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July 9 - July 31, 2025
Great Hill Partners, and private equity at large, exists solely to make money for shareholders, no matter what that means for the companies it owns.
In the simplest terms, “private equity” describes a system in which a firm bundles money from outside investors—including university endowments, public pension funds, state-owned investment funds, and ultrawealthy individuals—which
which it uses to buy and operate companies. The firm and the investors have a symbiotic relationship: the firm gets to use the investors’ cash for its own business goals, while the investors earn returns when ...
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Private equity firms earn management fees, transaction fees, and monitoring fees that typical companies do not. They benefit from tax breaks that allow them to keep much more of their profits than other types of businesses. They can sell a company’s assets and pocket the proceeds rather than reinvesting them. There are stunningly few limits to the methods a
private equity firm can use to profit off a company it owns, whether or not the company profits too. Even the company going out of business entirely can be lucrative for its private equity owner.
Twelve million people work for companies owned by private equity firms—about 8 percent of the employed population, collectively generating $1.7 trillion of the nation’s gross domestic product. Because of the industry’s fondness for byzantine corporate structure, many of these people have no idea their jobs are ultimately controlled by financial giants like Blackstone, the Carlyle Group, Apollo Global Management, KKR, or Cerberus Capital Management.
Unlike venture capital firms, which make investments in exchange for minority ownership stakes, private equity funds typically purchase companies outright, assuming full control over their operations.
When a firm acquires a new company, it borrows money in the company’s name, not its own.
If the acquired company runs into financial trouble, its owners need not bail it out. Even in bankruptcy, when a company declares in court that it cannot pay all of its creditors, the private equity firm that owns it—a firm worth orders of magnitude more than the company itself—won’t step in to cover the costs. As secured creditors, banks are the first to be paid back with the money that remains after a bankruptcy, so the threat to them is low too. The company and its employees shoulder the risk.
Today, less than four decades later, private equity firms control $8.2 trillion in assets—more than the gross domestic
product of any nation on earth except the United States and China.
Private equity firms own companies for an average of seven years; they’re trying to sell for a profit, not grow the business over the course of decades. Investing in research and development, improving products or services, ramping up sales strategies—these are all years-long processes.
Early in the twentieth century, courts in several states ruled that companies generally could not directly sell medical services because a company could not hold a medical license—an inversion of the “corporations are people” doctrine later established by several court cases in other industries—and that medicine should be free of commercial motivations. These legal prohibitions against the “corporate practice of medicine” eventually spread to thirty-three states. The party line among doctors was that keeping third parties like corporations out of medicine was about doing what was best for the
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U.S. tax law helps private equity in several key ways. Like many types of corporations, private equity firms are based offshore, which allows their returns to compound tax-free. Interest payments on borrowed money, meanwhile, are tax-deductible. But most importantly, private equity profits are treated not like those of every other imaginable type of business, but as “carried interest,” a structure unique to the finance industry.
As the New Yorker put it in 2012, “for an industry that’s often held up as an exemplar of free-market capitalism, private equity is surprisingly dependent on government subsidies for its profits.”
Former private equity executive Jeffrey C. Hooke found that, in 2019, the state of Maryland was spending roughly the same amount of money on private equity management fees as it was on its entire budget for higher education financial aid, nearly half a billion dollars.
Kravis kept a framed Machiavelli quote in his private conference room: “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its outcome, than to take the lead in introducing a new order of things.”
Those results earned him millions of dollars—and a reputation as a profiteer willing to lay off thousands of people and ship scores of jobs overseas, which would come to haunt him on the campaign trail during his run for president in 2012.
When a private equity fund acquires a company, though, the ratio flips: 70 percent debt and 30 percent equity on average, scholars Eileen Appelbaum and Rosemary Batt have found.
Private equity firms themselves don’t borrow money to fund their acquisitions. Rather, they have the company they are acquiring do it on their behalf.
This is standard private equity practice: maximizing profit means cutting costs, and wages are expensive.
Companies acquired by private equity firms are much more likely to go bankrupt than their peers, research shows: 20 percent of them enter bankruptcy proceedings within ten years, compared to 2 percent of other companies.
In 2021, President Biden’s administration took an interest in promoting competition in the health care industry, blocking several proposed mergers over antitrust concerns and calling on federal agencies to find ways to promote competition. Biden’s executive order pointed directly to the threat rural hospitals were facing, citing a report that found that more than a hundred of them had closed since 2013.
For centuries, celebrating the “free market” has been one of the strongest uniting forces between Republicans and Democrats. With help from the donations it throws at politicians of both parties, the private equity industry has been allowed to operate with little scrutiny, charming people in power while taking advantage of the workers below.
