[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]




                               BEFORE THE


                     U.S. HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                           NOVEMBER 19, 2019


       Printed for the use of the Committee on Financial Services

                           Serial No. 116-66


                    U.S. GOVERNMENT PUBLISHING OFFICE                    
42-474 PDF                  WASHINGTON : 2021                     


                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             ANN WAGNER, Missouri
GREGORY W. MEEKS, New York           PETER T. KING, New York
WM. LACY CLAY, Missouri              FRANK D. LUCAS, Oklahoma
DAVID SCOTT, Georgia                 BILL POSEY, Florida
AL GREEN, Texas                      BLAINE LUETKEMEYER, Missouri
EMANUEL CLEAVER, Missouri            BILL HUIZENGA, Michigan
ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut            ANDY BARR, Kentucky
BILL FOSTER, Illinois                SCOTT TIPTON, Colorado
JOYCE BEATTY, Ohio                   ROGER WILLIAMS, Texas
DENNY HECK, Washington               FRENCH HILL, Arkansas
JUAN VARGAS, California              TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey          LEE M. ZELDIN, New York
AL LAWSON, Florida                   ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan              TED BUDD, North Carolina
KATIE PORTER, California             DAVID KUSTOFF, Tennessee
CINDY AXNE, Iowa                     TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois                ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts       JOHN ROSE, Tennessee
BEN McADAMS, Utah                    BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia            DENVER RIGGLEMAN, Virginia
STEPHEN F. LYNCH, Massachusetts      WILLIAM TIMMONS, South Carolina
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania

                   Charla Ouertatani, Staff Director
                            C O N T E N T S

Hearing held on:
    November 19, 2019............................................     1
    November 19, 2019............................................    65

                       Tuesday, November 19, 2019

Appelbaum, Eileen, Co-Director, Center for Economic and Policy 
  Research.......................................................     5
De La Rosa, Giovanna, United for Respect Leader, and former Toys 
  R Us employee..................................................     8
Maloney, Drew, President and CEO, American Investment Council....     9
Moore, Wayne, Trustee, Los Angeles County Employees Retirement 
  Association (LACERA)...........................................     6
Palmer, Brett, President, Small Business Investor Alliance.......    11


Prepared statements:
    Appelbaum, Eileen............................................    66
    De La Rosa, Giovanna.........................................    83
    Maloney, Drew................................................    94
    Moore, Wayne.................................................    99
    Palmer, Brett................................................   102

              Additional Material Submitted for the Record

Waters, Hon. Maxine:
    Written statement of the AFL-CIO.............................   115
    Written statement of Americans for Financial Reform..........   124
    Written statement of the California State Teachers' 
      Retirement System..........................................   175
    Written statement of the Center for Popular Democracy........   177
    Written statement of the Communications Workers of America...   190
    Written statement of the Economic Policy Institute...........   192
    Written statement of the Fire and Police Pension Association 
      of Colorado................................................   200
    Article submitted by David Halperin entitled, ``Warren Probes 
      Private Equity Owners of For-Profit Colleges,'' dated 
      September 17, 2019.........................................   201
    Written statement of Leo Hindery, Jr.........................   207
    Written statement of the Institutional Limited Partners 
      Association................................................   210
    Written statement of Manufactured Housing Action.............   216
    Written statement of NewsGuild-CWA...........................   219
    Written statement and Report of the Private Equity 
      Stakeholder Project........................................   228
    Written responses to questions for the record submitted to 
      Eileen Appelbaum...........................................   255
    Written responses to questions for the record submitted to 
      Wayne Moore................................................   271
    Written responses to questions for the record submitted to 
      Brett Palmer...............................................   282
    Written statement of the State Board of Administration of 
      Florida....................................................   286
    Article from the Times Herald-Record entitled, ``New Windsor 
      mobile home park residents protest upcoming rent hike''....   288
    Written statement of the Transportation Trades Department, 
      AFL-CIO....................................................   292
    Op-Ed from Truthout entitled, ``Let's Stop Wall Street 
      Predators From Banking on Displacement''...................   298
    Article from The Washington Post entitled, ``A billion-dollar 
      empire made of mobile homes''..............................   309
    Written statement of Worth Rises.............................   319
Gottheimer, Hon. Josh:
    TRU Financial Assistance Fund Final Protocol.................   331
McHenry, Hon. Patrick:
    Written statement of the International Franchise Association.   343
Riggleman, Hon. Denver:
    Center for Capital Markets Competitiveness report entitled, 
      ``Economic Impact Analysis of the Stop Wall Street Looting 
      Act (S.2155/H.R. 3848).....................................   345



                       Tuesday, November 19, 2019

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:08 a.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the committee] presiding.
    Members present: Representatives Waters, Maloney, 
Velazquez, Sherman, Meeks, Clay, Green, Perlmutter, Foster, 
Beatty, Vargas, Gottheimer, Gonzalez of Texas, Lawson, Tlaib, 
Porter, Axne, Casten, McAdams, Ocasio-Cortez, Wexton, Adams, 
Dean, Garcia of Illinois, Garcia of Texas, Phillips; McHenry, 
Wagner, Lucas, Posey, Luetkemeyer, Huizenga, Stivers, Barr, 
Tipton, Williams, Hill, Emmer, Loudermilk, Mooney, Davidson, 
Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, Steil, 
Gooden, and Riggleman.
    Chairwoman Waters. The Committee on Financial Services will 
come to order. Without objection, the Chair is authorized to 
declare a recess of the committee at any time.
    Today's hearing is entitled, ``America for Sale? An 
Examination of the Practices of Private Funds.'' I now 
recognize myself for 4 minutes to give an opening statement.
    Today, this committee convenes for a hearing to examine the 
impact of private funds on businesses and workers. While there 
are some examples of private equity firms playing a beneficial 
role in the U.S. economy, there are far too many examples of 
private equity firms destroying companies, and preying on 
hardworking Americans to maximize their profits. Today, we are 
going to take a hard look at those practices and examine 
whether Congress should take action to prevent the drastic 
increase from the $250 million it spent in 2009 on those 
    After the devastation of the foreclosure crisis in which 
millions of people lost their homes through no fault of their 
own, private equity firms swooped in and purchased hundreds of 
thousands of foreclosed homes at discounted prices. In many 
cases, they converted these homes to rentals, charged 
excessively high rents, and became absentee landlords without 
community ties. Private equity firms increasingly hold 
ownership of hospitals, nursing homes, and emergency services. 
In 2018 alone, private equity firms spent a total of $10.4 
billion buying up hospitals and medical clinics, a drastic 
increase from the $250 million it spent in 2009 on those 
    A New York Times investigation found that an ambulance 
company owned by private equity Rural/Metro Corporation had 
slower response times under private equity ownership and 
undertook, ``more aggressive billing practices.'' According to 
the report, ``Rural/Metro once sent 761 collection notices to 
an infant girl born in an ambulance.''
    In the retail industry, 10 of the last 14 companies that 
have declared bankruptcy are owned by private equity firms. For 
example, Toys R Us was acquired by private equity firms in a 
real estate investment trust in 2005. By 2018, Toys R Us had 
declared bankruptcy, laid off all 30,000 of its employees, and 
closed all of its stores. Meanwhile, the company's private 
equity owners had pocketed $470 million in fees and interest 
payments from the company.
    Today, we will hear testimony from Ms. Giovanna De La Rosa, 
a former Toys R Us employee and advocate.
    These are just a few examples of the harm that private 
equity firms have caused. Unfortunately, the private equity 
firms the committee invited to testify at this hearing today 
declined to send representatives to engage and answer questions 
about their activities. So I would like to thank Drew Maloney, 
president and CEO of the American Investment Council, which is 
a trade group that represents private equity firms, for joining 
us today and testifying on behalf of the industry. But while he 
will testify on private equity as an industry, Mr. Maloney will 
not be able to adequately speak to the practices or activities 
of specific firms.
    And so, while we will get started with this today, we are 
going to have to determine what other actions we may have to 
take in order to get the information that we think we need in 
order to make some determinations about what exactly is going 
on in our society with private equity firms.
    I now recognize the ranking member of the committee, the 
gentleman from North Carolina, Mr. McHenry, for 4 minutes for 
an opening statement.
    Mr. McHenry. I thank the chairwoman for holding this 
hearing today. And while my Democratic colleagues are not only 
down the hall attempting to undo the 2016 election, it appears 
today that committee Democrats are working to predetermine the 
2020 Democratic nomination for their party.
    Today's hearing is devoted to H.R. 3848, the House 
companion to Senator Elizabeth Warren's bill, and a key tenet 
of her Presidential platform. Hooray. We are here today to 
debate Presidential politics. Moreover, one of our witnesses 
testifying here today is cited in Senator Warren's press 
release from her Presidential campaign as providing ``the 
economic analysis'' of the bill and its impact.
    This bad bill strikes at the foundation of American 
capitalism. I know there is a socialist lane in the Democrat 
primary for President. This clearly is that fight for that 
socialist lane. It has harmful effects as well. A recent, more 
detailed analysis of the bill found that in a modest-case 
scenario, the low range, this bad bill would reduce the 
American workforce by 6 million jobs and lead to $109 billion 
per year in lower tax revenue. That is the tax revenue piece 
only. To repeat, that is a conservative estimate. In fact, the 
worst-case scenario says that over 26 million jobs could be 
lost. To sum up the Warren bill, this bad bill, if enacted, 
would be a disaster for American workers.
    Congress should be focused on policies that make the 
economy more free, open up opportunities, and make the capital 
markets more attractive and more competitive against our 
competitors around the globe, rather than bills that add 
regulatory cost and harm our markets and hurt jobs. Good 
policies such as the bipartisan bills we passed in the last 
Congress could lead to greater opportunity and choices for 
everyday investors to grow their savings. Instead, this 
committee wants to use Full Committee hearing time to go after 
and vilify one industry.
    There will likely be several misconceptions presented today 
by my Democrat friends, so I want to use some of my time here 
to address those. First, private equity is not just about large 
investors buying out large companies. Generally speaking, 
private equity is a variety of private investment from venture 
capital, to capital injections for small businesses, to lending 
so that small businesses could buy mismanaged other businesses 
that have potential, huge potential, if just managed correctly.
    Second, the private equities business model does not 
involve intentionally bankrupting companies. Bankruptcy is 
failure. Failure is not a part of the business model; success 
is. That is where you see the job growth. That is where you see 
the returns. And so the idea that an industry could benefit by 
failing doesn't make sense.
    Third, a misconception that some will present is that 
private equity is just about Wall Street. It is not. Private 
equity creates investment opportunities that lead to jobs. 
According to a recent Ernst & Young study of the impact of 
private equity in the U.S. last year, private equity supports 
at least 100,000 jobs in 27 States and over 10,000 jobs in each 
    Additionally, Americans directly benefit through pensions. 
U.S. pension funds invest about 9 percent of their portfolios 
in private equity, and that same study found that private 
equities outperformed investment in public equity, fixed 
income, and real estate over the last decade. That means that 
everyday investors, including teachers and firefighters and 
police officers, all benefit. But don't take my word for it. 
The chief investment officer of CalPERS recently said the 
following, ``We need private equity to be successful, we need 
more of it, and we need it sooner rather than later.''
    With that said, I do want to note that private equity has 
become more important in the American economy due in no small 
part to increased regulatory barriers on public companies. We 
should remedy that public company piece, not have a 
Presidential rally for Senator Warren.
    Chairwoman Waters. I now recognize the gentlewoman from New 
York, Mrs. Maloney, who is also the Chair of our Subcommittee 
on Investor Protection, Entrepreneurship, and Capital Markets, 
for 1 minute.
    Mrs. Maloney of New York. Thank you, Madam Chairwoman.
    Many private equity funds have caused needless suffering 
for ordinary workers, especially in the retail sector. All too 
often when a private equity fund buys a company, they pile an 
excessive amount of debt onto the company and then use the 
bankruptcy system to slash pensions and benefits for ordinary 
workers. While not all private equity funds are created equal, 
it is clear that our committee needs to closely examine these 
    I am also pleased that this hearing will examine the Stop 
Wall Street Looting Act, which has been introduced in the House 
by Mr. Pocan and Ms. Jayapal. This bill would require private 
equity funds to share the liability for the debt that they pile 
onto their portfolio companies. I believe that there is a good 
case to be made for increased risk sharing between private 
equity funds and portfolio companies in order to deter the 
``heads I win, tails you lose'' mentality.
    Thank you, and I yield back. And thank you for having this 
important hearing.
    Chairwoman Waters. I now recognize the ranking member of 
the subcommittee, the gentleman from Michigan, Mr. Huizenga, 
for 1 minute for an opening statement.
    Mr. Huizenga. Private equity (PE) is an important aspect of 
the U.S. capital markets that helps create jobs and bolster 
pension returns for Main Street Americans. Most PE firms make 
long-term investments in companies poised for growth as well as 
undervalued or underperforming businesses by providing critical 
working capital that would otherwise be unavailable through 
traditional banks. It is important to note that the U.S. 
private equity sector drives a significant amount of economic 
growth in the United States and supports more than 26 million 
American jobs, which contributes $475 billion in annual 
Federal, State, and local tax revenues.
    Additionally, the profits from private equity are funding 
the retirement security of millions of pensioners. According to 
the American Investment Council, 91 percent of U.S. public 
pension funds have invested a portion of their portfolios in 
private equity. In Michigan, for the State of Michigan's 
pension fund, that means $71.2 billion. Needless to say, 
investments made by the private equity industry in our local 
communities all across the nation are playing a vital role in 
job creation, wage growth, and retirement savings.
    In my district alone, private equity firms have helped 
create or sustain over 5,700 jobs, and private equity 
investment was $4 billion, helping companies such as JR 
Automation in Holland, Brillcast in Grand Rapids, Challenge 
Manufacturing in Walker, and I could go on. Private equity is a 
fundamental part of our economy and plays a direct role in our 
districts by working to make businesses more successful.
    I look forward to hearing from our witnesses today, and I 
yield back the balance of my time.
    Chairwoman Waters. I want to welcome today's distinguished 
panel: Eileen Appelbaum, co-director, Center for Economic and 
Policy Research; Wayne Moore, trustee, Los Angeles County 
Employee Retirement Association; Giovanna De La Rosa, United 
for Respect, and a Toys R Us employee for 20 years; Drew 
Maloney, president and CEO, American Investment Council; and 
Brett Palmer, president, Small Business Investor Alliance.
    Each of you will have 5 minutes to summarize your 
testimony. When you have 1 minute remaining, a yellow light 
will appear. At that time, I would ask you to wrap up your 
testimony so we can be respectful of both the witnesses' and 
the committee members' time.
    And without objection, all of your written statements will 
be made a part of the record.
    Ms. Appelbaum, you are now recognized for 5 minutes to 
present your oral testimony.

                      AND POLICY RESEARCH

    Ms. Appelbaum. Chairwoman Waters, Ranking Member McHenry, 
and distinguished members of the committee, I am very pleased 
to be here today to discuss private investment funds.
    Most private equity deals are used to acquire small and 
medium-sized companies, and here my research shows that private 
equity can bring know-how that makes a positive difference. 
These investments generally have higher returns than 
acquisitions of big companies. But in what one finance writer 
called the paradox of private equity, most private equity money 
goes into acquiring large companies that offer few 
opportunities for improving operations and many for financial 
    Activist hedge funds take small stakes in major companies 
and then call the shots. Hedge funds make money from short-term 
increases in share prices, then sell before the negative 
consequences are apparent.
    Exemption from regulations that rule out risky behaviors 
enables private funds to gamble with the future of acquired 
companies while funneling money to wealthy private equity 
    Private investment funds play a significant role in the 
U.S. economy. Over the past decade, assets managed by hedge 
funds and private equity funds have exploded. They doubled for 
hedge funds, septupled for private equity funds, and now exceed 
$3 trillion for each. There were nearly 10,000 private equity 
buyouts between 1980 and 2013, according to a study by Chicago 
and Harvard economists. They had data for 6,000 companies 
employing 6.9 million workers at the time of the buyout. 
Thirteen percent of workers at publicly traded companies lost 
their jobs in the next 2 years. Overall, 4.4 percent or 304,000 
workers lost jobs.
    Big private equity firms buy out large, viable companies 
and use their assets as collateral for risky levels of debt 
that the company and not its private equity owners must repay. 
This erodes the buffer that companies have to make it through 
hard times. Toys R Us is the poster child. It was purchased 
with $5.5 billion in debt. It went from a capital structure of 
87 percent equity and just 13 percent debt before it was 
acquired to an upside down 17 percent equity and 83 percent 
debt. Yearly interest payments exceeded $400 million, and total 
advisory and other payments that went straight to the private 
equity firm were another $470 million eating up profits. Toys 
failed. Its stores were shuttered, and 33,000 workers lost 
their jobs.
    It is this reckless loading of debt onto companies that the 
Stop Wall Street Looting Act would end by requiring the private 
equity firm and the fund's general partner to be jointly liable 
with the company for repayment.
    Add-ons are another favorite tactic. Private equity firms 
buy small competitors to add onto an initial acquisition, 
building national powerhouses without any antitrust 
supervision. Private equity-owned Envision and TeamHealth own 
hundreds of doctors' practices and have more than 90,000 
employees in hospitals and other health facilities across the 
country. Both have multibillion dollar loans to pay off. They 
use surprise medical bills or the threat of such bills to get 
much higher payments than other doctors receive, driving up 
healthcare costs.
    Hedge funds pursue profits through the purchase and sale of 
stock in publicly traded companies. Stock buybacks that were 
illegal before 1982 because they are a form of market 
manipulation are widely used by hedge funds to raise share 
prices and then cash out before the effects of draining 
resources, like the plant closings at General Motors, become 
apparent. As we speak, AT&T management is capitulating to 
similar demands from a hedge fund that owns just 1 percent of 
its stock. At DuPont, the hedge fund firm used a small stake to 
break up the company and shut down a premier research facility 
that was a major source of U.S. innovation. It sold its shares 
before the reorganization was completed.
    The Reward Work Act would make stock buybacks and 
manipulation of share prices illegal again. The Stop Wall 
Street Looting Act will bring the incentives for private 
investment funds in line with their stated aspirations: to 
improve operations at companies they invest in. This and other 
pending legislation will reduce opportunities for financial 
abuse and ensure that capital is deployed in support of 
economic growth and rising living standards.
    Thank you.
    [The prepared statement of Dr. Appelbaum can be found on 
page 66 of the appendix.]
    Chairwoman Waters. Thank you.
    Mr. Moore, you are now recognized for 5 minutes to present 
your oral testimony.


    Mr. Moore. Chairwoman Waters, Ranking Member McHenry, and 
members of the committee, I am honored to be here this morning 
as a public pension fund retiree, trustee, and taxpayer. As a 
fiduciary, I am responsible for protecting public pension plan 
assets and ensuring promised benefits are delivered. That 
begins with openness and transparency between us and the asset 
management industry.
    Public pension funds will pay up to $45 billion in fees and 
expenses to the industry this year, a massive transfer of 
wealth from workers to Wall Street. My fiduciary duties include 
making sure we get what we paid for.
    More than 20 million active and retired public employees 
have accumulated over $4.5 trillion in assets to provide for 
their secure retirements. They are often overlooked during 
discussions about complex legal and financial strategies, 
profits, and bonuses. It is past time for workers to exercise 
greater oversight over their assets.
    Along with openness and transparency, we must have cost-
efficient investment practices, fair returns, and outcomes that 
support a growing economy. My constituents expect no less. Last 
year, at the Los Angeles County Employees Retirement 
Association, where I am a trustee, 3,800 general members 
retired. They received an average annual retirement benefit of 
    Controlling and minimizing the cost of investing through a 
more open and transparent data collection regime as proposed in 
H.R. 3848 is not an inconsequential exercise. If we could save 
just $1 million in the cost of investing, those savings 
invested at 6\1/4\ percent would fund 2 average L.A. County 
pensions for 20 years, including a 2\1/2\ percent annual COLA.
    While private equity is our pension fund's best performing 
asset, it is also our most costly asset. While just 10 percent 
of our portfolio, private equity makes up over half of our 
investment management costs.
    Over the past decade, many initiatives have been launched 
to address transparency issues with private equity managers. 
While much has been accomplished, for example, California's AB-
2833, more needs to be done. The disclosures proposed in H.R. 
3848 are important to investors and the public as more complete 
information means sounder and more meaningful asset allocation 
    Public pension funds are eager to participate in the 
growing, worldwide private economy. As a matter of fact, in 
2019, Preqin reported that 31 U.S. public pension funds 
provided 35 percent of worldwide allocations to private equity 
firms. We do not, however, want to participate through 
financial engineering, destabilizing our communities, and 
undermining our future for short-term gains.
    Many fund sponsors, participants, and beneficiaries want to 
see ourselves in our investments; people who look like us 
making investments that will favorably impact our lives. If I 
lived in Ohio, I might want to see investments in 
manufacturing. In California, investments around agriculture 
and logistics are just as important as technology. Every dollar 
we earn from investment should be a good dollar.
    Being informed by the impact of investment decisions on our 
constituents is good information. Being open and transparent 
means helping investors in private equity make good decisions.
    Private equity is not a sector of our economy. They buy 
stakes in sectors of our economy. However, just buying and 
owning a company does not automatically make you a job creator 
or an engine of economic growth. It is the outcomes of what you 
do after the purchases that is important.
    As a major stakeholder fueling the private equity industry, 
pension funds must have a greater oversight role in our 
investments. After all, it is our money.
    Thank you.
    [The prepared statement of Mr. Moore can be found on page 
99 of the appendix.]
    Chairwoman Waters. Thank you.
    Ms. De La Rosa, you are now recognized for 5 minutes to 
present your oral testimony.


