Elizabeth Warren reveals how ‘private equity guts everything’ in America (from Red Lobster and K-Mart to hospitals and nursing homes). Is she right?

So, nearly 40 years on, have private equity firms saved America? Far from it, says Sen. Elizabeth Warren.

In a video uploaded to her website, Warren argues “private equity guts everything” — from Red Lobster, Sears, Payless and ToysRUs to nursing homes, apartment complexes and prisons (1).

“A few wealthy investors buy the outfit, load it up with debt, strip out the assets and suck money out of it until it collapses,” she says.

“Then, after thousands upon thousands of workers have been laid off, after pensions get raided, after stores close, those private equity firms walk away with their pockets stuffed with cash.”

She says private equity takeovers build enormous wealth for financiers and dealmakers at the expense of the vast majority of Americans.

Her criticism echoes the growing concern of policymakers and the general public surrounding the impact of private equity on American life. Here’s a closer look at just how far-reaching that impact is.

Calculating private equity’s cost to businesses and individuals

By the end of 2023, the private-equity industry held $5.8 trillion in assets under management (AUM), according to the investment data company Preqin. By 2029, that figure is expected to double to $12 trillion (2).

That makes it a sizable part of the U.S. economy, with far-reaching impacts — and those impacts are not all positive. For example:

Businesses owned by private equity are 10 times likelier to declare bankruptcy, according to the CFA Institute (3).

Workers tend to earn less and have a greater risk of getting laid off after a private-equity buyout, according to The Center for Economic Policy Research (4).

Moody’s Ratings says the industry’s use of leveraged buyouts (LBOs) (5) is behind the layoffs and bankruptcies.

This is a strategy in which a private equity firm uses a large amount of debt to buy another company, using the acquired company’s own assets as security against the loan.

Unfortunately it’s the acquired company, not the private equity firm, that’s left on the hook for paying the loan back.

“Look, this isn't a business model,” Warren says. “It's legalized looting, and it's wrong.”

Some of the industry’s practices can be deadly.

Harvard Medical School, the University of Pittsburgh, and University of Chicago collaborated on a study looking at patient outcomes in private-equity-owned hospitals versus non-private-equity-owned facilities.

They found patient deaths to be 13% higher in emergency rooms at private-equity-owned hospitals, suggesting the mortality rate was due to dramatic cuts in staffing and salaries (6).

Warren says private equity firms use similar tactics to save costs at private prisons nationwide

“What [does] cutting corners on healthcare at a prison look like? Well, they outright denied care to patients in pain,” she says.

“They didn't follow basic treatment plans. They threw people into solitary confinement instead of spending the time to treat them.”

In an effort to hold the industry accountable, Warren and a team of Democratic lawmakers introduced the Stop Wall Street Looting Act in 2024 (7).

Meanwhile, states like California, New Mexico and Washington have introduced a patchwork of different laws to limit the industry’s impact on local health care (8).

Calculating private equity’s cost to businesses and individuals

Private equity firms are not uniformly disruptive, but if your company is acquired by one of these institutional investors you should be aware of the heightened risk of layoffs and bankruptcy.

Secure yourself by acquiring new skills that make you indispensable to the firm and document your work to provide evidence while negotiating your pay.