unlike the management fee, the performance
fee is 20% of a firm's annual profits

00:13:56.702 --> 00:14:00.239
and it's taxes, capital gains,
which means it's taxed as an investment

00:14:00.239 --> 00:14:03.576
you've held for over a year
instead of income for your services.

00:14:03.609 --> 00:14:07.246
This performance fee is more
famously known as carried interest,

00:14:07.246 --> 00:14:11.450
and it's one of the biggest tools PE
executives use to maximize their earnings.

00:14:11.483 --> 00:14:14.987
In fact, this carried interest tax rate
is so important to the private equity

00:14:14.987 --> 00:14:18.123
industry that this spike in lobbying
spending in DC

00:14:18.257 --> 00:14:21.927
happened the same year that Congress
first started having hearings about it.

00:14:21.961 --> 00:14:26.065
Income tax, if you're really wealthy,
might be might be 35 or 40%

00:14:26.065 --> 00:14:29.535
plus state tax and the capital gains
tax would be half of that.

00:14:29.735 --> 00:14:33.105
So there's a big, what you call benefit
from having a capital gain

00:14:33.105 --> 00:14:36.876
as opposed to income before an industry
that generates such an exceptional amount

00:14:36.876 --> 00:14:38.544
of wealth for its practitioners.

00:14:38.544 --> 00:14:44.717
Surely they must get a great deal
for their investors as well, right?

00:14:44.750 --> 00:14:47.486
The answer isn't as obvious a
yes as you might think.

00:14:47.753 --> 00:14:48.787
In July, the Wall Street

00:14:48.787 --> 00:14:52.124
Journal reported that for the first time
since the 2008 financial crisis,

00:14:52.358 --> 00:14:56.228
benchmark, private equity returns turned
negative for the reported fiscal year.

00:14:56.262 --> 00:14:59.431
But since the government can't regulate
private equity very effectively,

00:14:59.565 --> 00:15:02.902
it's pretty difficult
to figure out what the industry's finances

00:15:03.535 --> 00:15:06.305
actually look like
even if you are an investor in the fund.

00:15:06.438 --> 00:15:10.676
In terms of regulation,
I'll contrast this with like mutual funds.

00:15:10.709 --> 00:15:14.213
You go to Vanguard's website
and you look at one of their mutual funds,

00:15:14.246 --> 00:15:18.117
you'll see a semiannual report
that's got maybe 28 pages and it's

00:15:18.117 --> 00:15:22.021
got their expenses,
and that's like required by regulation.

00:15:22.021 --> 00:15:25.724
What is currently required
by regulation is basically no disclosure

00:15:26.358 --> 00:15:29.495
by funds, by private equity
funds to their investors.

00:15:29.662 --> 00:15:32.631
The investment process
would all be hush hush.

00:15:32.631 --> 00:15:36.201
And for the private equity industry,
you know, that's good.

00:15:36.235 --> 00:15:40.172
They can keep a lot of their fees
hidden and their returns,

00:15:40.172 --> 00:15:42.341
which are mediocre at best secret.

00:15:42.374 --> 00:15:43.943
And while there are studies claiming

00:15:43.943 --> 00:15:47.146
that private equity as a whole offers
better returns than the stock market,

00:15:47.313 --> 00:15:49.548
there's reason to be skeptical
about their numbers.

00:15:49.581 --> 00:15:54.119
We have seen a number of proposals
from private equity funds

00:15:54.119 --> 00:15:59.091
where the returns are really not
calculated in a in a manner that,

00:16:00.292 --> 00:16:00.759
well,

00:16:01.126 --> 00:16:03.595
they're not calculated in a manner
that I would regard as honest

00:16:03.629 --> 00:16:06.465
or all are doing is lying a little bit
to make the money coming in.

00:16:07.032 --> 00:16:09.335
Yeah. Yeah, that sums it up.

00:16:09.535 --> 00:16:11.904
Those gobbling muppets raise a good point.

00:16:11.937 --> 00:16:15.040
One of the reasons why the returns can be
tough to trust is that they're often

00:16:15.040 --> 00:16:19.178
calculated by people who are hired
by the firms themselves for the most part.

00:16:19.645 --> 00:16:23.615
There's no outside party
going in and doing a smell test.

00:16:23.782 --> 00:16:29.254
To some extent, the auditors might do it
like PricewaterhouseCoopers deliver.

00:16:29.288 --> 00:16:32.825
The problem with them is they're
getting paid by the p e fund itself.

00:16:34.960 --> 00:16:35.494
Okay.

00:16:35.494 --> 00:16:37.896
I'm receiving
breaking news against all odds,

00:16:37.896 --> 00:16:40.265
the Southeastern Football Conference
has announced

00:16:40.265 --> 00:16:43.936
the most significant regulations
to private.

00:16:45.304 --> 00:16:46.038
I am sorry.

00:16:46.038 --> 00:16:48.207
The Security and Exchange
Commission has announced

00:16:48.207 --> 00:16:52.011
the most significant regulations
to the private equity industry in years.

00:16:52.745 --> 00:16:55.948
It makes much more sense down by the SEC
imposing changes on hedge funds

00:16:55.948 --> 00:16:58.050
and private equity firms on fee
disclosures.