    Ms. De La Rosa. Thank you, Chairwoman Waters, for inviting 
me to speak today. I am honored to be here.
    My name is Giovanna De La Rosa, and I am from Chula Vista, 
California. I worked at Toys R Us as an assistant manager for 
20 years before private equity firms drove it to bankruptcy. I 
am here today as a leader with United for Respect to speak on 
behalf of the 1.3 million workers who have lost their jobs to 
private equity.
    I started working at the Toys R Us store in Chula Vista 
when I turned 18. I grew up in that store and have deep 
emotional ties to it. I got to work there with my sister and 
other family members. I met my husband at work, and our son was 
a true Toys R Us kid. And, of course, I gained a second family 
in my coworkers.
    We loved working at Toys R Us, especially around this time 
of year. Our job was to bring joy to kids and their families. 
We knew our customers, and I was proud to work for a company 
that cared about its employees and treated us like family.
    Then in 2005, two private equity firms, KKR and Bain, and a 
real estate investment trust, Vornado, acquired Toys R Us 
through a leveraged buyout. After that, the old culture was 
thrown out the window. From day one they started making all 
kinds of cuts that weren't needed. They cut staff and benefits, 
but we had to keep it together as a team with limited 
    I thought these new Wall Street owners were coming in to 
make our company and operations work better. I had no idea what 
private equity or leveraged buyouts were, but they were making 
things worse, and then everything fell apart. My life changed 
that spring when news hit that Toys R Us stores were shut down 
nationwide, and they laid off over 30,000 of us without a dime 
of severance pay, despite our years of dedication to the 
    I started having breakdowns at home and work and had to 
pull it together for my team and for my son who has special 
needs. It was hard to imagine how I was going to make rent or 
afford healthcare for us. How could I tell my special needs son 
that someone on Wall Street made a series of decisions that 
turned our lives upside down? I couldn't find anything but 
seasonal work for over a year, despite my experience.
    My coworkers and I were left with nothing, while the 
executives and private equity owners walked away with millions. 
I heard later that Toys R Us paid $470 million in fees to 
private equity owners. That would be enough to pay over $14,000 
in severance to each employee who lost their job versus the 
$800 that I received.
    That is why I got involved in the fight to hold private 
equity accountable. I joined United for Respect, along with 
thousands of other Toys R Us workers to demand justice and 
severance pay. We told our stories everywhere, from Congress to 
pension fund meetings to the press. And because of that, KKR 
and Bain finally started talking to us about a hardship fund 
for Toys R Us workers. They set up an historic $20 million fund 
for us, which helped a little bit, but it wasn't enough, and it 
didn't help us get back the financial security we had when we 
were working.
    Luckily, Toys R Us is making a comeback, and the new owners 
reached out. Together, we formed a mirror board made up of 
three former Toys R Us employees, including me, to help guide 
the new company. I am excited for the chance to bring Toys R Us 
back the right way.
    Over the past year-and-a-half, I have learned that Toys R 
Us workers aren't the only ones who went through this buyout 
hell. Other retail workers are also going through the nightmare 
of having private equity firms or hedge funds putting their 
stores out of business. I met workers from Gymboree, Sears, 
Payless, Kmart, and Shopko, and they all had the same story as 
me, and they knew the names of the Wall Street firms that made 
them lose their jobs: ESL, Alden, Sun Capital, and many more.
    Because of private equity investments in retail, 1.3 
million jobs have been lost. That is 1.3 million people with 
kids, parents, and grandparents, who also lose their financial 
    We need real change like the Stop Wall Street Looting Act. 
The last time I was in D.C. was to help introduce the bill with 
our amazing partners at Americans for Financial Reform, the 
Center for Popular Democracy, and in Congress. I believe that 
this bill can protect jobs by regulating private equity so they 
can't make money by putting people like me out of work.
    And now our fight has caught the public's attention, 
because more and more people from retail workers to nurses to 
grocery store workers are speaking out. The economy isn't 
successful and thriving when so many of us are losing our jobs. 
What would you do as a single mom raising a special needs 
child, then being left with nothing: no job, no income, no 
healthcare? We are counting on you to do the right thing and 
pass this bill. We are waiting to see which side you are on, 
working people or Wall Street billionaires.
    Thank you.
    [The prepared statement of Ms. De La Rosa can be found on 
page 83 of the appendix.]
    Chairwoman Waters. Thank you, Ms. De La Rosa.
    Mr. Maloney, you are now recognized for 5 minutes to 
present your oral testimony.

                       INVESTMENT COUNCIL

    Mr. Maloney. Good morning, Chairwoman Waters, Ranking 
Member McHenry, and other distinguished members of the House 
Financial Services Committee. Thank you for the opportunity to 
testify today.
    My name is Drew Maloney. I lead the American Investment 
Council. We are proud to represent private equity firms of all 
sizes. Our industry creates jobs, powers the economy, and 
strengthens the retirements of millions of Americans. Our 
industry provides businesses with the capital and expertise to 
    The term ``private equity'' is very broad, so before I go 
any further, I wanted to take a minute to talk about three main 
forms of private equity: venture capital; growth capital; and 
buyouts. Each describe investments at a different phase of the 
business cycle.
    Venture capital represents those early investments in 
startups that need capital to exist. For example, private 
equity made early investments in Uber, Spotify, and Peloton 
long before those companies became household names.
    Growth capital is when private equity invests to expand an 
existing company. Growth capital represents the largest part of 
the investment chain. A great example is Tate's Bake Shop 
founded in New York by Kathleen King when she was 21-years-old. 
She partnered with private equity to grow the business, and now 
Tate's cookies are in grocery stores across America.
    Finally, buyouts. Buyouts are private equity investments in 
well-established companies that may be distressed or 
underperforming. Private equity helped Hilton Hotels almost 
double in size during its 11-year investment in the company. 
Hilton was recently recognized as the best company to work for 
in the United States.
    The ultimate objective of each of these investments is to 
build a better business. Private equity provides patient, long-
term capital that allows management to think beyond quarterly 
earnings and short-term fluctuations in stock price. Private 
equity also provides more than just capital. Firms bring 
operational expertise to each investment and often work closely 
with management of each company to define strategy and map out 
long-term growth objectives.
    The biggest investors in our industry are pension funds and 
university endowments. Successful private equity investments 
strengthen the retirements of public and private sector 
workers, including teachers, firefighters, and police officers.
    In total, the private equity sector in the United States 
employed 8.8 million people and paid $600 billion in wages and 
other benefits in 2018. That included more than 1.1 million 
jobs in California. Roughly a third of those private equity 
jobs were in manufacturing, construction, transportation, or 
    Private equity invested $685 billion in more than 4,700 
businesses across the U.S. last year. Most of these are small 
or midsized companies. Businesses of every size in every 
congressional district depend on private equity capital and 
expertise to grow.
    In 2014, private equity invested in Inland Coatings, a 
small industrial coating manufacturer in Adel, Iowa. The 
investment helped the company grow to become an industry leader 
and provided healthcare and retirement benefits to its 
    Ninety-one percent of public pension funds have invested a 
portion of their capital in private equity. And in 2018, we 
generated the strongest returns of any asset class over the 
last 10 years. The Los Angeles County Employees Retirement 
Association had one of the highest average annual returns in 
the country. Earlier this year, the chief investment officer of 
the California Public Employees' Retirement System (CalPERS), 
the country's largest pension fund, said, we need private 
equity, we need more of it, and we need it now.
    These strong returns have become increasingly critical for 
pension funds at a time when many do not have enough money to 
meet their existing obligations. Private equity is proud to 
help close that shortfall.
    Thank you again for giving me the privilege of appearing 
before the committee today. I am grateful for the opportunity 
and look forward to answering your questions.
    [The prepared statement of Mr. Maloney can be found on page 
94 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Mr. Palmer, you are now recognized for 5 minutes to present 
your oral testimony.


