U.S. Senator Elizabeth Warren is demanding private equity firms including KKR & Co. and Apollo Global turn over details of their investments in colleges, as P.E. firms find themselves increasingly in Congress’s crosshairs.
Warren, the Massachusetts Democrat running for president was joined by U.S. Representative Mark Pocan (D., WI) in launching a probe into whether the buyout firms are profiting by raising costs for students while providing poorer educations.
“The students attending these colleges and the public deserve to know more about these firms’ practices and the role they continue to play in an industry fraught with problems,” Warren and Pocan wrote in a letter to the six firms, which also included Leeds Equity Partners, Sterling Partners, Vistria Group and Atlas Partners.
Warren shot an arrow across the bows of private equity firms in July by introducing the Stop Wall Street Looting Act bill. Among other measures, the proposed legislation would make the firms responsible for the debts of the companies they own, restrict their fees and dividends, limit their ability to make loans and change the way they account for carried interest.
“We need to shut down the Wall Street giveaways and rein in the financial industry so it stops sucking money out of the rest of the economy,” Warren wrote in a July post on the website Medium.
- The probe is the second congress started this week into the business practices of private equity firms. On Monday, the House commerce committee sent letters to KKR, Blackstone Group and Welsh, Carson, Anderson & Stowe asking for information related to surprise bills from third-party medical providers backed by the three firms.
- About two out of every three college students who graduated in 2018 carried loan debt, according to the Institute for College Access and Success. On average, the borrowers owed $29,200.
- University researchers last year released a paper that examined 88 deals involving private equity firms and colleges and found that they led to higher tuition and less money being spent on education. Distributed by the National Bureau of Economic Research, the paper found that after private equity buyouts graduation rates dropped by six percentage points.
Karma Takeaway: Private equity firms may need to reconsider their involvement in colleges and universities in the wake of legislative probes as well as research highlighting the negative impact the firms have on higher education.