00:16:58.083 --> 00:17:00.919
The move is meant to curb preferential
treatment of certain investors.

00:17:01.220 --> 00:17:05.657
There's the disclosure
on a quarterly basis of of performance

00:17:05.657 --> 00:17:08.460
in a way that right now is not required
per se.

00:17:09.061 --> 00:17:12.398
There is a element
that prevents special deals.

00:17:12.564 --> 00:17:14.133
So so everything's fixed, right?

00:17:14.133 --> 00:17:16.735
So it's about 15 or 20 years too late.

00:17:17.069 --> 00:17:18.871
Now the train's left the station.

00:17:18.871 --> 00:17:21.073
A plutocracy has become too powerful.

00:17:21.306 --> 00:17:23.776
They'll be able to ride
roughshod over these

00:17:23.776 --> 00:17:26.645
if they don't even try
to get them thrown out in a court case.

00:17:26.678 --> 00:17:28.213
Well, the new rules
have to mean something, right?

00:17:28.213 --> 00:17:30.115
Like, how fast could they sue them anyway?

00:17:30.115 --> 00:17:34.653
So they're really three reasons
why we're suing the FCC to sue today, man.

00:17:34.653 --> 00:17:37.923
That's Brian Corbett,
CEO of the Managed Funds Association,

00:17:37.923 --> 00:17:40.926
one of the many groups that lobby
for hedge funds and private equity

00:17:40.926 --> 00:17:44.229
firms and are currently suing the SEC
for its recent regulation.

00:17:44.229 --> 00:17:48.500
We think the FCC in this final role
has exceeded its statutory authority.

00:17:48.500 --> 00:17:52.571
So as we stand today, private equity
is mobilizing their cinematic universe of

00:17:52.571 --> 00:17:56.608
lawyers while the FCC tries to rein them
in for the first time in many years.

00:17:56.642 --> 00:18:00.112
So what does this mean for the future,
not just for private equity,

00:18:00.312 --> 00:18:04.183
but for us everyday people whose lives
have been in one way or another

00:18:04.183 --> 00:18:05.584
tied to this industry?

00:18:05.584 --> 00:18:09.088
If I was a union employee looking forward

00:18:09.088 --> 00:18:12.558
to retirement
and let's say I can pose a few questions

00:18:12.691 --> 00:18:17.429
to my union representatives on the board
of trustees of these gigantic funds,

00:18:17.429 --> 00:18:21.900
I asked my representative, Hey, look,
I've been taken a closer look at this.

00:18:21.900 --> 00:18:22.801
I think it's a moment

00:18:22.801 --> 00:18:26.805
to really sit down and say, okay,
what kind of capitalism do we want?

00:18:26.839 --> 00:18:32.044
Do we want the kind that really benefits
the a broad array of people?

00:18:32.044 --> 00:18:37.082
Or do you want to have a system
that benefits a tiny, tiny fraction

00:18:37.249 --> 00:18:41.153
of people at the expense of a lot of a lot
a lot of people?

00:18:41.186 --> 00:18:43.889
What type of capitalism do we really want?

00:18:43.922 --> 00:18:46.592
Do we even know the type of capitalism
we already have?

00:18:46.625 --> 00:18:50.329
If investigating private equity teaches us
anything, it's that powerful profit

00:18:50.329 --> 00:18:54.833
seeking forces are indeed all around us
in every part of our lives in places

00:18:54.833 --> 00:18:56.068
we wouldn't even think to look.

00:18:57.302 --> 00:18:59.838
Wait a minute.

00:19:01.206 --> 00:19:03.208
This YouTube channel is owned by morning.

00:19:03.208 --> 00:19:06.278
Morning Brew
was bought by Business Insider in 2020.

00:19:06.411 --> 00:19:11.150
Business Insider is owned
by Axel Springer, who is 43.54% owned

00:19:11.150 --> 00:19:13.785
by private equity mega fund KKR,

00:19:14.419 --> 00:19:17.022
which means for good work.

00:19:17.823 --> 00:19:22.928
I'm 43.54% private equity.

00:19:23.729 --> 00:19:27.666
And lately they've been stuffing
their privates with a whole lot of equity.

00:19:27.666 --> 00:19:31.703
And lately they've been stuffing
their privates with a whole lot of equity.

00:19:31.703 --> 00:19:32.404
And lately,

00:19:32.404 --> 00:19:35.741
these guys have been stuffing
their privates with a whole lot of equity.

00:19:35.741 --> 00:19:39.444
And lately they've been stuffing
their privates with a whole lot of equity.

00:19:39.444 --> 00:19:42.514
And lately they've been stuffing
their privates with a whole lot of equity.

00:19:42.514 --> 00:19:46.051
And lately they've been stuffing
their privates with a whole lot of equity.

00:19:46.051 --> 00:19:47.586
And lately these guys,

00:19:47.586 --> 00:19:50.055
they've been stuffing their privates
with a whole lot of equity.

00:19:50.055 --> 00:19:53.992
And lately they've been stuffing
their privates with a whole lot of equity.

00:19:53.992 --> 00:19:55.561
And lately these guys,

00:19:55.561 --> 00:19:58.797
they've been stuffing their privates
with a whole lot of equity.