    Mr. Palmer. Thank you very much.
    My name is Brett Palmer, and I am the president of the 
Small Business Investor Alliance (SBIA). SBIA was formed in 
1958 to represent small business investment companies, the 
original American venture capital and private equity funds.
    As the small business investing market grew more complex, 
so did SBIA. And SBIA now includes small business investment 
companies, rural business investment companies, business 
development companies, as well as conventional private equity 
and debt funds. These private equity funds pursue a wide range 
of investing strategies because this is a continuum that spans 
from the early stage venture investors to the latest stage 
buyout and everything in between.
    While we segment these investing styles for the sake of 
simplifying and explaining them, the reality is they are all 
inextricably interconnected. Our members also include 
institutional investors such as university endowments that 
invest in private equity, where they get their best returns.
    Private equity is a real and mutually beneficial 
partnership. As such, our public policy goals are balanced and 
focused on maintaining a robust, healthy, and competitive 
market for investing in American businesses. Good public policy 
should increase the capital options available for a company's 
success, whether that company is a start-up business, proving 
its products in a competitive market; a small family-owned 
manufacturing business, managing through generational 
succession; or a larger company, including retail companies 
that are trying to adapt to a new competitive threat in the 
form of technology and e-commerce, as well as take advantage of 
those opportunities of e-commerce.
    Our members grow businesses and are rightfully proud of 
what they do, of how they do it, and of the benefits their 
actions have on people and on communities, because private 
equity is a force for good, a source of job creation, and a 
driver of innovation.
    Private equity supports the retirement security of millions 
of pensioners and provides endowments the money they need to 
provide scholarships and educational access to a new generation 
of college students. And private equity is also invested all 
over the country, including to areas of the country that are 
otherwise passed over or passed by. Most of our member funds 
are in places like Little Rock, Indianapolis, Buffalo, Kansas 
City, or other places that are far from Wall Street or Silicon 
Valley, but we do have investors there too.
    But regardless of the investing style, private equity 
investors in small and medium-sized businesses make money by 
helping the businesses grow and succeed. The idea that private 
equity funds succeed by having businesses fail just isn't true. 
The only way to be a successful private equity fund in the 
lower middle market is to find smaller businesses, and help 
them grow to be bigger, better, stronger businesses. And 
private equity provides patient capital that conventional banks 
cannot provide themselves. They help businesses make big leaps 
forward that they otherwise would not have been able to achieve 
on their own.
    And not having the resources to embrace change that happens 
in the economy on a constant basis creates more risk. The more 
capital options a company has, the better chance it has to 
survive and succeed in the long term. If a business cannot 
survive and adapt to change, it cannot maintain its employees, 
much less add new employees.
    If Congress can agree on one thing, we would hope that 
Congress should agree that regulatory and tax policy should 
promote and empower private equity to invest into more growing 
American businesses. Congress should reject policies that make 
it harder for private equity to provide access to capital, 
particularly the smaller and medium-sized businesses that 
already face disproportionate challenges to capital access. We 
need more investment, not less.
    While providing growth capital is the core of what private 
equity does, it is not just money. Successful private equity 
managers invest in people. That is why SBIA partnered with the 
Ohio State University's business school to train business 
executives on how to grow their business. Just this month, over 
45 small business executives took part in a 3\1/2\-day intense 
training seminar on how to maintain their employees, how to 
attract new employees, how to manage growth, how to 
successfully operate in a leveraged environment, and how to 
create successful strategies. In other words, our private 
equity funds are training their businesses how to grow their 
businesses by investing in their employees and by investing in 
their customers.
    Again, private equity can only succeed when the businesses 
grow, and growing businesses need to retain their employees and 
they need new employees to help that growth.
    I would like to close with a real-world example of what 
private equity does. The Florida Autism Center provides center-
based autism therapy services to children throughout Florida. 
In 2016, Resolute Capital Partners out of Nashville invested 
both debt and equity capital in a small platform that had only 
5 centers and served 50 children with 70 employees. The company 
will end this year with 51 centers serving over 1,000 children 
with over 900 employees and has expanded into Georgia. The 
company was founded by a woman who started her career as a 
behavioral therapist. It has been led by a female CEO 
throughout this stage of growth. This is a growing business. 
This is the kind of business that changes people's lives, and 
this is what private equity does.
    With that, I yield back, and I am pleased to answer any 
questions you may have.
    [The prepared statement of Mr. Palmer can be found on page 
102 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Let me thank all of our witnesses for being here today.
    Allow me to take a moment to say to Ms. De La Rosa that 
your testimony to us today was extremely revealing, and you 
have described to us the impact that this basically undermining 
of Toys R Us by private equity firms and managers such as Bain 
and KKR has had on you, your families, and other employees of 
Toys R Us. As a matter of fact, Toys R Us is our case study 
about private equity firms, and so your being here today is not 
lost on us at all. Thank you.
    Dr. Appelbaum, because people's lives and health are at 
stake, as well as concerns about equitable treatment for all 
communities, emergency medical services and other industries 
related to help and public safety do not operate like for-
profit firms. Studies have shown that when private equity firms 
move into health-related industries, costs go up, standards and 
quality of medical care decrease, and emergency public health 
response times lag.
    Just last year alone, ManorCare, the second-largest nursing 
home chain in the United States, realized an astonishing 26 
percent increase in its total annual health code violations 
after it was acquired by the private equity firm The Carlyle 
Group. And according to The New York Times, Trans-Care EMS, 
which was taken over by the private equity firm Patriarch 
Partners, was forced to close its doors up and down the East 
Coast, including in Mount Vernon and Brooklyn, New York. Many 
have argued that there are certain sectors, especially 
industries related to public health and public safety, that are 
too sensitive for private equity firms to be operating in.
    Now, you have heard and you know all about Toys R Us. I 
don't know what you know or understand about what I just 
described in relationship to health and public safety. Can you 
tell us, Ms. Appelbaum, why you think private equity firms 
should acquire public services such as health clinics and 
hospitals and fire departments, et cetera, given the 
information that has been, basically, understood now about what 
they do when they take over these kind of public safety 
    Ms. Appelbaum. I think the place to begin is that we are 
not talking about normal marketplaces when we talk about 
healthcare, especially when we talk about emergency care, 
whether it is ambulances, air ambulances, emergency rooms. 
These are situations in which you do not say, how much are you 
going to charge me for this? I would rather have a cheaper 
ambulance. It doesn't work like that. These are services that 
you are going to use because you urgently need them and you 
have no opportunity to bargain over price, which means that the 
services are able, if they so desire, to charge whatever prices 
they want, as high as they want, without losing any business.
    Chairwoman Waters. Do you think private equity firms should 
be allowed to take over these kinds of services?
    Ms. Appelbaum. I do not think so, because--
    Chairwoman Waters. What about you, Mr. Moore, do you think 
they should be allowed to take over these kinds of services?
    Mr. Moore. It depends on the strategies that they are going 
to employ in taking over the companies.
    Chairwoman Waters. I can't hear you.
    Mr. Moore. It depends on the strategies that they are going 
to employ--
    Chairwoman Waters. We have information now that they have 
slowed down response times, et cetera, et cetera. So given the 
information that we already know about them, do you think they 
should be able to continue to take over public health?
    Mr. Moore. Given that information, I would say no.
    Chairwoman Waters. What about you, Ms. De La Rosa?
    Ms. De La Rosa. No, ma'am. The way we were--
    Chairwoman Waters. Mr. Maloney?
    Mr. Maloney. Yes. I believe we can be responsible investors 
in the healthcare investment community.
    Chairwoman Waters. I beg your pardon?
    Mr. Maloney. Yes. I believe that we can be responsible 
investors across all sectors, including healthcare.
    Chairwoman Waters. What about the evidence that we already 
have? Should we just forget about that?
    Mr. Maloney. I think there are some isolated cases that are 
unfortunate, but overall, there are very positive cases that--
    Chairwoman Waters. Our research shows that it is not 
    Mr. Maloney. Madam Chairwoman, there are great examples of 
investments that we have out there in healthcare. For example, 
GrapeTree Medical Staffing in Iowa is a great example of 
private equity partnering with a business to increase the 
demand of nurses and healthcare professionals in Iowa. And 
after 2 years, that partnership has expanded into--
    Chairwoman Waters. Thank you very much.
    Mr. Palmer, what do you think?
    Mr. Palmer. I don't know anything about owning hospitals. 
That is not what our guys do. They are too big. But I will tell 
you that there are parts of the country that have healthcare 
now that did not have it until private equity bought small 
businesses that were healthcare providers and expanded them 
into communities that didn't have any. We gave an award to one 
of those companies, I think last year or the year before, 
because they provided the first primary care and emergency care 
services in Appalachia.
    Chairwoman Waters. Thank you. My time has expired, 
unfortunately. Thank you.
    The gentleman from North Carolina, Ranking Member McHenry, 
is recognized for 5 minutes.
    Mr. McHenry. Thank you.
    According to Moody's, private equity-backed firms have no 
greater bankruptcy rate than nonprivate equity firms in this 
country. There is a big misunderstanding of what private equity 
is, though. So let's start with the business model, Mr. 
Maloney. If you are here on behalf of the industry, let's 
describe what a buyout fund does, since that is the largest 
piece of what private equity does, although not all of what 
private equity does. But how does a buyout fund work?
    Mr. Maloney. A buyout fund will pull resources from pension 
funds, and college endowments, and it will go invest with 
companies that are either in need of growth or large companies 
that are underperforming and work side by side with those 
    And I would say that, as you suggested, the overwhelming 
majority of our investments are successful. That is the only 
way that we make a return for our pension holders. And if you 
look at what you said, the 6 percent bankruptcy rate, that 
means 94 percent of our deals are successful, so that the 
transactions like Hilton Hotels, Dunkin' Donuts--
    Mr. McHenry. So the idea is you take capital and you bring 
some expertise with the capital to improve a firm. Is that how 
you would explain it, Mr. Palmer?
    Mr. Palmer. That is right. And for a buyout, you are 
changing ownership. And when you are changing ownership, 
oftentimes it is a founder, someone who is retiring. There are 
a lot of baby boomers who started businesses, or post-baby 
boomers who are retiring, and you are taking the next 
generation. Oftentimes, of the people who work at that business 
management, you are buying out the owner. They go away. They 
stay on for a little bit. They retain some of the ownership of 
that business, but you apply new technologies. You buy new 
equipment. You grow it.
    And that is how buyouts work in the lower and middle 
market, and they are a really powerful force for job creation 
and business growth and sustainability. Without that buyout, 
many of these businesses that are owned by baby boomers would 
literally shutter, even though they are profitable, good 
businesses that are employing people today, not because of 
bankruptcy, just because there is no one there to take it and 
run it.
    Mr. McHenry. Okay. So if you have an investment, then you 
would get debt alongside that investment in order to purchase, 
    Mr. Palmer. That is right.
    Mr. McHenry. As an individual, if I want to buy a small 
business, that is what I would do, I would go to a bank and get 
    So how do you get lending if your business model is 
bankruptcy? A great shrug from everyone. It is very difficult 
to get lending if you are going to put the screws to your 
lender, right? And then, there is the question of liability.
    So, Mr. Moore, you are an important member of the board for 
the investors, right? Do you have individual liability for the 
decisions that you as a board member make on behalf of your 
investment fund?
    Mr. Moore. No.
    Mr. McHenry. Okay. Does any individual here on behalf of 
their association or their employer have individual liability 
if their employer makes a bad decision?
    I will take that as a ``no'' across the panel.
    As Members of Congress, for the decisions we make on behalf 
of our constituents, do we have individual liability? No.
    The Warren bill here today would apply liability to the 
employees of the private equity firm and the investors of the 
private equity firm. That would be a new form of investing, 
which would be a real regression for investment capital and 
business structures. Along those same lines, the business model 
of bankruptcy doesn't get lending. So, therefore, the 
bankruptcy rate question, I think, is a material one here.
    Now, the decision for your pension fund, Mr. Moore. I read 
that, recently, the board made a unanimous decision to deploy 
150--was it million or billion?
    Mr. Moore. Million.
    Mr. McHenry. Million--$150 million--it is Washington; I 
have to ask those questions, sorry--in a buyout fund. Is that 
    Mr. Moore. Yes.
    Mr. McHenry. And did you support that decision?
    Mr. Moore. Yes, I did.
    Mr. McHenry. Okay. So in terms of private equity, even with 
the high fees that you pay, as you testified, is private equity 
still your top performing investment for your fund?
    Mr. Moore. It has been for about the last 10 years.
    Mr. McHenry. Okay.
    Mr. Moore. So we are active in the industry.
    Mr. McHenry. Even after fees?
    Mr. Moore. Even after fees.
    Mr. McHenry. Okay.
    Mr. Moore. It could be even more if the fees were lower.
    Mr. McHenry. Of course. And I think in California, CalPERS 
and your fund have significant power in that. So with that, it 
looks like the business model is--we have a better 
understanding of that, the understanding of bankruptcies no 
higher than nonprivate equity firms, and the idea of new strict 
liability for individuals employed by private equity is not 
commensurate with who we are in our American capitalist 
    I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from New York, Mr. Meeks, who is also the 
Chair of our Subcommittee on Consumer Protection and Financial 
Institutions, is recognized for 5 minutes.
    Mr. Meeks. Thank you, Madam Chairwoman, and thank you for 
having this hearing today where I think that we need to have an 
important conversation and discussion, because I think we do 
get confused at times with where to go, and sometimes you want 
to knock the whole industry out as opposed to looking to see 
who may be on the bottom. What we can do, what is our 
responsibility as Members of Congress to make sure that 
individuals like Ms. De La Rosa and her family have a softer 
blow. But at the same time, we know, as I have heard from Mr. 
Moore, that we have individuals who are pensioners and others 
who are dependent upon a return on investment from private 
equity so that they can retire and live in a decent space. We 
want to make sure that they get that return on investment also.
    We are still trying to figure out how we work it out so 
that the average, hardworking American gets the benefits that 
they deserve. And what do we do when we have a company that 
is--and going by what Mr. Maloney was saying, that is 
distressed, about to go bankrupt, about to go out of business?
    I have right now a scenario where there is a company, it 
happens to be a minority-owned company in full disclosure, that 
I am trying to get some private equity dollars in, because if I 
don't, they are out of business. They are out of business. They 
have no--they are coming to me to say, ``Help me. Can you help 
find somebody that would invest?'' And part of my struggle is 
to make sure that some private equity firms are investing more 
in minority-owned firms so that they can continue to exist and 
grow and be part of the road capital. Because oftentimes, 
minority-owned firms don't get the road capital so they can 
expand their existing businesses and move forward, and I find 
the discrepancy therein.
    And so part of what I want to do is to make sure that we 
are able to make sure that there is diversity in regards to my 
community, for example, JFK Airport. I demanded, working with 
my governor, 30 percent equity for minority firms in that 
airport, and we are getting it. And they need some investment. 
And oftentimes, some of those minority firms that are those 30 
percent partners are getting that investment so that they can 
then do and they work in cooperation with the community, and in 
my case, in cooperation with SEIU and the Teamsters and other 
labor unions so that we are working collectively together, 
because the labor unions are also concerned about their 
pensioners. So we are all working together, and that is why 
this conversation is important.
    I think, furthermore, what we need to explore, and I raised 
it previously in this committee, that I do have concern about, 
because when you talk about the overall economy, and I go back 
and forth and here is what effects--and I think this happened 
with Toys R Us and others--does leveraged lending have, and can 
that overburden us so that we can get into a financial crises 
in the manner that we did in 2008? And so, I want to continue 
to have dialogue and conversation. I don't fully understand it 
to be--you have made a decision, but I want to make sure that 
we look at it. I think we have a responsibility as a committee. 
That is why this hearing and others are tremendously important 
as a committee to look at what effects does leveraged lending 
have on our overall economy and what effects do take place.
    I think what Chairwoman Waters was talking about, which I 
think is tremendously important, when you talk about public 
institutions, whether or not there are sacrifices that maybe we 
have to go overboard. For example, I know we had this big 
crisis in regard to the VA hospitals and timing and what 
happened. So do you put in measures that may increase the time 
that a medical person or a patient gets to see a doctor because 
of trying to manage it? What are the pros and the cons? I think 
that is a good discussion to have. And I think that is what she 
was talking about with reference to some of the evidence, and 
that is a good, healthy discussion to have.
    I am about to be out of time, and I wanted to ask Mr. 
Maloney, specifically, though, because I see on the minority 
private investment companies, and you represent a lot of them, 
that they have outperformed a lot of the best market of all 
U.S. private equity firms. But despite that evidence, the 
number of diverse private equity firms remains very low.
    So I was wondering what, if anything, that we can do to 
address the biases against diverse private equity firms that I 
see that is taking place in our country today.
    Mr. Maloney. Congressman, thank you for that question, and 
thank you for your leadership on this issue and your support of 
the JFK project. And I think the JFK project is one that 
highlights what we are continuing to do and can do on a 
national basis, which is not only do we partner with labor, but 
we also partner with minority-owned firms like we are in New 
York. And we all understand that diversity makes us stronger, 
and we are committed to working with you on projects like that 
and expanding this project.
    Thank you.
    Chairwoman Waters. Thank you.
    The gentlewoman from Missouri, Mrs. Wagner, is recognized 
for 5 minutes.
    Mrs. Wagner. Thank you, Madam Chairwoman. And I want to 
start by thanking the witnesses for being here to testify today 
to examine the private equity industry.
    Private equity helps grow American jobs and gives everyday 
Americans more comfortable retirements by providing returns to 
pension investments. The private equity industry supports 
American companies and jobs throughout the country.
    And a recent study found that in 2018, the U.S. private 
equity sector directly employed 8.8 million workers who earned 
approximately $600 billion in wages and benefits. The average 
worker in a private equity-backed company earns approximately 
$71,000 in wages and benefits, and that translates to around 
$36 per hour.
    In my congressional district alone, there are over 47,000 
constituents working at private equity-backed companies. And 
over the past 5 years, Missouri's Second Congressional District 
has received $17 billion in private equity investment.
    Without access to private equity, many American businesses 
would not be able to expand, hire workers, and provide the 
crucial services for their local communities.
    Mr. Palmer, there have been claims that private equity 
funds are underregulated. What sort of regulations are private 
equity firms subject to?
    Mr. Palmer. It depends a little bit on the type of private 
equity fund. You actually have a buyout fund in your district. 
Holly Huels, whom I think you have met in the past--
    Mrs. Wagner. Correct.
    Mr. Palmer. --with Deloitte Capital. It specializes in 
investing in small manufacturers and taking them to the next 
level as they have generational transfers. But private equity 
funds are regulated as far as who is allowed to invest into 
them. If they are small business investment companies, they are 
regulated by the SBA. If they are conventional private equity 
funds, they are regulated by the SEC. There have to be all 
sorts of disclosures. There have to be controls on what they do 
and how they do it.
    There are all sorts of protections that are in regulations 
that actually aren't formal government regulations that 
institutional partners like Mr. Moore put on private equity 
funds in a limited partner agreement. They require transparency 
and require good practices and prohibit bad actors and 
investing in businesses that institutionals would not be proud 
of. There are a lot of restrictions that are out there, but the 
funds themselves need to be able to move at the speed of 
    Mrs. Wagner. How would the additional regulations being 
proposed today impact not only the private equity industry, but 
the companies backed by private equity, the employees of those 
companies, and the smaller pension funds seeking to maximize 
returns for pensions?
    Mr. Palmer. The Stop Wall Street Looting Act, though well-
intentioned, actually harms Main Street far more than it limits 
Wall Street.
    Mrs. Wagner. Absolutely.
    Mr. Palmer. And it would cut off capital and create a 
significant disincentive to be investing in businesses because 
of the liability of being transferred up even for founders, 
because if you maintain 20 percent ownership in the business, 
which is in the bill, you are a control person. So if you have 
a founder who is retiring, buying out, but that he or she still 
owns a piece of the business for 3 or 4 years while they are 
helping the next generation take that business on, if that 
business were to fail because of some technological change or 
some market shock, that person not just loses their share, they 
have all this liability transfer. They lose everything. That is 
not the way this is supposed to work.
    Mrs. Wagner. The Stop Wall Street Looting Act, which is 
Senator Elizabeth Warren's bill, would establish vast 
liabilities on private equity investors and impose controls on 
when and how investors can receive their money back.
    Mr. Palmer, in your view, what would the impact of this 
bill be on the private equity industry and on the middle market 
    Mr. Palmer. I think there would be a lot less investing in 
businesses. There would be a lot less lending to businesses. 
Most lending works. And bankruptcy exists for a reason, but 
most lending works. Most of it is constructive, most of it is 
positive, most of it is growth-oriented, particularly for 
smaller businesses that aren't liquid. They can't just sell 
their stocks on the NASDAQ or the New York Stock Exchange. They 
have to go to private equity in the private markets. If they 
don't have access to capital, they don't grow. They get stale. 
They lose in the global competitive market.
    Mrs. Wagner. How many jobs would be jeopardized if the 
private equity industry was unable to provide capital to small 
and middle market businesses?
    Mr. Palmer. You would have the ceasing of--for one, you 
would have some jobs that are lost immediately, but also on a 
going-forward basis, you would have millions of jobs that just 
wouldn't be created. And a lot of those jobs that wouldn't be 
created are in manufacturing and businesses that need to 
