Politics

Elizabeth Warren demands answers from private equity industry on coronavirus response, lobbying

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Key Points
  • Sen. Elizabeth Warren has written to the CEO of private equity lobbying group the American Investment Council, demanding more information about the organization's efforts related to the federal government's multitrillion-dollar coronavirus relief law.
  • Warren demanded information about the group's communication with the Treasury Department and White House officials, including Jared Kushner.
  • The senator's letter comes as the coronavirus recession has brought the role of private equity in the economy back into the spotlight.
Wearing a face mask to reduce the chance of transmission of the novel coronavirus, Sen. Elizabeth Warren (D-MA) arrives at the U.S. Capitol for a vote May 18, 2020 in Washington, DC.
Chip Somodevilla | Getty Images

Sen. Elizabeth Warren has written to the CEO of private equity lobbying group the American Investment Council demanding more information about the organization's efforts related to the federal government's multitrillion-dollar coronavirus relief law.

In a letter to Andrew Maloney, which was delivered Wednesday and obtained by CNBC, Warren demanded information about the group's communication with the Treasury Department and White House officials, including Jared Kushner, whose family real estate business has financial ties to private equity firm Apollo Global Management.

She also questioned how the industry plans to protect the employees of the companies in which they invest.

"I am particularly concerned that the private equity industry you represent may exploit this crisis to continue extracting value out of struggling companies, lining the pockets of wealthy firms at the expense of workers and communities struggling to respond to this pandemic across the country," wrote the Massachusetts Democrat.

In a statement given to CNBC through a spokesperson, Maloney said, "Senator Warren's home state of Massachusetts is a booming private equity success story."

"Our industry employs over 240 [thousand] workers there, invested over $31 billion in 2019 alone, and recently delivered over 18% returns for the local pension program," he noted.

"I will respond to Senator Warren's letter and we will also soon release a new report that shows how private equity is meaningfully investing billions of dollars in states and congressional districts across America. These investments support millions of jobs and help the economy rebound from the COVID-19 downturn."

Warren's letter comes as the coronavirus recession has brought the role of private equity in the economy back into the spotlight. Several companies that were acquired through leveraged buyouts, such as Neiman Marcus and J. Crew, have fallen into bankruptcy under the pressure of the economic slowdown. More are expected.

Meantime, private equity firms sitting on a record $1.5 trillion in cash have been scouting for deals in the market as valuations have been clipped. 

The private equity industry joined scores of others in pushing through lobbying efforts for federal aid from the CARES Act to buffer their businesses as the coronavirus pandemic devastated the economy. While private equity firms pushed for small business loans offered as part of the program, those efforts were largely rebuffed with "affiliate rules" restricting cash for companies with outside investors. 

Steven Mnuchin, U.S. Treasury secretary, from left, U.S. President Donald Trump, and Jared Kushner, senior White House adviser, listen during a bi-lateral meeting with Saad Hariri, Lebanon's prime minister, not pictured, at the White House in Washington, D.C.
Zach Gibson | Bloomberg | Getty Images

Still, private equity-backed health-care companies were able to take out loans from the Health and Human Services Department, according to a recent Bloomberg report. Private equity firms have for years eyed health care as a suitable industry to park their dollars, but those firms are now faced with the tension of limited partners demanding returns, doctors on the front lines managing a pandemic, and cash that is drying up as patients cancel nonessential procedures.  

Warren urged private equity firms to shift their focus from new deals to existing investments, particularly in industries disrupted by the pandemic. She called on the firms to "take immediate action to guarantee that workers and other stakeholders do not bear the brunt of the financial fallout."

"Rather than lobbying for additional assistance, the private equity industry, which has been 'stockpiling cash in recent years' should, to the extent it enhances its reach amid the pandemic, modify and reform its practices of extracting short-term profits and fees while weakening companies' long-term chances of success," she wrote.

Warren, who is considered a leading candidate to be the vice presidential pick of presumptive Democratic presidential nominee Joe Biden, has been a strong voice in the progressive economic movement. She has made private equity a top target with her proposed Stop Wall Street Looting Act. The law would, among other things, make private equity firms responsible for debts and pension obligations of companies they buy, and limit firms' ability to extract fees, bonuses and dividends from their acquisitions..

Those progressive views may impact the formulation of Biden's economic policy, as his team drafts a plan to battle the recession against the backdrop of 13% unemployment rates and increased focus on the racial and economic divides in the country.

Warren and other progressives have pushed for any companies taking federal aid to abide by stipulations, including guaranteeing they will maintain at least 95% of payroll and offer at least one seat on their boards of directors to workers. She pressed the private equity industry lobbyists on Thursday if they would agree to such conditions. 

"The private equity industry wields enormous power over the American economy and private equity firm executives need to guarantee that their profits will not come before the safety and security of the American people," she wrote.

"Business practices of private equity are particularly concerning because the ongoing COVID-19 pandemic brought the economy and daily life to a grinding halt with no indication of a rapid recovery in sight."