constantly be changing and that aren't in necessarily Silicon 
Valley or Wall Street--
    Mrs. Wagner. I don't have much time. Plainly, would there 
be more jobs or fewer jobs in America if H.R. 3848 became law?
    Mr. Palmer. A lot fewer.
    Mrs. Wagner. Would there be more investment or less 
    Mr. Palmer. Less investment.
    Mrs. Wagner. Would the university endowments be better off 
or worse off?
    Mr. Palmer. Worse off.
    Mrs. Wagner. Thank you, sir.
    I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Colorado, Mr. Perlmutter, is recognized 
for 5 minutes.
    Mr. Perlmutter. I am just going to take a minute.
    I guess on this subject, I am more where Mr. Moore is. 
There is a continuum of private equity folks, from good actors 
to bad actors, from those who are going to put in primarily 
equity and capital to those who are--it is mostly going to be 
debt driven, those who want to bring good management skills and 
grow the organizations and stabilize the organizations to those 
who want to strip out whatever golden nuggets might be, you 
know, find gold under some retail operation. And so, this is 
definitely a one size-doesn't-fit-all.
    And I practiced bankruptcy law for a long time before I was 
elected to Congress and business bankruptcy, and we saw 
leveraged buyouts where there were some real bad actors, 
primarily in the mining business and in the extractive 
industries. But a lot of this has to do with the chicken and 
the egg. Is there a problem? And I would say to Ms. De La Rosa, 
is there a problem with the organization going in? Are they 
struggling financially? Is retail sort of on the ropes because 
of an Amazon? Or is it because a group comes in that is 
predatory in nature and is just going to strip out the good 
things and leave nothing but the bones, those we call the 
vulture funds or the vulture capitalists?
    So, Mr. Moore, I would like you to expand on your 
testimony. I would like to see the pension funds and the others 
have more information available to them. I certainly would like 
to see that.
    And then, Ms. De La Rosa, I want to talk to you a little 
bit about the retail business and the future of it.
    Mr. Moore. Mr. Perlmutter, first off, I think it is a false 
narrative to say that money will not flow into companies that 
needed it to grow and expand just because they can't receive it 
through a private equity construct. The money will flow to 
where it is needed without regard to whether it comes through 
private equity, a bank, individuals, and multiple other 
    Secondly, you were saying that there is a whole continuum 
of private equity investment strategies, and we have been 
successful at LACERA, at our pension fund, in identifying 
strategies in industries that looked promising, that didn't 
have negative impacts on our workers, and that looked like they 
were going to be in the future. For example, we were early 
investors in Silver Lake and Vista, and those companies focused 
in technology and family-owned businesses and helping them 
    And no one can deny that some of the buyout firms' specific 
strategy was to go into companies that had value and extract 
that value and leave the company, because their timeframe is 5 
to 7 years. They are not in it for the long term, many of them.
    So in conclusion, I would just say that the strategies that 
are being employed by the companies are very important, and 
that is why we need to have transparency, and the regulations 
or the rules that are promulgated through H.R. 3848 would help 
us get the information we need, and all the other pension funds 
need, to make good, reasonable decisions on who to invest in, 
so that we don't have the type of problems that we had with 
Toys R Us.
    And the last thing about Toys R Us is, if Toys R Us had not 
been layered with all of this debt, without the ability to 
invest in the infrastructure they needed to be an online 
retailer, they might still be here today, and all of those 
people would still have their jobs. But the buyout firms went 
in, took all the value and all the money they could get out of 
the firm, and then left it high and dry.
    Mr. Perlmutter. Okay, thank you.
    And I would just say, for you and the other pension funds 
and those that really bring the money, ordinarily, I am not 
sure we have to have legislation, but I am happy to deal with 
that, but usually those with the gold make the rules. And I 
want to make sure our pension funds do get to develop the 
    Ms. De La Rosa, when you were working at Toys R Us, when 
they came in and made the buyout, did you see them strip out 
the value right away, or how did that work?
    Ms. De La Rosa. Yes, sir, it was right away. cutting of 
jobs, positions, changing of operating companies that we used, 
    Mr. Perlmutter. Okay. Thank you for your time.
    Chairwoman Waters. The gentleman from Florida, Mr. Posey, 
is recognized for 5 minutes.
    Mr. Posey. Thank you, Madam Chairwoman, for holding this 
hearing, and I thank the ranking member, as well.
    Today, we have before us a piece of legislation that could 
restrict one of the longstanding features of our market-based 
system of finance. The feature is a concept of limited 
liability or a limited liability corporation.
    The history of our financial system is marked by 
innovations that have helped us manage risks that might have 
otherwise discouraged investment and growth in our remarkable 
    One of those innovations was the limited liability 
corporation. New York law created the limited liability stock 
company. Robert Shiller, Nobel economist, says the law further 
democratized finance by clarifying that shareholders would 
never be held liable for the debts of corporations.
    The law made it possible, for the first time, for a small 
investor to hold a diversified portfolio consisting of stocks 
in many companies. Prior to the advent of limited liability, 
one could not have done such a thing, for fear of a lawsuit 
from any of the companies that he held stock with. This 
development created a ready pool of investors with whom 
investment bankers could place newly issued shares.
    After seeing the steady supply of capital for new 
businesses this innovation produced, countries all over the 
world copied it. We, of course, need to be cautious about 
restricting such an invention that has served us so well over 
the years.
    I say this while also understanding the pain of business 
failures and the loss of jobs, tax revenues, and other economic 
contributions to our communities. I believe we have to realize 
that a private equity firm doesn't acquire a company to have it 
fail. They intend to make money from a stronger firm.
    Unfortunately, their aims are sometimes frustrated by the 
market for goods or services of the underlying firm. But we 
must understand that success means stronger firms, job growth, 
and overall great contributions to our community and our 
    Mr. Maloney, can you share with us your assessment of the 
economic impacts of the Stop Wall Street Looting Act of 2019, 
specifically which sectors of the economy are most likely to be 
affected if this bill becomes law?
    Mr. Maloney. Thank you for that question and your concerns, 
Congressman, about eliminating sort of the traditional limited 
liability protections that allow for investment in the current 
    In a recent study by Professor Swenson from the University 
of Southern California, he suggests that the loss of jobs would 
be between 6.2 million and 26.3 million jobs in the U.S., and 
that the loss of tax revenue could be between $109 billion and 
$475 billion, and that public pensions would lose up to $329 
    So what would happen is, if the public pensions don't have 
this top asset class to go to--and as Mr. Moore said, at his 
fund last year they returned, I believe, 21 percent--
    Mr. Moore. No, no, that is wrong. Sorry.
    Mr. Maloney. That's okay. But my point is, it is a high 
performer and you would have to switch asset classes to a class 
that doesn't perform as well.
    Mr. Posey. Okay.
    Mr. Palmer, do you agree?
    Mr. Palmer. I do. And you asked the question of which 
businesses would get less capital and what would come out. The 
businesses that are asset-light--and a lot of businesses in the 
new economy are asset-light--would not be able to get loans, 
they would not be able to get access to capital, and so you 
would really have a shrinkage in the access to capital.
    Would capital be available? Yes, potentially, but it might 
be more expensive, and in many cases, it might not be available 
at all.
    Mr. Posey. Okay. The critics of private equity (PE) funds 
promote the perception that PE firms makes lots of money, even 
when one of its acquisitions goes bankrupt. Can you clarify the 
impacts of a typical case of such bankruptcy for a PE firm? Mr. 
Maloney, and then Mr. Palmer?
    Mr. Maloney. As we have discussed, bankruptcies in private 
equity are very rare, and nobody succeeds in a bankruptcy. We 
try to grow businesses and increase jobs.
    Mr. Posey. Thank you.
    Mr. Palmer?
    Mr. Palmer. With bankruptcies, you lose money. It is just 
that simple. There is no good way. You might be able to save a 
business in buying a business out of bankruptcy and try to 
reinvigorate it. That is possible. But in bankruptcies, there 
is no winning strategy.
    Mr. Posey. My time has expired. Thank you, Madam 
    Chairwoman Waters. The gentleman from Illinois, Mr. Foster, 
is recognized for 5 minutes.
    Mr. Foster. Thank you, Madam Chairwoman, and thank you to 
our witnesses.
    As a scientist, and a businessman, I find myself a little 
bit frustrated. We seem to be having this argument by anecdote 
rather than statistics.
    And the difficulty is--I guess I put myself to sleep last 
night reading one of the papers that was mentioned in the memo 
distributed by the committee from the University of Chicago 
called, ``The Economic Effects of Private Equity Buyouts.''
    And there were some interesting numbers in there. For 
example, the employment at targets of private equity buyouts 
rises 13 percent in firms that were previously under private 
ownership and 10 percent on what are called secondary buyouts, 
where it is sales from one PE to another. However, the 
employment falls by 13 percent in buyouts of publicly listed 
firms and falls by 16 percent in divisional buyouts.
    And so, trying to understand the multiple faces of private 
equity that we have been talking about is, at least to me, sort 
of frustrating. And there are many variables in that. We have 
what sector the firms are operating in, what the holding period 
is, the target holding period is, whether they are public 
versus private firms, whether they are generational transfers 
or ongoing businesses, and, of course, just the size and degree 
of leverage.
    Can any of you or all of you maybe come to an agreement on 
what the red flags are that signal a troublesome aspect of this 
versus things that tend to result in good results? What 
variables should we be looking at to try to separate the wheat 
from the chaff here?
    Ms. Appelbaum. I think that one thing that we have to say 
about the private equity business model that has not been said 
is that the debt is put on the company that is acquired. It has 
to repay it. But the decision to put the debt on it is made by 
the private equity firm.
    So the private equity firm goes out, decides how much 
leverage to use, and then it is the company that has to pay it 
back. And the private equity firm and the general partner have 
no responsibility for this whatsoever.
    This is the crux of the problem. In the small and medium-
sized companies that we have been talking about, they have very 
little in the way of assets that can be mortgaged, and so the 
level of debt is quite reasonable. Those companies are not 
going to be affected by the Stop Wall Street Looting Act 
because the level of that is so low.
    In the case of those publicly traded companies that you 
mentioned where all the jobs are lost, these are big companies. 
They are publicly traded. They already have good operations in 
place. They already have good business strategy in place.
    Mr. Foster. Is that necessarily true? It is not clear to 
me. I don't know the history of Toys R Us, but a lot of big box 
companies, public and private, have had rough times in the last 
    Ms. Appelbaum. I did an analysis, looking at Albertson's, 
which is a private equity-owned supermarket, compared to 
Kroger's, which is not. They both faced the same kinds of 
problems: e-commerce, Amazon, Walmart, whatever you want to 
call it.
    Kroger, because it controls its own resources, is not 
paying out to any private equity firm, it does not have high 
leverage, it is not paying interest on debts, so it has been 
able to modernize. It can do anything that Amazon can do. Its 
Moody's rating has gone up, its contributions to its workers' 
pension fund to make up for the financial crisis has gone up.
    And Albertson's is on the ropes. It can't go back to the 
public markets. Nobody wants to buy it. It tried to do a 
reverse merger with Rite Aid, and those shareholders rejected 
it. It is on the ropes because it has not made the necessary 
    Mr. Foster. You mentioned that by and large, you thought 
the smaller buyouts were not problematic and that--
    Ms. Appelbaum. That is correct.
    Mr. Foster. --private equity was a plus--
    Ms. Appelbaum. That is correct.
    Mr. Foster. --in sort of limited size buyout.
    Is that something that the entire panel would agree with, 
at least that sector is probably an area where private equity 
is a net plus across the economy?
    Mr. Palmer. That is where a lot of my folks are, and they 
certainly see it that way. There is certainly the greatest 
opportunity for growth because you are small. You can't shrink 
it and cut costs because if you shrink small, it goes to 
    So really, it is more growth-oriented in a buyout, but 
there is also much greater access to capital at the higher ends 
and much lower access to capital, both debt and equity, at the 
lower ends. In my written testimony, on page 5, I sort of have 
a visual of that. The small buyouts are good, but middle 
buyouts are also very good.
    Mr. Foster. I am trying to understand, if there is a 
consensus that small or, say, middle, however you define, 
``middle,'' is also probably an area where private equity is a 
net positive and the existing regulation is perhaps adequate? 
Is that sort of the consensus here? And the problem, if it 
exists at all, is in the largest?
    If any of you could follow up with me on whether we can 
actually segregate off one segment for higher supervision, I 
would appreciate it.
    Chairwoman Waters. The gentleman from Missouri, Mr. 
Luetkemeyer, is recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman, and I thank 
the panel for being here this morning.
    I was kind of curious, I think Mr. Maloney, you said 
something about 780 private equity investments last year. Is 
that what you said in your testimony a while ago?
    Mr. Maloney. 4,700.
    Mr. Luetkemeyer. 4,700, okay. I missed the ``4'' in front 
of it. Wow. Okay. Fantastic. And one of the charts up on the 
board hints that 35 businesses filed for bankruptcy since 2003. 
I guess that is major companies. But those seem to me to be an 
awfully small percentage of businesses filing bankruptcy versus 
businesses getting into business. Is that your take on that?
    Mr. Maloney. Yes. The bankruptcy rate in private equity and 
nonprivate equity is 6 percent. It is a low rate.
    Mr. Luetkemeyer. Very good.
    I was kind of curious, Mr. Moore, what is the breakdown on 
returns with your investments on private equity versus other 
stocks and bonds--other bonds and CDs and other types of 
investments? What is the difference in rate of return?
    Mr. Moore. I can't give you the exact numbers, but I will--
    Mr. Luetkemeyer. Just ballpark is fine.
    Mr. Moore. Okay. Ten-year average, private equity for us is 
about 13 percent; public equity is in the range of 10; real 
estate, 8; and then the fixed income is less--
    Mr. Luetkemeyer. Okay. Would it be a fair statement to say 
that the more return you get, the more risk there is with the 
investment that you are making?
    Mr. Moore. You could say that.
    Mr. Luetkemeyer. So to me, as somebody who has been in this 
financial services world for years, return, interest rate, 
dividends, whatever it is, is reflective of the risk you take. 
So, when you have private equity and you are getting much, much 
better return on that versus on less risky investments, you 
want a mix in your portfolio. So, it is important that you have 
a mix.
    But you have to understand that when you make that 
investment in equities, there is more risk there. As we have 
just seen, there is the risk--6 percent of businesses are going 
to go under.
    You indicate, Mr. Moore, you need more transparency in 
being able to, as a board member, be able to see how you want 
to invest in these equities. Can you give me some examples of 
things that you would like to see more transparency in, as an 
investor in equities?
    Mr. Moore. First of all, this bill talks about issues, at 
least from my perspective, that I am concerned about in just 
collecting information on how much it costs and what 
performance metrics are being used, and have that apply 
industry-wide and be available to everybody, so we can do 
    But going beyond that, which is not in this legislation, we 
would probably want to be more engaged in seeing what kind of 
companies are in the pipeline, getting more financial 
information from portfolio companies, so we could have a better 
assessment of the risks that the companies are taking.
    You mentioned risks. We want to try to control risk as much 
as possible. So, if we are noticing that there is a private 
equity company that wants us to give them an allocation, and 
they have been heavily engaged in these extractive financial 
engineering type of activities to generate returns, that might 
be something we would want to stay away from and look for less 
risky, more long-term beneficial investments.
    Mr. Luetkemeyer. It almost seems as if you have to have a 
crystal ball sometimes to see the trends in industries. For 
instance, if I was somebody 30 years ago and I was going to 
make an investment in somebody who builds rotary phones, lo and 
behold, I wouldn't have anything left today, would I?
    Mr. Moore. Not a dime.
    Mr. Luetkemeyer. So, you almost have to have a crystal ball 
to see what the trends will be, where technology will take you. 
Nobody who invested in a blacksmith shop 125 years ago is in 
business today either. So what could be a good investment 
today, tomorrow's technology or the fad or the general public's 
twist on things or preferences could change and suddenly what 
would seem in your situation to be a really solid investment to 
make could suddenly go south on you, couldn't it?
    Mr. Moore. Yes, but the better information and the more 
information you have, the better informed decisions--
    Mr. Luetkemeyer. Right.
    Mr. Moore. --you are going to be able to make, and over the 
long run, you are going to perform better.
    Mr. Luetkemeyer. Mr. Maloney and Mr. Palmer, I only have 15 
seconds left. What about transparency, do you guys have some 
ideas on that as well?
    Mr. Palmer. For low or middle market and middle market 
private equity funds, they get every bit of information that 
any LP asks for, and LPs can ask for anything and they will 
pretty much get it. So if they want it, they get it, and they 
do their diligence.
    Mr. Luetkemeyer. Mr. Maloney, very quickly.
    Mr. Maloney. I agree. And we value the partnership we have 
with Mr. Moore and his pension funds.
    Mr. Luetkemeyer. Thank you.
    Chairwoman Waters. The gentlewoman from New York, Ms. 
Velazquez, is recognized for 5 minutes.
    Ms. Velazquez. Thank you, Chairwoman Waters.
    Dr. Appelbaum, I am looking at an op-ed that you wrote in 
2015 in The Hill paper, entitled, ``Investors will benefit from 
greater transparency on performance.'' Can you summarize your 
position? And do you believe that limited partners should have 
more access to the fees and expenses and even disciplinary 
actions by the SEC of the general managers?
    Ms. Appelbaum. Yes, absolutely, for all the reasons that 
Mr. Moore has said. At the moment, all of the decisions in a 
private equity fund are made by the general partner. The 
limited partners, which are the pension funds, do not get to 
make those decisions.
    So, Mr. Moore has to figure it out before he makes the 
investment. He has no control once he has given them the money.
    Having transparency, understanding, for example, the 
monitoring fees that were taken out of Toys R Us, or taken out 
of many other companies, the limited partners generally have no 
knowledge of that. They have no idea of what the side contract 
is between the private equity firm and the company, and the 
limited partners in general do not have access to that 
    And so they have no idea how much is being taken out, which 
of course will affect the price that the private equity fund 
gets when it resells the company back to the public markets or 
to another private equity fund.
    So, absolutely, they need that transparency in order to be 
able to do their own due diligence on behalf of their 
    It is very difficult for most limited partners to get 
information, and those that ask for it or say, ``I need to make 
public the contract that I have with you,'' they have been 
disciplined by the private equity firms.
    You would think, because this is the source of the money, 
that they would have control. Somebody has already said that. 
My view is, the limited partners need a union, because if they 
acted together, they could demand information. But at the 
moment, the private equity firms have the power.
    Ms. Velazquez. Thank you.
    Mr. Moore, would you care to comment?
    Mr. Moore. I agree with Ms. Appelbaum.
    I am a policymaker, so I don't have the depth of 
information and knowledge about the contracts. I set policy, I 
review processes and procedures, and I allocate resources to 
our staff to implement the policies that we establish, the 
asset allocations that we want to engage in.
    And as I stated earlier, information is critical.
    Ms. Velazquez. Right.
    Mr. Moore. And we lack everything that we need. We do a 
good job in our firm, our pension fund, because we allocate the 
resources and staff to do due diligence and travel around the 
world and pound on our private equity firms that we have money 
invested in. But before we make those investments, we still 
have to engage in significant resources in order to dig up 
information that should just be available, not only to us who 
are actively engaged in it and allocate resources, but smaller 
pension funds that may not have the same level of resources.
    Ms. Velazquez. Thank you.
    And the fact that we, as legislators, care about that, more 
transparency, access to information, to look at the strategy in 
terms of making financial decisions, that doesn't make me a 
socialist, does it?
    Mr. Moore. No.
    Ms. Velazquez. Okay. Good.
    Mr. Moore. It just means you are establishing the 
guidelines for capitalism that works for everybody.
    Ms. Velazquez. Wonderful. Thank you.
    Mr. Maloney, in March, New York City Comptroller Scott 
Stringer announced a $600 million expansion of the New York 
City retirement system in-house emerging managers program in 
private equity, which is intended to amplify opportunities for 
smaller managers, including minority and women-owned managers.
    Are you supportive of programs like the one that 
Comptroller Stringer announced? And what steps are your 
organization and your members taking to expand opportunity for 
smaller managers, particularly minority and women-owned 
    Mr. Moore. I had a meeting last month with all of our asset 
class managers--
    Ms. Velazquez. I'm sorry, I would like to hear from Mr. 
    Mr. Moore. Oh, okay.
    Ms. Velazquez. Mr. Maloney. Thank you.
    Mr. Maloney. Thank you, Congresswoman, for that question 
and for your leadership on the diversity issues.
    As I stated with Congressman Meeks, diversity makes us 
stronger. We are very supportive of the comptroller's plan. A 
lot of our firms take this very seriously.
    Ms. Velazquez. What does ``seriously'' mean?
    Mr. Maloney. We are actively engaged with organizations 
like SEO, we partner with Harlem Capital Partners in New York, 
and the JFK project is another good one. But we are committed 
to working with you going forward on this.
    Ms. Velazquez. Thank you.
    Chairwoman Waters. The gentleman from Michigan, Mr. 
Huizenga, is recognized for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman.
    And I do need to correct myself from my opening statement, 
briefly. I misstated a number. The State of Michigan retirement 
system, which has a pension system for 515,000 members, has $71 
billion in total assets, of which $11 billion of that is 
directly invested in private equity.
    I have a number of things I want to go through quickly. 
But, Mr. Moore, I do have a quick question for you. CalPERS has 
invested $150 million in a PE buyout fund, correct? I think 
that is what you had told the ranking member?
    Mr. Moore. Yes.
    Mr. Huizenga. Okay. So, H.R. 3848, which is the House 
version of the Warren bill, would impose joint and several 
liability on PE funds, including their partners, their limited 
partners (LPs). How does your board feel about being on the 
hook with liability?
    Mr. Moore. Well, I can't speak for the board because I am 
just one member.
    Mr. Huizenga. Okay, then, are you comfortable with that?
    Mr. Moore. I am where our board is, which is we have a 
    Mr. Huizenga. Wait a minute, are you speaking for the board 
or not speaking for the board?
    Mr. Moore. No. What I am saying is, I can't speak for the 
board. I am just one member of the board.
    Mr. Huizenga. Yes.
    Mr. Moore. So as a member of the board, I am going to defer 
to my staff and my counsel to review this issue, to work with 
    Mr. Huizenga. Wait a minute. So, you are supportive. Okay. 
I thought I heard you say you were supportive of the Warren 
    Mr. Moore. I didn't say that.
    Mr. Huizenga. Okay. My misunderstanding.
    Mr. Moore. I said the provisions that I would like to see 
implemented. I never said I support the Warren bill.
    Mr. Huizenga. Got it, okay. I want to move on here. The 
Popeye's versus Chick-fil-A debate, Taylor Swift not being real 
happy with her private equity situation, notwithstanding, we 
have heard a lot about PE and about private equity being 
raiders and parasites and how they have basically failed 
businesses on purpose and a number of those types of things.
    What I am really concerned about is, one, I think that 
those anecdotes that are out there really are not very 
insightful. But I do want to know why the private sector is 
turning to private equity versus IPOs. I mean, 20 years ago, we 
had 7,000 publicly traded companies. We are at about half of 
that right now.
    And, Mr. Maloney, Mr. Palmer, feel free to jump in here. 
Why do companies turn to private equity instead of raising 
capital through IPOs or other more traditional methods? 
    Mr. Maloney. Congressman, that is a great question, and it 
is one that I think you see much more often of a lot of 
companies staying in the private markets longer. It allows them 
to grow and sometimes not--as I said in my original testimony, 
that they don't have to meet a quarterly earnings statement 
where they can, if they have a growth stream ahead of them, it 
is much easier to do that in the private markets than it is in 
the public markets.
    Mr. Huizenga. Mr. Palmer?
    Mr. Palmer. A lot of these businesses are just too small, 
and they are companies that are never going to go public. 
Certainly, it is too expensive and too problematic to be public 
in many cases. There are too many burdens.
    But in many of these cases, they are small businesses going 
to medium, and in many cases, they don't want to be publicly 
owned. They want to stay inside of a family, they want to stay 
closely held. And so, it is a longer-term patient form of 
capital where they have greater control over their businesses.
    Mr. Huizenga. In fact, I have a number of those in my own 
district--Challenge Manufacturing, JR Automation, Custom 
Profile, Hadley Products, Brillcast, just a couple of examples 
from west Michigan.
    And I might add, I have about 5,700 jobs in my district 
attached to this. Sixteen Members on the other side of the 
aisle have 2 to 3 times those numbers of jobs, yet we are 
seeing the other side vilify an entire industry which is 
providing tens of thousands of jobs in their districts. I am a 
little confused by that.
    But ultimately, it gets down to risk is a part of it. And 
Mr. Moore, I wrote this quote down from you. You want to 
control risk, yet it seems to me you want a full return on your 
    Well, less risk typically means lower returns. And these 
companies, for various reasons, sometimes can be riskier 
investments. Is that not true, Mr. Palmer?
    Mr. Palmer. They can be riskier investments, and in many 
cases they require a whole lot more hands-on activities than 
institutional LPs, like large pension funds, can do. They just 
don't have the time to get in every business, and, frankly, 
they shouldn't be in every business.
    Mr. Huizenga. In my remaining 2 seconds, I am going to let 
you know that I am going to be writing some letters, because I 
would like to hear how instead of demonizing your industry, 
what we can do to increase capital markets and make them more 
    Thank you.
    Chairwoman Waters. The gentleman from New Jersey, Mr. 
Gottheimer, is recognized for 5 minutes.
    Mr. Gottheimer. Thank you, Madam Chairwoman.
    If I can start, please, with Mr. Moore.
    You serve on the board of the L.A. County Employees 
Retirement Association. Does your agency invest in private 
equity funds?
    Mr. Moore. Yes.
    Mr. Gottheimer. Do you know how much? Your 2018 annual 
report talked about a percentage. Do you know what percentage 
of all your assets that is?
    Mr. Moore. It is pretty close to 10 percent.
    Mr. Gottheimer. About 10 percent. Thanks. And is that 
consistent today?
    Mr. Moore. That is what our allocation policy states, is 
that is the range we want to be in.
    Mr. Gottheimer. And why does your agency invest in these 
funds, sir?
    Mr. Moore. Because it is our best performing asset 
historically, and going forward, I think there was a question 
just now about the private markets.
    Mr. Gottheimer. Yes, sir.
    Mr. Moore. That is where a lot of activity and a lot of 
growth activity takes place. And we want to be part of the 
growth in our country and the world, so that is where you have 
to be at some level.
    Mr. Gottheimer. Would you please speak to the returns and 
other fees your agency receives from these investments? Like 
maybe the last 10 years, if you could, a number on that.
    Mr. Moore. We have done extensive analysis in our fund, and 
I can tell you that our private equity fees and expenses have 
run about 4.5 percent.
    Mr. Gottheimer. And overall return, do you know the last 
10-year returns?
    Mr. Moore. The returns, the 10-year returns have been about 
13.1 percent.
    Mr. Gottheimer. 13.1 percent. And I think the stock market 
during that time--do you know what the--
    Mr. Moore. I can't tell you that.
    Mr. Gottheimer. We did a little research on that. I believe 
it was 7 percent. So, 7 percent versus 13 percent. And I know 
if you look at some of the other States, like Massachusetts, 
over that period of time, at a 13.6 percent return; Ohio, 13 
percent; Minnesota, 11.7 percent.
    Can you speak to the impact that some of the laws in front 
of us might have on the assets your association has under 
management, sir?
    Mr. Moore. I am particularly focused on disclosure and more 
information on fees and expenses.
    Mr. Gottheimer. Fees and expenses.
    Mr. Moore. Because that is like low-hanging fruit. If you 
reduce your costs, you have more money in the corpus of your 
fund. You can grow your fund a little bit more. You can fund a 
few more pensions. And in the long run, that is what we are 
looking for, to be able to deliver the benefits that we 
    So, controlling costs is very critical to me, and those 
provisions in H.R. 3848 that deal with fees and returns get to 
    Mr. Gottheimer. It is interesting, I represent the Fifth 
Congressional District in New Jersey, and pensions in my State 
support many of the hardest working members of our communities, 
our law enforcement officers and teachers and firefighters, who 
rely on their pensions to provide financial stability in their 
    Unfortunately, pensions in New Jersey and across the 
country, as you know, are struggling from years of 
underfunding, and that is why these returns are so important, 
and lower performance from low performance in the public 
    The Wall Street Journal recently reported that New Jersey's 
teacher and public workers pension funds have an average of 43 
cents for every dollar in benefits promised; a retirement 
crisis is happening before our eyes.
    So you talk about these numbers, and the rates of return 
are incredibly important to make sure that we can shore these 
up and have the best rate of returns for our teachers and our 
firefighters and, of course, law enforcement.
    The New Jersey Division of Investment, a public pension 
fund, has nearly 800,000 members and $78 billion of assets 
under management, $8.7 billion of those invested in private 
equity. The pension's private equity portfolio produced an 
annualized return of more than 10 percent over the past decade 
after expenses. Compare this to the long-term Treasury bond 
yield of below 2.5 percent or the historic 7 percent return in 
the stock market.
    It is clear why we are hearing from you, and why we are 
hearing from institutional investors looking to invest in 
private equity as part of their asset allocation strategy. And 
I think our job in the committee is to, of course, make sure 
that we are punishing bad actors while not interfering with 
those that produce good returns.
    I don't know if you want to comment on that?
    Mr. Moore. No, that is exactly the way I see this bill. The 
bill doesn't attack the private equity industry as it is being 
portrayed. The objective that I see, and I can't vouch for the 
validity and the outcome of every single provision, but the 
trajectory is to try to rein in and put some guidelines around 
how we operate to keep the bad actors under control.
    Mr. Gottheimer. Because you don't want to walk away from 
this investment tool?
    Mr. Moore. No. We want the good actors to continue to 
receive our money and continue to grow our portfolios. And we 
want to do just like Walmart. Every year, we want to negotiate 
the costs, so we can get them down.
    Mr. Gottheimer. Thank you. Thank you, sir.
    I yield back. Thank you, Madam Chairwoman.
    Chairwoman Waters. Thank you.
    This side of the aisle has not vilified an entire industry, 
as was indicated by the previous speaker.
    The gentleman from Ohio, Mr. Stivers, is recognized for 5 
    Mr. Stivers. Thank you, Madam Chairwoman. I appreciate you 
holding this hearing to illuminate a lot of issues in and 
around private equity.
    My first question is for Mr. Moore. Following up on the 
gentleman from New Jersey, I understand you are concerned about 
fees. Can you tell me, first of all, what your best performing 
class of investment was at your pension over the last 10 years?
    Mr. Moore. I have said this 4 or 5 times. It has been 
private equity.
    Mr. Stivers. Oh, okay, thank you. I appreciate you 
restating that.
    So does your pension fund calculate returns net of fees?
    Mr. Moore. Yes.
    Mr. Stivers. Always the best performing class, net of fees?
    Mr. Moore. Yes, that is what the performance measures--
    Mr. Stivers. Could you repeat it again, what is the best 
performing class net of fees?
    Mr. Moore. Yes, it is net of fees. That is the--
    Mr. Stivers. What is the best performing class?
    Mr. Moore. Private equity.
    Mr. Stivers. Thank you.
    Mr. Moore. Private equity is the best performing class, net 
of fees.
    Mr. Stivers. Thank you. So, that is really my first point.
    I have a million pensioners in Ohio who are part of the 
public retirement system, either OPERS or the school employees 
system or the police and fire system. That is teachers, 
policemen, firemen, public servants. They are getting, in Ohio, 
an annualized return over the last 10 years of about 13.3 
percent from private equity, compared to about 7 percent from 
the stock market over the same 10-year period. Just to put it 
in perspective, that is almost twice the return from the stock 
    I understand you are concerned. That is why I asked about 
the return net of fees, that is really the point here, is even 
after the fees, the return is much, much greater.
    My next question is for Mr. Palmer. In your testimony, you 
talked about how small businesses are seen as too risky for a 
lot of financial institutions now. Have the post-crisis capital 
and liquidity rules made it more or less difficult for middle 
market companies, Main Street companies, to obtain the funding 
they need through banks?
    Mr. Palmer. In many cases, yes. The banks--
    Mr. Stivers. More difficult or less difficult to get?
    Mr. Palmer. More difficult, yes.
    Mr. Stivers. More difficult to get financing. So, who 
typically fills that void today for middle market companies?
    Mr. Palmer. Private equity does. Private equity comes in, 
and then sometimes enables the banks, but private equity is 
filling the gap.
    Mr. Stivers. I would like to ask the whole panel if they 
have heard of any of these companies in my district. CCPI, 
Blanchester? Probably not. Plaskolite in Columbus? Probably 
not. You might have heard of this one, The Oneida Group in 
Lancaster, Ohio. Nope. And Rolling Hills Generating in 
Columbus, Ohio.
    These are mostly middle market companies. Oneida is the 
biggest one. It used to be called Anchor Hocking. Anybody heard 
of Anchor Hocking Glass? Still no? Okay.
    They compete against China to make glassware all around 
this country. It is a tough market to compete in, and if it 
wasn't for private equity, thousands of employees at Anchor 
Hocking Glass would be out of a job, unemployed. They come in, 
and they keep the company going. Thousands of employees every 
day report to work, a lot of them union employees. And I am 
glad private equity was there to do that.
    One last question, this one for Mr. Maloney. Do you think 
it is to the benefit of a private equity firm to drive one of 
its portfolio companies out of business?
    Mr. Maloney. No. That is never the goal, and that is not a 
successful form of business.
    Mr. Stivers. And we did talk about, in the past, there have 
been a few business models, very bad examples--and by the way, 
there is good and bad in everything--of people who essentially 
raid and split up companies. Everybody thinks of the corporate 
raiders of the 1980s. That was a long, long time ago.
    Is that a frequent business model today, Mr. Maloney?
    Mr. Maloney. No, sir, it is not.
    Mr. Stivers. I have not seen that to be the case. And the 
small and medium-sized companies in my district have grown as a 
result of private equity.
    I will tell you a story about a company called HFI, that 
the owner was ready to do something else, but he had a growth 
opportunity and he wanted to continue to grow his company. He 
brought in private equity. They now employ 200 more people in 
Canal Winchester, Ohio, than they did before. The company is 
thriving and doing well. It is an example of private equity at 
its best.
    I know there are people who could point to bad examples, 
but there are a ton of great examples. And 26 million Americans 
are employed as a result of private equity investments, and I 
think we need to basically acknowledge that.
    I am the co-Chair of the Middle Market Caucus, these middle 
market companies that dot this country and are in every 
congressional district in America, and private equity helps 
them. So I want to say, while there may be some more things 
that we can do, it is the best performing class, net of fees, 
and it is helping to grow jobs.
    I yield back.
    Chairwoman Waters. The gentlewoman from Iowa, Mrs. Axne, is 
recognized for 5 minutes.
    Mrs. Axne. Thank you, Madam Chairwoman, and thank you to 
the witnesses for being here. I appreciate it.
    We have spent a lot of time in this committee talking about 
affordable housing and the crisis that is hurting so many of 
our constituents across the country.
    One possible solution to the crunch in my district is 
manufactured housing, which can be more than 30 percent cheaper 
than traditional housing. Nationwide, almost 3 million 
manufactured homes are anchored in land-leased communities, 
which means that residents own the homes, but lease the land 
underneath them, and many of these communities are being 
purchased by big outside investors, and increasingly, private 
equity firms.
    So I would like to talk about how tenants are affected by 
increased private equity investment in land-leased communities.
    Dr. Appelbaum, I would like to start with you. Why are 
these attractive investments for private equity firms?
    Ms. Appelbaum. Private equity is always looking for 
someplace where it can jack up prices, usually to pay off debt 
that it has put in place, not necessarily if these are smaller 
loans. But they are looking for a situation where people don't 
have a choice.
    It is the same story as it was with the emergency room 
doctors. You have already bought the manufactured house. You 
have already put it on this spot. You are a low-income person 
or you would not be living in this situation, generally 
speaking. The rent has been very affordable. This has been a 
good opportunity for people who are low income to have a decent 
standard of living.
    And then somebody comes along, a company, often private 
equity, not only private equity, buys up the company that 
controls the land, and then jacks up the rent. Why they do it, 
besides the fact that they make more money when they jack up 
the rent--there may be many different reasons for it. It may be 
that the actual physical real estate is valuable in the sense 
that if it had other kinds of businesses on it, for example, 
there would be a huge return.
    We have seen this, for example, with Hahnemann Hospital in 
Philadelphia. Private equity buys the hospital. It was already 
failing. It did nothing to turn it around. But the minute it 
bought it, it separated the real estate, because it realized 
that real estate, which was previously in a poor neighborhood 
but is now a gentrifying area, could be sold for other uses at 
much higher rates.
    So, there are many motivations for these companies coming 
in and doing it. The jacking up of prices is usually to evict 
the tenants, to make them move someplace else, and do something 
else with the land.
    Mrs. Axne. Thank you for that.
    So essentially, for these investors, it is a recession-
proof revenue. They have a captive investment, and they are 
going to capitalize on it at the expense of hardworking people.
    One trend we have seen in the market is when these 
communities are sold, rents can skyrocket. I saw how this 
happened firsthand to my constituents at Midwest Country 
Estates in Waukee. It is one of five manufactured housing 
communities that Havenpark Capital recently bought, and they 
are raising rents between 20 and 70 percent.
    I want to reiterate that. Many of these people are on fixed 
incomes, and they are now being asked to pay 70 percent more in 
rent, on a fixed income.
    If they can't afford it, they have very few options, as you 
implied. They can try to find a buyer, they can abandon all the 
equity that they have put into their home, or they can somehow 
come up with thousands of dollars, miraculously, that they 
couldn't find before.
    Rent increases like this not only hurt the tenants by 
raising costs, but they also decrease the value of the homes 
that they live in.
    Does this practice surprise you at all?
    Ms. Appelbaum. I just want to be clear, we do have many 
companies that are not behaving like this. But this is 
certainly one part of the business model, is to see about not 
how to make a business operate better, but how to maximize the 
returns that the private equity firm can get out of it.
    So here you have a situation that you have described where 
the private equity firm owners are interested in their returns. 
They are not interested in whether this property can continue 
as a manufactured home property.
    Mrs. Axne. I appreciate that.
    We all know that the homes in mobile home parks are truly 
not mobile and that the residents are effectively a captive 
    What I would like to reiterate here is that manufactured 
homes can be a solution for affordable housing, a great 
solution, but only if we can address the problem of outside 
investors buying up MHCs and raising rents to extract as much 
profit as they can from the people who live there. So, we 
absolutely need to address that. We want to make sure that 
every person in this country has access to a nice roof over 
their head, and that their children can grow up in a safe 
    Thank you so much for your testimony.
    And I yield back.
    Chairwoman Waters. The gentleman from Kentucky, Mr. Barr, 
is recognized for 5 minutes.
    Mr. Barr. Thank you, Madam Chairwoman.
    Many of my Democrat colleagues today have highlighted 
instances where private equity-backed companies have 
restructured the business model or cut jobs or filed for 
bankruptcy. And while it is true that successful buyouts may 
include cost-cutting, there are plenty of success stories that 
demonstrate how small businesses prosper through private 
investment and benefit from strategic insight that private 
funds can offer.
    Mr. Maloney, I was impressed with your testimony that 
private equity invested $685 billion in more than 4,700 
businesses across the United States in 2018, and that 94 
percent of PE investments are successful.
    One example of this success is Big Ass Fans, headquartered 
in my district in Lexington, Kentucky. As the colorful name 
suggests, this company makes, among other things, very large 
fans for commercial and residential facilities.
    This private equity-backed business has grown at an 
astounding annual rate of 30 percent. Since their private 
equity investment, Big Ass Fans has added nearly 200 jobs, 
developed and introduced new products, and increased their 
distribution channels. They have international offices in 
Australia, Canada, Malaysia, and Singapore, sell products in 
more than 170 countries, and employ over 700 people, 550 of 
whom work in my district in Kentucky.
    Their CEO, Lennie Rhoades, has told me that the stability 
provided by their private equity backers allows them to 
confidently make investments in their workforce, facilities, 
and technology because they have a partner with a shared goal 
of success. Big Ass Fans is innovating and pioneering the 
industry happily in the heart of central Kentucky and thriving 
no longer just as a fast-growing small company, but as the 
trusted producer on a global scale.
    This is a shining example right in my backyard of the 
direct impact private investment can have on job creation, 
technological innovation, and community development.
    Now, everyone here is sympathetic to Ms. De La Rosa's story 
and what happened to her. Everyone here is sympathetic to the 
other Toys R Us employees. And bankruptcies are unfortunate. 
And PE-backed companies are susceptible to market conditions 
just like other companies.
    But, Mr. Maloney, the question is, what was a larger impact 
on the Toys R Us bankruptcy, was it the private equity firms, 
or was it the competitive pressures of Amazon?
    Mr. Maloney. Congressman, thank you for that question. And 
while I don't know the particulars, what I can tell you is that 
at the time, you saw much different market forces. People were 
buying a lot more online and, as you know, there were other toy 
manufacturers and toy stores that went out of business. Some of 
them were backed by private equity, and some of them weren't 
backed by private equity.
    Mr. Barr. Let me ask you the question this way. Did private 
equity forestall bankruptcy of Toys R Us or did it cause it?
    Mr. Maloney. During the time of private equity's ownership 
of Toys R Us, they actually expanded the number of stores. It 
is just unfortunate that it ended up this way, and that is 
largely because of market forces, as you say.
    Mr. Barr. Again, kind of a follow-up on Mr. Stivers' 
question, do private equity firms generally make more money 
investing in companies that go bankrupt or in companies that 
are successful?
    Mr. Maloney. We make more money for our investors when we 
are successful and we can exit.
    Mr. Barr. That makes a lot of sense, because we see that at 
Big Ass Fans in Lexington, Kentucky.
    And I want to add that the private equity backers of Big 
Ass Fans is a firm that touts, as one of its managers, former 
Obama Treasury Secretary Jack Lew. And I am just glad to see 
Democrats so actively involved in the provision of equity 
capital, like Mr. Lew, that has created a very positive 
difference in Lexington, Kentucky. I'm glad to see that this is 
a bipartisan issue.
    Quickly, on leveraged lending, this hearing is obviously 
about private funds, and private credit deserves attention as 
well. Some of my Democrat colleagues have suggested that 
leveraged lending is systemically risky. I have noted this 
before. It is important to make the distinction between credit 
risk, which is simply the cost of doing business in the credit 
economy, and systemic risk.
    In September, before this committee, SEC Chairman Clayton 
testified that he does not believe that leveraged lending poses 
a systemic threat. Mr. Maloney, do you agree with the SEC 
Chairman that leveraged lending does not pose a systemic risk 
to our economy?
    Mr. Maloney. Yes, Congressman, we agree with the regulators 
on that approach.
    Mr. Barr. And final question, Mr. Palmer, can you elaborate 
on the stability that private funds can provide to the economy, 
especially in periods of distress?
    Mr. Palmer. Sure. I will give you a real-world example. 
When the financial crisis happened, banks had to pull their 
loans on small businesses. Private equity funds stayed in them 
and kept those businesses alive. If you were backed by private 
equity, you were more likely to survive that downturn than if 
you just had a normal bank loan.
    Mr. Barr. Thanks. I yield back.
    Chairwoman Waters. The gentleman from California, Mr. 
Sherman, is recognized for 5 minutes.
    Mr. Sherman. I am not hostile to private equity. We have 
seen private equity attacked for doing things that are done 
elsewhere in our economy.
    I think the gentlelady from Iowa is right, it is 
unconscionable to see these massive rent increases at mobile 
home parks. But I have seen that done by private owners, where 
you just have one owner. I have seen it done by traditional 
publicly owned corporations.
    We see private equity companies acting like capitalists, 
raising rents when they can, making money, not caring, and 
responsible to investors who are demanding an extra tenth of a 
percent rate of return, otherwise the money will shift 
elsewhere. So if they do care too much, they don't get any 
equity investments.
    We have seen a lot of stores close. We have seen stores 
close for a lot of reasons. I am not sure it is the private 
equity model.
    But if private equity is no different from or should be 
treated similarly as other major economic institutions, this 
raises the issue of whether we should get disclosures from 
private equity consistent to what we get from other ownership 
models. When we passed the Dodd-Frank Act, we didn't demand 
that every public company give us a complete report on all 
their societal impacts, but we did require reports on conflict 
minerals, mine safety, and resource extraction, three areas 
that this committee decided were so important that corporate 
America should give us a report on it.
    A report released by the Trump Administration critiqued 
these requirements, saying if the intent is to use the law to 
influence business conduct, then this effort will be undermined 
by imposing such requirements only on public companies and not 
on private companies.
    Dr. Appelbaum, should we require large companies owned 
through private equity to make the same kind of disclosures 
that we require of publicly held companies?
    Ms. Appelbaum. I think we should require them to make the 
same kinds of disclosures, and I think that they should be 
subject to the same kinds of regulation that other financial 
firms are subject to.
    We do not have this kind of risky behavior from mutual 
funds, for example, because they are subject to other kinds of 
    The problem with leverage is not the use of leverage. It is 
the excessive use of leverage.
    Mr. Sherman. Yes, I am not even talking about leverage. You 
could make a completely non-leveraged purchase of a company 
that does terrible mine safety and has resource extraction 
agreements with Third World countries that are rife with 
corruption, and there could be no leverage involved.
    The focus here is on these disclosures. And I will say as a 
shareholder, because all of us are in the pension plans, and I 
see Mr. Moore here representing so many of my constituents in 
the L.A. County plan, they know, when you invest in a public 
company, their resource extraction rules. But when you invest 
in private equity, the ultimate owners, your pensioners, don't 
know, and they should.
    I look forward to working with people here on legislation 
to require companies big enough to be public companies, 
companies with $50 million that happen to be private equity or 
privately owned, to make these disclosures that the Trump 
Administration says are unfair to require only of public 
    Mr. Moore, we have the private equity companies not making 
some of the same disclosures to investors--that means you--that 
some would like. Would it make sense to form a union or 
association of pension plans and others to demand that the 
private equity firms provide you with information, particularly 
about fee and cost transparency?
    Mr. Moore. We do have the International Limited Partners 
Association that has been very vocal directly to the SEC and in 
support of this legislation on that very issue of disclosures. 
And the best disinfectant is always sunlight.
    Mr. Sherman. I would hope that in addition to lobbying us, 
that association would lobby you and say, don't invest in a 
public equity firm that doesn't give you the disclosures.
    I yield back.
    Chairwoman Waters. The gentleman from Colorado, Mr. Tipton, 
is recognized for 5 minutes.
    Mr. Tipton. Thank you, Madam Chairwoman.
    I appreciate the panel taking the time to be here today.
    Mr. Palmer, I wanted to go back to a comment that you had 
just made a little bit earlier in regards to PE being riskier 
investments. And ultimately, I would like to know, is the goal 
to be able to lose money or is it to be able to make money?
    Mr. Palmer. The goal is to make money.
    Mr. Tipton. The goal is to make money. So, you don't want 
to be able to force anybody into bankruptcy?
    Mr. Palmer. No.
    Mr. Tipton. The goal is to be able to provide an actual 
return, to be able to get the businesses going, and to be able 
to create some real job security for those businesses?
    Mr. Palmer. Yes.
    Mr. Tipton. What is the best job security, really?
    Mr. Palmer. The best job security is a good business, and 
for an employee to have options. If you have a strong economy, 
you can have a business that you are staying in forever or you 
can go some place else because you have other choices. Right 
now, we have an incredibly low unemployment rate, and private 
equity funds have a real vested interest in keeping and 
maintaining and supporting their employees, because getting new 
ones is hard.
    Mr. Tipton. Right. And I think that is an important point. 
We are at record lows when it comes to unemployment in this 
country. We have more jobs available than there are people to 
fill them. But the role that private equity can play is 
something that is of concern, actually, to me. I come from 
rural America, and we haven't really talked an awful lot about 
the makeup of the private equity industry. We know about the 
big private equity firms. The Carlyle Group has been mentioned. 
What is the real composition of that market right now?
    Mr. Palmer. The composition of the market is--for the 
venture world, the early stage is overwhelmingly concentrated 
in northern California, in New York to Boston. Most of the 
smaller private equity is the inverse of that. Rural areas face 
unique challenges with that.
    I was actually just with Congressman Hill last week in 
Arkansas talking about that, and we have a type of private 
equity fund called a rural business investment company that is 
fairly new, that we are trying to work with to help grow that 
part of the market, because rural areas have far more 
challenging access to capital than pretty much anybody else.
    Mr. Tipton. For me, that is an important point. A lot of 
the focus in this committee is, we get into the metropolitan 
areas, and I do not dispute the importance of that. But for 
rural America, when we are talking on a per capita basis, the 
impact of being able to have those businesses, we actually have 
one that is in my district, a polymer company that produces a 
very unique product. They have to be able to be innovative in 
terms of design, in terms of being able to market, ship 
worldwide, and rely on some private equity dollars to be able 
to have that. But the access to those dollars in rural America 
out of the traditional financing sources is actually difficult. 
So that does play a real role in trying to be able to maintain 
those jobs in those economies in areas that are underserved.
    I would like to maybe follow up, and, Mr. Maloney, you may 
want to speak to this as well. Is it reasonable for companies 
like the polymer company that I just described, for them to be 
able to look to private equity to be able to meet their 
financial needs?
    Mr. Maloney. Absolutely, and that is what role we play, 
Congressman, in the marketplace, is providing growth capital 
for companies like that to expand and grow their companies.
    Mr. Tipton. I do want to follow up because some of the 
conversation today is obviously on H.R. 3848. When we are going 
to be adding new regulations coming into place, all of a 
sudden, we have personal liability that you may actually be on 
the line. Is there going to--everyone understands. We are 
capitalists. We live in a free market. There are going to be 
good players, and bad players. I think many of us would argue 
that the majority, overwhelmingly, are people who are trying to 
do the right thing, but if we add those new regulations, is 
there actually some potential that we could be drying up some 
of that access to capital dollars, particularly when we are 
talking about rural America?
    Mr. Palmer. Yes.
    Mr. Tipton. Mr. Maloney?
    Mr. Maloney. Absolutely, Congressman. And it is a real 
concern because there are a lot of businesses out there, as we 
talked about, in the mature space that need growth capital and 
need to be able to turn around. And if you impose liability, 
joint and several liability on the fund managers, no fund 
manager will ever take a risk and invest in any company. Again, 
they just won't do that, and that will leave a lot of 
businesses to fail much quicker than they will today.
    Mr. Tipton. Let's maybe explore, just kind of wrap up a bit 
here, in terms of some of the bankruptcies. Would you maybe 
determine these were caused by mismanagement within the 
company? Was it because private equity had stepped in? Or is it 
just market forces, primarily?
    Mr. Palmer. I think it is a case-by-case basis. Generally, 
it is market forces, but sometimes, it is international issues. 
It can be--a flood could happen. There are innumerable reasons 
why things can go wrong, but it happens rarely.
    Mr. Tipton. Thank you, sir. I yield back.
    Chairwoman Waters. The gentlewoman from California, Ms. 
Porter, is recognized for 5 minutes.
    Ms. Porter. Thank you, Madam Chairwoman.
    Dr. Appelbaum, you noted in your September 4, 2019, study 
on private equity and surprise medical billing that we the 
American people and those that we are elected to serve need to 
decide if the goal of healthcare is to increase profits or to 
improve patient outcomes. And hospital outsourcing of various 
departments has allowed physician practices to grow 
exponentially and operate those services independently. Once, 
there used to be solo practitioner doctors and very small 
partnerships. But today, private equity firms have become major 
players, as you said, buying out doctors' practices and rolling 
them up into large corporate physician staffing firms. We see 
it in a lot of different ways and creating a lot of different 
harms, including surprise billing. I have personally been a 
victim of surprise billing and I know how devastating it can be 
to receive one of those bills when you are trying to recover 
from an illness.
    Families today are also buried in medical debt. The new 
report from the Consumer Financial Protection Bureau shows that 
debt collectors pursuing medical debt is making a sharp 
increase. We know that about half of all bankruptcy reasons 
have a component of illness or injury in medical debt to them. 
One Stanford study found that the likelihood of receiving a 
surprise bill rose from 32 percent in 2010 to 43 percent in 
    Do you think the involvement of private equity in physician 
contracts has increased the incidence of surprise billing?
    Ms. Appelbaum. Yes, absolutely, because what we have seen 
is that there are two really large doctor staffing firms. It is 
not unusual for a hospital to say to a local doctor's practice, 
we would like you to staff our emergency room. Those doctors 
come in. They are in network, the same network that the 
hospital is in. You go to the emergency room, you are treated 
by a doctor, and it's taken care of by your insurance.
    In this situation, you have a very large company owned by 
private equity staffing the emergency room. Those doctors are 
not responsible for the billing, it is the overall company, and 
what they do is they take their doctors--either they take the 
doctors out of network, that is one company, and then they can 
charge you anything they want. If the doctor you see is out of 
network, you can be charged anything. You have done your due 
diligence. You are in a hospital that is in your network. You 
think the doctors will be covered, and then you get that big 
    The other company uses the threat of surprise billing when 
it negotiates for in-network returns. And in both cases, what 
you see is that the doctors employed by these private equity-
owned companies get payments that are way, way higher than the 
doctors who previously did the job or doctors in other 
hospitals not owned by private equity. So, this is a major 
driver of healthcare costs. We have healthcare costs rising.
    Ms. Porter. Yes. And the same Stanford study found that the 
amount of surprise bills went up from $220 in 2010 to $628 in 
2018. So it is both the incidence and the harm.
    Mr. Palmer. Yes.
    Ms. Porter. I received an ad at my own home from a shadow 
group known as Physicians for Fair Coverage, and that group, 
backed by private equity firms, including KKR; Blackstone; and 
Welsh, Carson, Anderson & Stowe spent more than $4.1 million 
lobbying against solutions to the problem of surprise billing. 
What would be the primary goal of those firms in trying to stop 
Congress from addressing surprise billing?
    Ms. Appelbaum. Of course, it is to protect their profits.
    Ms. Porter. Thank you. I have one last question.
    Ms. Appelbaum. Yes.
    Ms. Porter. Does the involvement of private equity in 
healthcare improve patient outcomes in any apparent way?
    Ms. Porter. There is no evidence that it does, and there is 
some evidence that the quality of care goes down. The price 
evidence is very strong. The failure of quality is not quite as 
strong, but definitely, we don't see improvement for the extra 
money we are paying.
    Ms. Porter. Thank you so much.
    Mr. Maloney, if a private equity fund owns the equity, the 
debt, and credit default swaps, might that private equity firm 
in some cases have an incentive to force a company into 
    Mr. Maloney. I don't see a scenario, Congresswoman, where 
that would be beneficial to the--
    Ms. Porter. Do you understand the concept of a credit 
default swap?
    Mr. Maloney. Most of our transactions don't involve the 
same private equity firm owning the debt and the equity.
    Ms. Porter. How would we know, since credit default swaps 
are not--they could own the debt, and they would have to 
disclose that in the bankruptcy petition. But if they bet the 
other way, that the company would go under by taking on a 
credit default swap, that very problem would be hidden from the 
bankruptcy court and the public, the employees, and all of 
those who are harmed by the bankruptcy.
    Mr. Maloney. I think that is a very unusual case, but thank 
    Chairwoman Waters. The gentleman from Texas, Mr. Williams, 
is recognized for 5 minutes.
    Mr. Williams. Thank you, Madam Chairwoman.
    I am a small business owner, and have been for 50 years. I 
am a Main Street guy, and I believe that the private equity 
industry is the epitome of capitalism. Large groups of 
investors pool their money together to look for businesses that 
can be restructured or infused with capital to expand product 
lines, hire more workers, and make a greater impact on 
communities in which they serve. Hundreds of thousands of jobs 
are being created throughout this country, and our schools' 
endowments are seeing huge returns, and innovative products are 
being brought to market because of this industry.
    For those people who fundamentally think capitalism is 
broken, private equity is an easy bogeyman to place blame on 
when something goes wrong. The bottom line is if you take a 
risk, you should get a reward.
    So before I go on to my next question, I would say, Mr. 
Maloney, you represent a sizable amount of people, and would 
you say that those folks are capitalists or socialists in your 
group? A quick answer.
    Mr. Maloney. Congressman, I would say that they are 
    Mr. Williams. Are you a capitalist or a socialist?
    Mr. Maloney. Congressman, I am a capitalist.
    Mr. Williams. Good. And, Mr. Palmer, would you agree, the 
same situation are the people you represent yourself?
    Mr. Palmer. Unapologetic capitalist.
    Mr. Williams. Okay. Well, you are a capitalist.
    Mr. Palmer. Heck, yes.
    Mr. Williams. Okay. I would just say this: Where I come 
from in Texas, private equity has invested almost $10 billion 
since 2013 and supports over 700,000 jobs. Not only have these 
investments pumped money into the Texas economy, they are 
necessary for the health of the pension system within the 
State. The Teachers' Retirement System in Texas, which has $154 
billion in assets under their management, has $21 billion 
invested in private equity. Over the past decade, the 
annualized returns have been over 10 percent. We have heard 
that from many of you today on these investments to help 
support teachers' retirement throughout the State.
    Before we consider any drastic changes to such a large 
contributor to our economy, we need to take an extremely close 
look at the consequences that this would have across a variety 
of industries.
    Mr. Palmer, I know you have talked about this already, but 
I think it bears repeating again. Can you talk about the 
effects that the Stop Wall Street Looting Act would have on 
various sectors of the economy should it become law?
    Mr. Palmer. It would be particularly damaging to the small 
private equity and medium-sized private equity economy. I 
showed a video, not a politicized video, but an actual video of 
the Senate sponsor of this bill explaining how private equity 
works and what this bill would do to a room of 500 small 
business investors, and the air left the room. It would really 
be profoundly damaging. And the intent of the bill on the 
Senate side--I am not saying the House side--the intent on the 
Senate side seems awfully hostile. We want this industry to 
work. We want to create jobs, but it would be bad.
    Mr. Williams. Okay. It seems like my friends on the other 
side of the aisle believe that there is a perverse incentive as 
a result of the structure of private equity investments. I 
would like to read a quote from the Houston Firefighters' 
Relief and Retirement Fund chairman, Brett Besselman. He said, 
``We are very confident in the prospects for private equity 
investments in our long-term investment mix. Private equity 
opportunities far exceed those available in the stock market 
investing for the foreseeable future and are a welcome addition 
to our portfolio diversification effort.''
    If the incentives were off, I do not assume they would be 
receiving such high praise from the firefighters in Houston. 
So, Mr. Maloney, can you explain how private equity funds are 
set up in regard to the general and limited partnerships? And 
give your thoughts on if you think the incentives of the two 
parties are properly aligned?
    Mr. Maloney. Yes. Thank you for that question, Congressman. 
These investors are very aligned because the pension fund 
succeeds and gets a return when the private equity fund 
succeeds. And when that happens, everybody's a winner at the 
end of the day.
    And I would say that both of these contracts between the GP 
and the LP are carefully negotiated. The LPs get full 
transparency from the fund and can ask any questions from the 
GP that they want to. And we are very committed. They are very 
important partners for us, and we share as much information as 
possible with the LP.
    Thank you.
    Mr. Williams. Okay. Thank you. I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Illinois, Mr. Casten, is recognized for 
5 minutes.
    Mr. Casten. Thank you, Madam Chairwoman. And thank you all 
for being here today.
    I am here in no small part because of private equity. I am 
a freshman Member of Congress. I spent 16 years as the CEO of a 
couple of different companies. We put several hundred million 
dollars of private equity to work. We built projects inside 
industrials that recovered energy they were wasting, recovered 
it, and sold it back to them. They were really complicated 
projects. And I can say with complete confidence that there is 
no pocket of capital in the country that really maps to the 
investment size and the deal complexity of what we were doing.
    And I think I can expand that more broadly to the broader 
challenge we have to invest in our infrastructure, clean or 
otherwise, that there is just a deal size and a complexity that 
public markets aren't very well-structured to do so. Venture is 
too small. And that is a positive thing.
    I am also no longer in that company because of private 
equity, because the incentive structures within that private 
equity model, the 2 and 20 structure, the mid-teens return 
targets create this massive pressure for a steady stream of 
liquidity events. And so, having built a company and built a 
team who knew how to do something really important, I couldn't 
sustain it. Because once you have people with single digit 
money out there, you sell down. And when you sell down to 
cheaper money, you sell down to money that is less risk-
tolerant. They don't build things.
    I mention all that because one of my favorite 
descriptions--we had a limited partner whom we were pitching a 
deal to once, and he said, the central challenge we have with 
building infrastructure in this country is we that have a 
glacier of investment opportunities in the infrastructure--an 
ocean of investment opportunities in the infrastructure space 
that deliver really attractive dividend returns that is 
beautiful to this ocean, this glacier of money we have 
upstream, and we all hate the rivers. And I put that to you as 
a challenge.
    Mr. Maloney, these are not ``gotcha'' questions, but I want 
to just run through a couple of quick yes/noes to get to the 
meat of this. One of my investors described his industry, 
private equity, as custodians of wealth. Would you acknowledge 
that there is a tension between the financial goals of the 
owners of wealth and the financial incentives, sometimes, of 
the custodians of wealth?
    Mr. Maloney. Congressman, it is a very good point, but I 
would say most of the time, the interests are aligned.
    Mr. Casten. Okay. Do you agree that the mid-teens return 
targeted by private equity creates a very real incentive to 
take on debt and lever up equity returns?
    Mr. Maloney. I think that they invest in these companies 
and try to deliver the mid-teen target for the pension funds 
and the retirees, as we have talked about. And I think you have 
to have a careful balance between how much debt you load on to 
grow the companies, and I think that they make those 
determinations on a case-by-case basis.
    Mr. Casten. Would you agree that having mid-teens return 
targets creates a very real incentive to sell to people with 
cheaper money if the opportunity presents itself?
    Mr. Maloney. I think it just depends on how you try to grow 
the company, and each case is separate.
    Mr. Casten. Would you acknowledge that sort of the 
traditional 2 and 20 structure or the variants thereof 
incentivize private equity managers to create liquidity events 
either through debt raises or through sales?
    Mr. Maloney. I think the liquidity event is meant for the 
investors, which are the pension funds and the college 
endowments. So at some point, you need to give your investors 
and the retirees the return, and I think that is what the 
motivation factor is.
    Mr. Casten. I guess I would put that back to what my LP 
said--we are a wealthy family office, and he once said to me, 
``I know I am smart, I know I am really good. The last thing I 
want to do is to give my grandchildren an obligation to make an 
investment decision. They want yield. They don't necessarily 
want to have to reinvest.''
    Would you agree that the carried interest deduction 
turbocharges the incentive to create liquidity events to the 
extent you can structure those liquidity events as capital 
    Mr. Maloney. Look, I think the carried interest provision 
encourages the building of long-term capital and rewards and 
aligns the incentives between the LP and the GP.
    Mr. Casten. The reason I asked all those questions--and I 
get it, it is hard in a public forum like this to be totally 
forthcoming, but we have a massive need for investment and 
infrastructure in this country. And we can acknowledge that 
private equity is much better at that than a lot of other 
pockets of capital, but we have to acknowledge that it is still 
deeply flawed. And I want to work with you to try to figure out 
how to take away those flaws, but we have to first acknowledge, 
because I think every question that you said it depends, I 
disagree. I think those were all hard yeses, but we don't want 
to fix this by mandate.
    I yield back.
    Chairwoman Waters. The gentleman from Arkansas, Mr. Hill, 
is recognized for 5 minutes.
    Mr. Hill. I thank the Chair. Thank you for holding this 
hearing today. I appreciate that you are showcasing Senator 
Warren's economic proposals. Perhaps after Thanksgiving, we can 
have a showcasing of Senator Sanders' economic proposals. I 
appreciate the opportunity to hear their impact on our economy.
    A couple of weeks ago in Arkansas, I had the pleasure of 
hosting a venture ecosystem summit. And, Mr. Palmer, we 
appreciate you coming to Arkansas and graciously attending our 
event and talking about the current private funding market. It 
was very well-received.
    Arkansas has a vibrant entrepreneurial community, and I 
wanted to bring together the stakeholders from across the State 
for a roundtable discussion to collaborate on ways we can 
foster the growth of our investing community, our 
entrepreneurial community, and craft better Federal legislation 
that will push and help growing businesses onto that next stage 
of success.
    Mr. Palmer discussed some of the challenges associated with 
securing funding in States like Arkansas, and potential ways to 
overcome those funding challenges. And much like his testimony 
today, he strongly advocated for the need for private equity 
and its investment in growing businesses all over the country, 
particularly off the East and West Coast. I agree completely.
    As an entrepreneur myself, and now Chair of the House 
Entrepreneurship Caucus, I want to emphasize how important it 
is to have a wide universe of funding options for new 
entrepreneurs to draw on of companies of all sizes. This is 
entrepreneurship week across the country, so whether you are an 
angel investor or a venture capital fund or a private equity 
fund, all of these forms of investment are important cogs in 
our nation's economy and they impact all of our citizens. Just 
in my district in Arkansas, private equity has created over 
1,600 jobs and invested more than $2 billion over the last 5 
    Pension funds, which touch a large portion of the American 
public, are clear examples of private equity beneficiaries. Mr. 
Maloney, public pension funds are large, sophisticated 
investors. Is that right?
    Mr. Maloney. Yes, sir, they are.
    Mr. Hill. They are not mandated to invest in private 
equity, are they?
    Mr. Maloney. No, they are not.
    Mr. Hill. And they have a lot of high-paid lawyers who work 
for them?
    Mr. Maloney. They do, indeed.
    Mr. Hill. And they do insist on measuring performance 
before they make an investment as a pension fund?
    Mr. Maloney. Yes, sir.
    Mr. Hill. Would you say that pension funds are pushovers 
when it comes to negotiating with private equity funds?
    Mr. Maloney. I think they drive a hard bargain.
    Mr. Hill. Okay. We have talked a lot about performance. So, 
you would say pension funds are generally--they have 
benefited--and I appreciate Mr. Moore's repeated answers to 
those questions. I have a chart I put up which is public 
pension fund investment in private equity since 2000. And you 
can see it has grown from around 3 percent of assets under 
management up to about 8 percent of assets in that 20-year 
period. That is a pretty significant increase.
    So, generally, I think the panel would agree that pension 
fund investors are pleased with their participation in private 
equity investing.
    And pension funds are so important to the working people of 
this country. Whether you are a retired city councilman in 
Boston or a retired law professor in California, you earn 
pensions, and we have such an underfunding problem, anything 
that incrementally is better than the average return is so 
helpful to preserving those pension assets and retirement 
assets. And I think that is why CalPERS has argued we need 
private equity, we need more of it, and we need it now.
    All that to say that limiting private equity is not the 
answer. The Majority has claimed today that private equity is 
bankrupting American companies and laying off thousands of 
American workers, and that limiting private equity somehow can 
stop that. In my view, it will have the opposite effect. 
Limiting private equity will hinder business growth, constrain 
local employment, and hurt Main Street communities.
    We need to work to lower the cost to investment burdens, 
whether it is in the public forum or in a venture capital 
environment or an SBIC fund or private equity, and encourage 
more investment. And that is what I think we have done by 
lowering the corporate tax rate and bringing capital back to 
the country. We haven't talked about that today, that by 
encouraging capital to come back in the United States, some of 
those profits now not double taxed will flow into the investing 
community and in through both angel investing and through firm 
    Mr. Palmer, you have looked at rural States like Arkansas. 
What do you think is the best thing that we can do to enhance 
investing in a rural State?
    Mr. Palmer. I think Arkansas is working on it right now, 
bringing together the universities, bringing together the 
financial leaders, the banks, the private equity funds that are 
there, and really trying to coordinate and get to critical mass 
with the entrepreneur ecosystem and incubators and others.
    Mr. Hill. Thank you. I yield back.
    Chairwoman Waters. The gentleman from Utah, Mr. McAdams, is 
recognized for 5 minutes.
    Mr. McAdams. Thank you, Chairwoman Waters, for holding this 
hearing. And thank you to the witnesses for your testimony 
    In a previous life, I was the mayor of Salt Lake County, 
and one of the areas where I was proud of our work was the 
ability to bring private sector resources to help address 
public sector problems. I often teamed up with many of the 
financial institutions in Utah to pursue innovative 
investments. For example, Salt Lake County pioneered many of 
the first pay-for-success or social impact bond programs in the 
nation. We expanded access to early childhood education, we 
targeted homelessness, and we reduced recidivism in our jails. 
And we couldn't have done these projects without financial 
    But I know that the desire to invest in projects that have 
more than a monetary return is not just limited to government 
problems. You see a range of investments in clean energy 
technologies and social welfare issues, for example. Our State, 
local, and Federal Governments and nonprofits don't always have 
the resources to solve problems by themselves, and I know that 
firsthand. Establishing a framework to use capital markets for 
problems isn't just harnessing capitalism for the greater good. 
I also believe it is smart public policy.
    Obviously, not every PE investment works out, and I don't 
agree with every decision or practice that PE funds make, and 
often employees of those companies that fail are, 
unfortunately, left behind. We should clearly do better by 
employees who are laid off to ensure that they can reenter the 
workforce, ensure that they have job training that they need to 
succeed, and also ensure a profit safety net.
    With that said, I am interested in the trend for private 
equity firms to look at impact investing or investments that 
incorporate environmental, social, and governance goals into 
the fund's investment strategy.
    So I guess my first question, Mr. Maloney is, for many of 
your member companies, are you seeing a growing desire from 
either the fund managers or the limited partners when they make 
investments to incorporate social impact projects or ESG 
targets into the fund's investment strategies? And could you 
give maybe a couple of examples or maybe general trends?
    Mr. Maloney. Yes. Congressman, thank you for that question, 
and thank you for your leadership on that issue in Salt Lake. 
Many of our members are very interested in this. We are 
committed as an industry to responsible investing. AIC, our 
organization, adopted a set of comprehensive, responsible 
investment guidelines that cover environmental, health, safety, 
labor, governance, and social issues, and we did that 10 years 
ago. And we have several of our funds that have specific social 
impact funds. And everyone sort of looks through a lens of ESG, 
and we are looking forward to working with you and coming in 
and speaking with you about how we can expand on that.
    Mr. McAdams. Great. Thank you. And do funds report ESG 
metrics on their investments to the limited partners?
    Mr. Maloney. Yes. And many limited partners are actually 
asking for that information.
    Mr. McAdams. I would be interested in exploring, maybe 
offline we can do this or later down the road, any legal or 
regulatory impediments to social impact investments or ESG 
investments that firms may see.
    In my State of Utah, several pension plans invest in 
private equity funds. As others have discussed, this comes in 
the form of a limited partner with a contractual agreement with 
the general partner who manages the fund. For instance, the 
Utah Retirement System (URS) provides retirement benefits for 
more than 200,000 members in Utah, representing public sector 
employees. And I think at the end of 2018, URS' investment 
portfolio was at roughly 12 percent in private equity, and the 
rate of return for 2018 in that private equity investment was 
at 18 percent, clearly higher than other asset classes that URS 
has investments in. And I know the board and officers of the 
retirement system take seriously their obligations to provide 
retirement security to all of its members.
    So, Mr. Maloney, in your members' conversations with 
limited partners, especially with retirement plans, why are 
they choosing investments in private equity versus other asset 
classes that they could be investing in? And has the share of 
private equity as a percentage of retirement system asset class 
changed over time, and any particular reason you could 
contribute to that?
    Mr. Maloney. Yes, Congressman. Great question. As we saw 
from the chart that was on the screen just a couple of minutes 
ago, the asset allocation for private equity has almost tripled 
over the past 20 years, and I think the reason for that is it 
is an asset class that has proven to outperform other asset 
classes. And for a lot of pension funds that are underwater 
right now, they need that extra delivery and investment income.
    Mr. McAdams. Thank you. I thank the panel for their 
testimony, and I yield back.
    Chairwoman Waters. The gentleman from North Carolina, Mr. 
Budd, is recognized for 5 minutes.
    Mr. Budd. Thank you, Madam Chairwoman. And again, thank you 
to each of the witnesses for your time here today.
    My colleague, Mr. Barr, touched on this earlier, and I 
think it is important to reiterate the point that during 
periods of economic downturn or strain, traditional financial 
institutions may pull back from providing commercial credit. So 
when that happens, it is private credit funds who step in to 
provide counter-cyclical support to businesses when they need 
it most.
    This question is for you, Mr. Palmer, and also Mr. Maloney. 
Can you tell us how private funds support the commercial credit 
market during economic downturns when funding from traditional 
institutions may slow down?
    Mr. Palmer. They can be more patient, and patience matters, 
particularly for smaller businesses that don't have access to 
public markets or just selling shares. And so, they are in it 
for the long haul, and they sustain those businesses. North 
Carolina is uniquely positioned to have, for its size, having 
an extraordinary number of capital providers that do that type 
of capital, not just in Charlotte, but also in Raleigh, in 
Greensboro, and now in Wilmington.
    Mr. Budd. Thank you.
    Mr. Maloney?
    Mr. Maloney. Congressman, it is a great question, a great 
point. Private equity is there to help these companies grow. 
And over 70 percent of the companies in America are not 
investment grade, so a lot of times, the banks won't lend to 
them, and they have to go to these private credit funds that 
can facilitate their ability to grow.
    Mr. Budd. Thank you both.
    Ms. Appelbaum, I appreciate your time here today. 
Yesterday, Senator Elizabeth Warren and Senator Bernie Sanders 
released a letter criticizing third-party research about the 
private equity industry. Ms. Appelbaum, do you produce third-
party research about the private equity industry?
    Ms. Appelbaum. I am not sure what you mean by third-party 
research. I go out and collect data, I interview private equity 
firms, and I report on what I have learned.
    Mr. Budd. And it is research, right? You are not directly--
    Ms. Appelbaum. It is definitely research.
    Mr. Budd. Okay. Right. So, it sounds like third-party 
research. And does your organization accept donations from 
outside groups or from special interests?
    Ms. Appelbaum. No.
    Mr. Budd. AARP, AFL-CIO, Open Society Foundations, none of 
    Ms. Appelbaum. We accept grants from foundations, so we may 
    Mr. Budd. Okay. And those foundations typically have an 
    Ms. Appelbaum. We don't accept money from corporations, 
from governments, from foreign interests, but we do accept 
money from individuals and from foundations.
    Mr. Budd. Foundations. Okay. Understood. Can you tell this 
committee how your research on private equity was funded?
    Ms. Appelbaum. Yes. This is a very good question, because I 
spent 4 years--Rose Batt and I spent 4 years on a $25,000 grant 
from the Russell Sage Foundation. It was a labor of love. When 
we got into it, we started out by saying, hey, we do a lot with 
labor. Teachers of labor, economics don't understand what is 
going on. We should write something for them. We had in mind a 
small pamphlet. And then as we got into it, we discovered it is 
a very complex subject and a very interesting subject, and so 
we spent 4 years learning about it, writing about it, and 
producing a book that was a finalist for a very prestigious 
award from the Academy of Management. I think if you read the 
book, you will find it is very balanced.
    Mr. Budd. I mean, $25,000 over 4 years, that is definitely 
a labor of love.
    Ms. Appelbaum. It was a labor of love.
    Mr. Budd. I just wonder if any of these--do you think that 
some of the other contributions helped sort of offset that?
    Ms. Appelbaum. We have unrestricted funds that we get, at 
that time from the Ford Foundation, and that is--of course, 
somebody paid my salary with that.
    Mr. Budd. I understand.
    Ms. Appelbaum. But the money for--it is very difficult, to 
tell you the truth, to get money for private equity research 
because usually we are interested in labor issues, and it is 
really hard. Eyes glaze over when you mention finance to people 
who care about labor issues.
    Mr. Budd. Thank you.
    Another question, Senator Warren actually linked to your 
research in her official press release announcing her anti-
private equity legislation, referring to it as the 
legislation's economic analysis. So I assume you are in 
communication and in close coordination with Warren's team 
about this?
    Ms. Appelbaum. No. Actually, they wrote the legislation. It 
turned out they had read my book. They asked me for a meeting 
because they had other questions, and then when I got there, 
they said, you are probably in a room with the only four people 
who have read your book cover to cover. So I think the book may 
have inspired the legislation. Afterwards, they asked me if I 
would write a letter.
    I want to say the legislation is not anti-private equity. 
It is anti-excess leverage, and this is what the problem is. It 
is true that most of the private equity-owned companies do not 
end up in bankruptcy, but in the last recession, 27 percent of 
the bankruptcies were highly leveraged companies.
    Mr. Budd. Just in the remaining few seconds--thank you so 
much--was there any discussion or coordination with the Warren 
team during the report's development, timing of release, or 
preparation for this hearing?
    Ms. Appelbaum. For this hearing?
    Mr. Budd. Yes.
    Ms. Appelbaum. No.
    Mr. Budd. Thank you. I yield back.
    Chairwoman Waters. The gentlewoman from North Carolina, Ms. 
Adams, is recognized for 5 minutes.
    Ms. Adams. Thank you, Madam Chairwoman. Thank you for 
holding this hearing. And thank you to all of the individuals 
here to testify.
    Dr. Appelbaum, a recent report published by Ernst & Young 
celebrated private equity's role in the economy, noting that 
they employ 8.8 million workers, but another report found that 
private equity investments have led to a loss of 1.3 million 
jobs in the retail industry alone. So should we be concerned 
that so many workers are vulnerable to private equity 
strategies and efforts to maximize their profits, often at all 
costs, with little to no regard for the devastating impact that 
they can have on workers, consumers, and communities?
    Ms. Appelbaum. Publicly traded companies would never put 83 
or 87 or any large amount of debt like that on the company. It 
is not that private equity firms want to drive companies into 
bankruptcy, but if they use excessive amounts of debt, then, in 
fact, those companies are going to struggle. And in retail, 
where there are always changes going on, new fashions, new 
technology and so on, publicly traded retail companies have low 
levels of debt so they can make the changes they have to make. 
Private equity-owned companies do not, and that is why we see 
those particular failures.
    Ms. Adams. Okay. So let's talk about a specific example 
that I find truly heartless and despicable. In 2018, Apollo 
Global Management funded the purchase of the Hahnemann 
University Hospital, an historic hospital that had been serving 
Philadelphia's poorest residents since 1848. That is 171 years 
in the community, providing a critical public good. And despite 
making no capital investments, the management company closed 
the hospital less than a year-and-a-half later, claiming that 
it wasn't profitable.
    The closure of the hospital left over 2,500 union workers 
without jobs, and tens of thousands of Philadelphians without 
access to healthcare, yet the company still stands to profit by 
selling off the hospital's assets and prime real estate. So can 
you explain how the owner of the hospital can profit by 
shuttering the hospital and eliminating a huge source of the 
City's healthcare services?
    Ms. Appelbaum. Yes. This was truly outrageous behavior. The 
private equity firm came in, and bought the hospital with the 
idea that this is a possibility where you might want to improve 
things. The day that they bought the hospital, they separated 
the real estate and put it in a property company from the 
hospital, which was the operating company. And then--I studied 
healthcare as well. I won't go into details, but there are many 
things they could have done that would have helped turn that 
hospital around. They didn't lift a finger to do even one of 
those things, and so a hospital that was in trouble continued 
to be in trouble. Eighteen months later, they said, oh, well, 
the hospital is in trouble. We are going to declare bankruptcy, 
but the real estate was not included in the bankruptcy. The 
hospital has closed.
    Ms. Adams. Okay.
    Ms. Appelbaum. The private equity fund still owns the real 
    Ms. Adams. Right. So do communities or governments have any 
recourse when an institution like a hospital is shuttered by a 
private equity?
    Ms. Appelbaum. They have no recourse after the fact, no. My 
recommendations going forward, because this is the first time 
this has happened, and it is going to be a model for cities 
with failing--communities that have been poor that are 
gentrifying. When a not-for-profit hospital becomes for-profit, 
the city and the State have a lot to say about what happens. 
They need to put in the charter that if this property is not 
used for healthcare, then the property reverts back to the 
    Ms. Adams. Thank you, ma'am.
    Mr. Maloney, as the head executive at the American 
Investment Council, you represent some of the largest private 
equity firms in the world. And given the profit maximizing 
model often employed by firms, do you believe that there are 
certain asset classes or investments that private equity firms 
should avoid, particularly industries related to public health 
that are incredibly sensitive in nature?
    Mr. Maloney. Congresswoman, thanks for your question, and 
thanks for your concern on these important health issues. I 
will say that we have a role to play and a positive role to 
play across the entire economy. Some of these hospitals and 
some of these medical facilities are private equity-backed. 
Some of them aren't private equity backed, but they are still 
private. And I think we can have a positive role to play in 
that, and we would love to work with you and others on the 
committee to continue that positive role.
    Ms. Adams. Mr. Moore, as you know, in California public 
pensions are required to publicly disclose the fees and 
expenses paid to private equity funds. So why do you think this 
disclosure is necessary or helpful to investors?
    Mr. Moore. So that we can do the proper analysis of costs 
that are being charged to us and compare them between different 
funds for different strategies and different potential 
outcomes, but that is only one part of the data that we need.
    Ms. Adams. Thank you very much.
    I yield back, Madam Chairwoman.
    Chairwoman Waters. Without objection, I will enter into the 
record The American Prospect article, ``Private Equity's Latest 
Scheme: Closing Urban Hospitals and Selling Off the Real 
Estate,'' relative to Hahnemann University Hospital in 
    Without objection, it is so ordered.
    The gentleman from Ohio, Mr. Gonzalez, is recognized for 5 
    Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman. And 
thank you to our panel here for your attention today.
    My fear as I look at the legislation and read some of the 
talking points is that we are looking at some of the worst 
examples that private equity has to offer, Toys R Us being one 
example. I don't think anybody involved in that deal would do 
it again if they had the opportunity. And we are taking a 
hatchet to an entire industry that supports millions of jobs as 
an important source of returns for many of our pensioners.
    Mr. Palmer, I will start with you. I am going to read a 
list of companies: Smile Direct Club; Slack; BeyondMe; Uber; 
and Lyft. They have all gone public this year. What else do 
they have in common?
    Mr. Palmer. They are all backed by private equity funds, I 
    Mr. Gonzalez of Ohio. Every single one of them.
    Mr. Palmer. Yes.
    Mr. Gonzalez of Ohio. Yes. From start to finish, it turns 
out. And, Mr. Palmer, who ultimately is invested in these 
funds? Who are the returns ultimately going to?
    Mr. Palmer. They are ultimately going to university 
endowments, pension funds, family offices, and individuals.
    Mr. Gonzalez of Ohio. Teachers, firefighters--
    Mr. Palmer. Absolutely.
    Mr. Gonzalez of Ohio. --police officers. Wonderful.
    And, Mr. Moore, just because I think it is such a strong 
example, what is the highest returning asset class net of fees?
    Mr. Moore. Let's see, I think this is the seventh time I 
have just--
    Mr. Gonzalez of Ohio. Just again, I like to hear it.
    Mr. Maloney. It is private equity.
    Mr. Gonzalez of Ohio. Okay. Wonderful. So to destroy the 
industry in its entirety would rob many of our pensioners--
    Mr. Moore. That is not the intent.
    Mr. Gonzalez of Ohio. --of important returns. It's not the 
intent, but it would certainly happen.
    Mr. Palmer, in your opinion, to follow up on that, would 
the Warren bill that we are talking about result in more money 
in private equity funds or less, in your opinion?
    Mr. Palmer. Less, and particularly for smaller businesses 
which are otherwise seen as risky.
    Mr. Gonzalez of Ohio. I want to talk about one specifically 
which happens to be in my district, Hyland Software. Have you 
heard of Hyland?
    Mr. Palmer. I think I have.
    Mr. Gonzalez of Ohio. You have. They are an awesome 
business. They are owned by Thoma Bravo. Are you familiar with 
Thoma Bravo?
    Mr. Palmer. Yes.
    Mr. Gonzalez of Ohio. Okay. So Thoma Bravo has owned the 
business for close to a decade or maybe a little more than a 
decade. They provided liquidity to the founding family, and 
have supported the growth of thousands of jobs. Thoma Bravo has 
been a great partner to Hyland. When I talk to folks at both 
Thoma Bravo and at Hyland, it's just an incredible story for 
our region.
    Northeast Ohio, the community where I am from, is in need 
of more private capital, frankly. We need as much private 
capital into our community as we can get. We need more 
businesses like Hyland Software to grow in fast-growing, 
exciting industries and create jobs and opportunity for our 
    And again, based on what you just said, I think the fear 
that I have, and I think everybody should have, when we look at 
this Warren bill, which I think would be a disaster for jobs, 
and certainly for my community, is the effect that it would 
have on the real economy. I know research papers are nice and 
wonderful, but these have real implications for people on the 
street. And I am happy to see that the bill is not supported 
widely by my colleagues on the other side of the aisle, and I 
hope it dies here and in this committee.
    And with that, I yield back.
    Chairwoman Waters. The gentleman from Illinois, Mr. Garcia, 
is recognized for 5 minutes.
    Mr. Garcia of Illinois. Thank you, Madam Chairwoman. And I 
would like to thank all of the panelists for joining us today.
    I would like to begin noting Ms. De La Rosa's testimony, 
where you mentioned that you worked at Toys R Us for 20 years. 
When Toys R Us was bought by KKR and Bain in 2005, it was 
profitable. In fact, it had over $11 billion in sales the year 
before it was acquired. KKR and Bain's first order of business 
after they bought Toys R Us was to load it up with $5 billion 
in debt. By 2007, that interest consumed 97 percent of the 
company's operating profit.
    Dr. Appelbaum, what kind of effect would loading up Toys R 
Us with debt have on making the company more valuable and 
allowing it to be sold at a profit to its new owners?
    Ms. Appelbaum. The purpose of loading it up with debt--and 
I agree with everyone who said that the goal is not to bankrupt 
the companies. But when you load a company up with debt and you 
sell it later, you make a massive profit just off of the sale 
because you have so little equity there.
    But, of course, debt is a two-edged sword. You can sell the 
company and the private equity fund makes tons of money, but 
the company itself, which is responsible for repaying the debt, 
is at much greater risk of bankruptcy. I am not saying they all 
go bankrupt, but the risk of bankruptcy definitely increases 
with this debt. And we saw in the Toys R Us case what happened. 
They tried to go public. They didn't want to own it for all 
these years.
    Mr. Garcia of Illinois. Got it.
    Ms. Appelbaum. The public didn't want to buy it because 
they could see the debt. Publicly traded companies don't have 
debt at that level.
    Mr. Garcia of Illinois. Okay. Ms. De La Rosa, you were at 
Toys R Us both before and after private equity's takeover. How 
did things start to change for you?
    Ms. De La Rosa. They immediately eliminated positions, like 
full-time positions, management positions, all around. We 
switched operating companies that we used to manage the stores 
that were--being in management, I was able to tell what the 
cost was, and switching companies, we were going to companies 
that were costing double what we did before. There were many 
different things that definitely cost; cut of hours, cut of 
    Mr. Garcia of Illinois. So things changed for everyone, for 
you as a manager, for workers, and many people lost their jobs. 
That is precisely why I am supporting the Stop Wall Street 
Looting Act, because it seeks to rein in the excesses that have 
occurred and continue to occur in our economy, not because 
anyone is running for President, whether it is Senator Sanders 
or Senator Warren.
    So to summarize, jobs were cut, hours were cut, and 
inventory was cut. For private equity, investing in Toys R Us 
really meant squeezing workers at every opportunity. Private 
equity squeezed so hard that the company collapsed, leaving 
workers and their families and whole communities to pick up the 
pieces. The retail apocalypse.
    Mass bankruptcies and closures of legacy retail stores is 
often blamed on online shopping and technology, but that 
doesn't tell the full story. As we have heard today, private 
equity is playing a big role too. It is estimated that nearly 
600,000 retail workers like Ms. De La Rosa have lost their jobs 
at the hands of private equity over the last decade.
    I want to talk about another sector that has experienced 
significant disruption in recent years as well. Although 
technology gets blamed, private equity is forcing layoffs in 
the media as well. In 2007, things hit close to home for me 
when the media company, the Tribune Company headquartered in 
Chicago, was saddled with over $13 billion in debt and driven 
into bankruptcy by what private equity investor Sam Zell called 
the deal from hell. More than 4,200 people lost jobs after that 
deal at newspapers and news stations around the country, 
including the Chicago Tribune, the Los Angeles Times, the 
Baltimore Sun, and more.
    Dr. Appelbaum, what kind of job losses usually follow when 
private equity takes over media companies?
    Ms. Appelbaum. As you pointed out, I don't have the exact 
numbers on this, but there have been huge job losses. There has 
been huge consolidation. There has been less local news for 
people to be able to get. One of the big things that we see is 
not only are the jobs lost, but local people have no 
information about their local governments. The old beats that 
covered the things that were important to people so they could 
make decisions about their lives are gone now.
    Mr. Vargas. [presiding]. The gentleman's time has expired.
    Mr. Garcia of Illinois. Thank you. And that is why we are 
advancing this legislation, to rein in the excesses.
    Thank you, Mr. Chairman. I yield back.
    Mr. Vargas. Thank you.
    The gentleman from Virginia, Mr. Riggleman, is recognized 
now for 5 minutes.
    Mr. Riggleman. Thank you, Mr. Chairman. And thank you to 
all the witnesses here today.
    I find this very interesting as we are talking about this 
because we just had the megabank witnesses not too long ago. In 
that hearing, we were talking about really wanting to stop 
buybacks, especially in curbing investment returns, and private 
sector growth. And one of the reasons I ran for Congress--I 
have been in for 11 months now, and so I have lots of 
experience--but one of the reasons that I ran for Congress, 
specifically, was government overreach into my own businesses, 
but also to my wife and daughters. And this is why I am so 
interested in what is going on here.
    When we talk about private equity, we are not just talking 
about large companies, pension funds, things of that nature. I 
know we have mentioned this multiple times, but I wouldn't be 
here without private equity. First, in my Department of Defense 
business, I had a $90,000 investment from private equity. We 
were able to turn that into a 60-time multiplier on gross 
revenues where we had 20 direct employees and 50 subs.
    Now, my wife owns a chemical manufacturing plant of 
distilled spirits, but the issue we had with private equity 
then is we couldn't get a bank loan. Even though this is what 
she wanted to do, and we put a lot of our own money into it, we 
couldn't get the banks--they did not know how to valuate 
anything when it came to cogs, when it came to overhead, when 
it came to labor salaries, based on the fact that we had to 
build specific types of inventory that they had no way to 
valuate as we went forward.
    So as we are going forward in this, what I always fear is 
that the government is a board member on my company, on another 
company. What I also fear is when you see legislation this bad, 
which I call the ``Stop Entrepreneurship Act,'' I am wondering 
if it is individuals writing this with good intentions not 
understanding the law of unintended consequences or the 
cascading effects of this type of damaging thing.
    Let me ask a question, and I will start with Mr. Palmer and 
go to Mr. Maloney. I am talking about asymmetric companies and 
I am talking about companies that maybe are nontraditional. For 
example, when you start a niche company, say, in the Department 
of Defense and the intelligence community space, you are 
talking about maybe companies that have a very specific niche 
thing that they do. They can't get a loan to start. They can't 
even get a loan for office space. Do you know where they have 
to go? Your own money or private equity.
    If you are starting a manufacturing plant, and you are one 
of the first three or four to do it the way that you are doing 
it, say, in a whole State that doesn't understand it, you 
cannot get a loan. You have to go to private equity.
    Now, you have to have, as you know, pro formas. You have to 
know what pro formas are and P&Ls. You have to know all of 
those things.
    But I think that is why the first thing I want to do before 
I get to the question is I want to--and this is a third-party 
report, Mr. Chairman. I want to submit the Economic Impact 
Analysis of the Stop Wall Street Looting Act and ask unanimous 
consent to insert it into the record, please.
    Mr. Vargas. Without objection, it is so ordered.
    Mr. Riggleman. My question is this: When we are talking 
about private equity, we are talking about the things that 
drive the American economy. My question is, what happens to 
asymmetric or nontraditional businesses, Mr. Palmer, if this 
bill passes or something like this passes?
    Mr. Palmer. They will have less access to capital. Private 
equity fills those gaps that don't fit neatly for a simple bank 
    Mr. Riggleman. Mr. Maloney, same question.
    Mr. Maloney. I agree with Brett, that it will dry up 
capital needed for these asymmetrical businesses.
    Mr. Riggleman. In this report that I am going to put in the 
record, it says this can result in the loss of 6.2 million to 
26.3 million jobs across the United States. That is a 
projection. Do you know what that should say? 6.2 million and 
31, because it is the 31 jobs in our manufacturing facility 
that we wouldn't have right now. It is the 70 total jobs and 
the multiple subcontracting companies that we have that would 
not be in business today.
    Now, I know it is not perfect. Trust me, I have dealt with 
private equity and venture firms. It is fantastic, and I would 
not recommend it to anyone. But anyhow, I think what is amazing 
is that they were able to get us started, and they were able to 
do great things. And right now, if you talk about 
Charlottesville, Virginia, in my district, without them, 
without that angel network, I wouldn't have 31 employees. My 
wife wouldn't have locations in Virginia and Pennsylvania, and 
I would never have been able to even get to that point without 
private equity.
    I think as we go forward--and I had all these statistics 
that I wanted to throw out there, but I have 54 seconds, and 
people know how fast I talk on data, so we don't want to do 
that right now. This bill is not a law yet, and I think for me, 
as we are going forward and some of the other questions I 
wanted to ask and some of the things that blow my mind, if we 
actually--right now, if we were to do this, to actually create 
a loss of somewhere between $671 million to $3.36 billion per 
year, about half of which would be lost to pension fund 
retirees, I shudder to think that we are not going to go over 
this with a fine-tooth comb to make sure that we are not 
stopping the American economy in its tracks because we don't 
understand the law of unintended consequences, we don't 
understand cascading effects, and we don't understand the fact 
that government has no idea sometimes what it is doing in 
private business.
    That is all I have right now. Thank you, and I yield back 
my time.
    Mr. Vargas. The gentleman yields back.
    The gentleman from Florida, Mr. Lawson, is recognized for 5 
    Mr. Lawson. Thank you, Mr. Chairman. And I would like to 
thank all of you for being here today.
    There is one thing that is very interesting. We have some 
of you testifying that if this bill passed, what it is going to 
do to the private equity market, and then we have some who are 
speaking in terms of, we need more transparency.
    I would like to say that the Florida government pension 
system is one of the largest in the country. It plays an 
important role in the lives of over a million workers. Private 
equity is often the best-performing asset class for pensions. 
That is true in Florida.
    How can private equity funds such as the Florida government 
pension system become more of a model for other private funds? 
And I would ask Mr. Moore that.
    Mr. Moore. The question is, how could Florida--
    Mr. Lawson. How could the pension program become a model 
for other pension plans, especially because a lot of them are 
having trouble all over the country?
    Mr. Moore. Okay. I think I met your chief executive officer 
a few weeks ago, and he is a leader in the Council of 
Institutional Investors, and I think that is the forum that 
your pension fund can lead in bringing thousands of pension 
funds in the country together to kind of look at policy 
prescriptions that would make everyone more successful in 
implementing their programs and follow the success that you 
have had.
    Mr. Lawson. Thank you.
    We are speaking of more transparency, Dr. Appelbaum, and 
that is what will be in this bill. What is the difference 
between my colleagues here, Mr. Palmer and all of them who say 
that this is going to cause a lot of problems in terms of 
investments that we need in private pension funds?
    Ms. Appelbaum. I think transparency is a problem for the 
private equity firms that do not wish to reveal even to their 
limited partners exactly what they are doing. It also makes it 
very difficult for anybody to do objective research.
    Unlike publicly traded funds where you--companies where you 
have a lot of information available, we do not have information 
available from the private equity firms about the performance 
of their funds. There is no publicly available database. There 
is no place that you can go. We do not have publicly available 
information about any actions that have been taken by a 
regulator against these firms. So they have an interest in 
being able to keep private as much as they want to keep 
private. That is why they are called private equity. It is in 
order that they can protect that privacy, and it is not to the 
advantage either of the pension funds that do the investing or 
to the general public that wants to understand what is 
happening in the economy or to be able to really evaluate the 
returns across all of the private equity firms and all of the 
pension funds. We don't have that kind of information. We 
really just have snapshots, and I really don't know what 
measure is used.
    The internal rate of return is a very poor measure of 
private equity performance. It is not used by finance 
professors anywhere to talk about private equity. We use the 
public market equivalent, and I don't really--which is now 
published by PitchBook on a regular basis, but I don't hear 
that being used. And on that basis, at the median, the middle 
pension fund has not--the private equity fund has not beaten 
the stock market since the financial crisis. They were great 
before that, not so great since. And it is true there is a 
sliver, there is 10 percent of the pension funds invested in 
private equity funds that are getting really good returns. But 
half of the private equity funds are not even matching the 
    So it's good that we have somebody here who represents a 
fund that does really well, but many, many pension funds are 
below water if you compare them with the public markets.
    Mr. Lawson. And I am very aware of it, because when I 
served in the Florida legislature, we looked at all of them 
across the country, and they really are. I don't have much 
time, but, Mr. Palmer, would you care to comment?
    Mr. Palmer. Sure. The limited partners, these 
institutionals, they negotiate with the private equity fund 
before you start investing and before they decide whether they 
want to be in that fund or not. They get to choose what 
information they get or what they don't, and so they can get 
that. So Mr. Moore can get that or other institutionals can get 
    Particularly the smaller funds, they have to be very 
accommodating to pension funds in the information that they are 
looking for. These large institutions have vast amounts of data 
on private equity in returns that may not be public but they 
have because they have done thousands of investments.
    Mr. Vargas. The gentleman's time has expired.
    I now recognize myself for 5 minutes.
    We are not here to vilify an entire industry, but we are 
also not here to canonize them either. And listening to my 
colleagues on the other side of the aisle, it seems like 
private equity has already been beatified and they are only 
waiting for sainthood.
    No, it is not the case. There are a lot of bad actors. And 
I think there are a lot more bad actors in private equity than 
there are in the public companies. And what happened to Toys R 
Us is, I think, a good example of one of those very bad actors 
in private equity.
    As has been noted up on the board here repeatedly, Toys R 
Us paid $470 million in fees and interest to private equity and 
wanted to give nothing, absolutely nothing, zero, in severance 
to the workers. In fact, after the buyout, my understanding 
from the testimony of Ms. De La Rosa--and I read all of your 
testimony--is they got rid of holiday pay, staff Christmas 
parties, birthday gifts, and some of the full-time positions 
started to get eliminated, health benefits for part-time 
employees were taken away. And this was supposedly the new 
    It is always stated that human capital is the most 
important asset a company has. To act like this certainly shows 
that they didn't think that their human capital was the best 
asset that they had.
    And I have to say, I am familiar with that store. I hate to 
shop, I have to admit, but in 1998, my daughter was 2-years-
old, and I went to buy a present for her for Christmas, and it 
turned out that there was a beautiful kitchenette there. And I 
bought it.
    I couldn't fit it into my Toyota Supra, so I had to get 
help to tie it onto the roof. And one of the employees at Toys 
R Us came and helped me tie it onto the roof. I drove it back, 
my daughter opened it up for Christmas, and I became a hero, of 
    And that was Toys R Us. I enjoyed going to Toys R Us 
because of the service that I got there, and also the 
selection, so I didn't have to go anywhere else. But that 
seemed to change quite a bit, did it not, Ms. De La Rosa, once 
you had private equity come in?
    Ms. De La Rosa. Yes, it did, sir.
    Mr. Vargas. And how did it change in a negative way? Were 
people happy that they were there? Were the employees more 
satisfied with their work?
    Mr. Delaney. No. People were expected to do the jobs of 
three or four people. So productivity was increased, but, yes, 
for the half of the crew that was left with a job.
    Mr. Vargas. And I think that is one of the interesting 
things that a lot of the large companies, especially banks, 
have been saying recently, that it is not just about the bottom 
line. It is also about the community. It is about the workers. 
It is about the nation.
    And I think that is one of the things we have to look at, 
and that is one of the things that private equity, 
unfortunately, I don't think does look at. It looks at simply 
the bottom line. And so that is why I think we do have to take 
a look at the law and how to change it.
    Now, my colleagues on the other side of the aisle say, 
well, we can't change the law at all because it is all about 
letting the private sector do what it wants.
    Well, we change the law all the time. In fact, we have 
workers' compensation, we have workers' rights, you can't 
discriminate against people based on a whole bunch of issues. 
So absolutely we can have laws that demand more transparency 
disclosures, more fair workers' rights, we can do this. In 
fact, I think a well-running system demands this.
    So, again, I am not here to vilify an entire industry, 
because I do think that there are in fact opportunities and 
times when private equity is appropriate. I am not here to 
vilify. But at the same time, to say that somehow they are 
beatified, they are somehow saintly in what they do, that is 
absolutely not true. I think there are a whole lot of problem, 
and I think we have to deal with them.
    And again, I appreciate everyone who is here.
    I would add, though, at the end, that one of the things 
that I think has to happen is that we have to take a look at 
what really is happening with the sense of who owns so much in 
the country. We talk about private equity and why do we have so 
few public companies and so many private. Because the money is 
going to the very few at the top. That is why.
    You talked about pension funds, yes, but you didn't talk 
about the billionaires. And now we have people who are not only 
billionaires, but hundred billionaires, a person who has a 
hundred billion dollars. Yes, of course, they can afford then 
to put it in private equity, and they are paying less and less 
in taxes, and that is not right.
    So that being said, I will yield back the rest of my time. 
And now the gentlewoman from Michigan, Ms. Tlaib, is recognized 
for 5 minutes.
    Ms. Tlaib. Thank you, Mr. Chairman.
    And thank you all so much for coming before our committee 
and giving us a better sense of why it is important for us to 
oversee some of the activities of private equity firms.
    There is a case that the Michigan ACLU is working on, that 
I want to talk to you all about, for one of their clients, 
Davontae Ross. Davontae is a resident of Detroit who spent days 
behind bars because he couldn't afford to pay the $200 of bail 
related to a 5-year-old ticket for allegedly staying in a park 
after dark. He missed a job interview, and even more critical 
was an appointment with a government caseworker. His life was 
turned upside down.
    And this is a story of too many folks who live in poor 
communities, and struggle with paying cash bail throughout my 
    The largest bail bond company in the United States, Aladdin 
Bail Bonds, is owned by Endeavor Capital, a private equity firm 
that invests money on behalf of pension funds and endowments. 
Because Congress has yet to act to restrict private equity 
firms like Endeavor Capital, they continue to still be allowed 
to capitalize off of people behind bars simply because they are 
    This question is for Mr. Moore, Trustee Moore. Is it 
appropriate for a private equity firm like Endeavor Capital to 
invest public employee retirement funds into predatory 
industries, like the bail bond industry, who prey heavily on 
poor communities?
    Mr. Moore. I personally think no, and I would not vote for 
us to engage in any activities with that kind of firm. Our 
pension fund doesn't have any direct investments in any 
organizations that are involved in private prisons and that 
whole associated group of companies.
    Our only issue is that in the public markets, where we are 
invested in index funds--and index includes everything, so we 
had have to go in and ferret out and try to exclude those 
companies from our indexed and passive investments. But I would 
not support that at all.
    Ms. Tlaib. There is a growing bipartisan consensus 
throughout our country that incarcerating so many of our 
neighbors, our people, and for-profit bail is a significant 
part of that problem. And The Washington Post last year 
highlighted private equity firms like Endeavor Capital's 
spending. They spent so much money opposing bail reform, noting 
that they are the largest funder of a campaign to roll back 
California's recently adopted bail reform law.
    Ms. Appelbaum, you talked a little bit about this when it 
came to the healthcare industry. How much money does the 
private equity industry, like the cash bail industry, spend 
trying to keep government officials beholden to their 
    Ms. Appelbaum. Yes, it would be good if we had some public 
information about that.
    Ms. Tlaib. That is right.
    Ms. Appelbaum. But just to set the record straight on the 
amount of money that was spent preventing the passage of really 
good bipartisan legislation in both the Senate and the House 
that would have reined in surprise medical bills and that 
really had a good chance to pass, which is why they spent so 
much money, they first spent the $4.1 million that was 
mentioned to lobby for an amendment. They got the amendment. It 
didn't do them any good, because the debt markets think that 
without being able to charge these high prices, they will not 
be able to make good on debt that is coming due in a couple of 
    And their debt became distressed. So now, they--the last 
figure I saw was a $28 million campaign by Doctors and Patients 
United, which is actually Envision and TeamHealth, backed by 
KKR and Blackstone, to prevent any legislation from passing, 
and they have just stymied it for the moment.
    But these are bipartisan bills with a lot of support in 
both the House and the Senate. I think we are going to see 
    Ms. Tlaib. Thank you.
    And, Ms. De La Rosa, I just want you to know, I think there 
are a lot of my colleagues, especially this new class, who 
understand corporate greed is a disease in our country. And you 
can see it just with the behavior of private equity firms.
    Even when we are trying to do the right thing, a bipartisan 
effort, even around incarceration in our country, around 
surprise billing in our country, trying to address the issues 
around healthcare, corporate greed is tainting our democracy. 
And it is coming in a way that is pretty much hijacking any 
opportunity for regular folks like us to be able to have some 
sort of justice when it comes to issues that we feel like in 
very many ways is weighing heavily on communities like mine.
    I represent the third-poorest congressional district in the 
country. When I come here, I represent 650,000 people. And I 
have to do this and try to push for legislation like 
disclosures and reporting. And what does it lead to? Going 
around the table, using all of these coalitions of folks and 
pushing kind of a misleading, gaslighting folks that it is not 
the right thing to do.
    Thank you all so much again for being here.
    I yield back, Mr. Chairman. Thank you.
    Mr. Vargas. Thank you very much.
    The gentlewoman from New York, Ms. Ocasio-Cortez, is 
recognized now for 5 minutes.
    Ms. Ocasio-Cortez. Thank you, Mr. Chairman.
    And thank you to all of our witnesses for coming here 
    I have to admit that I am quite upset throughout this 
hearing, because I feel like a lot of the initial questions 
that we are hearing almost betray the priorities that we have 
had in our economy that have eroded people's quality of life. 
Because the first question that I hear from so many members 
are, how are the returns? But the returns are great, aren't 
they? How are the returns?
    I wasn't sent here to safeguard and protect profits. I was 
sent here to safeguard and protect people. And we are talking 
about reining in private equity, which is responsible for 
wiping out tens of thousands of jobs at Toys R Us alone. And 
then we are hearing, but what about the companies that made 100 
jobs here or 200 jobs there?
    Toys R Us, 30,000 jobs wiped out. Shopko, 14,000 jobs. 
Brookstone, David's Bridal, Payless. Not to mention the 
impacts, the undemocratic impacts on media companies, Splinter, 
Deadspin, Sports Illustrated, local and regional newspapers. In 
the last 10 years, private equity is behind 597,000 lost jobs.
    And it is not just about the number of jobs, isn't that 
right, Ms. De La Rosa, it is about the quality of jobs, right? 
When private equity took over Toys R Us, did you see folks' 
work schedules get cut back?
    Ms. De La Rosa. Yes, definitely.
    Ms. Ocasio-Cortez. Did you see people's benefits in some 
other ways cut back?
    Ms. De La Rosa. Yes.
    Ms. Ocasio-Cortez. Did your access to healthcare get 
damaged after private equity took over Toys R Us?
    Ms. De La Rosa. Yes, it was.
    Ms. Ocasio-Cortez. Did your mental health care get--was 
your mental health sacrificed as a result of how your quality 
of life was changed?
    Ms. De La Rosa. Very much so.
    Ms. Ocasio-Cortez. Very much so.
    We need to think about our economy not just in terms of the 
returns for stockholders, but in terms of how the lives of 
workers are impacted.
    In May of this year I sent a letter, along with Senator 
Warren, to Secretary Mnuchin regarding the Treasury 
Department's involvement in decisions related to the Sears 
    I want to take a step back and think about how some private 
equity companies, on the other end, take pension money on the 
front, to acquire poorly rated indebted companies.
    Ms. Appelbaum, because of the high returns usually 
associated with private equity, pension funds invest the 
retirement funds of our teachers, firefighters, and civil 
servants in PE firms, correct?
    Ms. Appelbaum. They do. But the measure that they use, the 
metric for measuring success, is a very poor one. They use 
something called the internal rate of return. With more time I 
can explain why this is an algorithm that does not really 
measure money you can take to the bank.
    Ms. Ocasio-Cortez. Right.
    Ms. Appelbaum. And so there is a lot of illusion-creating 
here. They could report the public market equivalent, which 
would give us a lot more information.
    Ms. Ocasio-Cortez. Yes. And we hear from a lot of folks 
saying, okay, we are using teachers' pension funds to buy into 
private equity, and they are getting fabulous returns, this 
should be great, right? Can you explain to me why that may not 
be great?
    Ms. Appelbaum. One of the things that we know, if we 
measure this appropriately, is that since the financial crisis, 
about half of the private equity funds have underperformed the 
stock market. Another quarter of them have barely beaten the 
stock market.
    CalPERS itself had to roll back its benchmark because it 
could not--it had a benchmark for its private equity returns. 
They are more risky, so they should yield more return. They 
could not meet that more return, so they have cut their 
benchmark in half.
    Ms. Ocasio-Cortez. So private equity contains more risk 
than other parts of the market, correct?
    Ms. Appelbaum. Oh, absolutely, that is true.
    Ms. Ocasio-Cortez. And so--
    Ms. Appelbaum. And the returns are good for the very top.
    Ms. Ocasio-Cortez. And would you say that more of these 
teachers' and firefighters' pensions are exposed to more risk 
or to more private equity now than they were, say, 10 years ago 
in the 2008 financial crisis?
    Ms. Appelbaum. Yes. Yes, they are.
    Ms. Ocasio-Cortez. They are. And if there is an economic 
downturn again, would they be exposed to more risk than they 
were before?
    Ms. Appelbaum. What I have not been able to say is that in 
the last economic downturn, 27 percent of highly leveraged 
firms went under. And what we know about private equity-owned 
companies is that they are highly leveraged.
    So saying that today there is no difference between 
publicly traded and private equity-owned companies is not 
really the issue.
    I agree with the regulators. Private equity, we are 
spending a lot of time on it here, is really small, compared to 
the rest of the economy. So those leveraged loans are not going 
to bring down the whole economy. But trust me, there will be a 
lot of pain. Many, many companies employing workers that we all 
care about, important to communities that we all live in, are 
going to go under in the next recession.
    Ms. Ocasio-Cortez. Thank you. Thank you very much.
    Mr. Vargas. Thank you very much.
    Without objection, I would like to add the following 
submissions for the record: Communications Workers of America; 
Private Equity Stakeholder Project; NewsGuild; Leo Hindery, co-
Chair of the Task Force on Jobs Creation, member of the Council 
on Foreign Relations, former CEO of AT&T Broadband, managing 
partner of media-based private equity fund InterMedia Partners; 
Institutional Limited Partners Association; David Halperin, 
Republic Report; CalSTRS; the Center For Popular Democracy; 
Truthout; Americans for Financial Reform; Worth Rises; the 
Economic Policy Institute; Adam Levitin, professor of law at 
Georgetown University Law Center; Manufactured Housing Action.
    Without objection, it is so ordered.
    On behalf of Chairwoman Waters, I would like to thank our 
witnesses for the testimony here today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing is adjourned.
    [Whereupon, at 1:24 p.m., the hearing was adjourned.]

                            A P P E N D I X

                           November 19, 2019