Note: This is neither a review (critical assessment of the strengths and weaknesses) of the author’s book…

…nor one of my “Digested Reads” (in which I attempt to give both myself and the reader as complete an experience of the author’s arguments as I can manage in as short a space as possible)…

…but an “Appreciation”— as in a quotation-heavy, somewhat-lengthy summary of and rumination upon some of the author’s key insights, but leaving out much of the particularity that make the book so worth reading…

Whereas a “Digested Read” might be seen, by those in a hurry, as a substitute for reading the entire work, the following should hopefully take both you and I back to Hettie O’Brien ’s book itself: it’s that good!

 

Note #2: I discovered this book by listening to the ever dependable Doug Henwood interview Ms O’Brien at length about her research, and I highly recommend that you begin by going to the link below… Doug is a veteran economic journalist and author, as well as long host of his own show on Berkeley Public Radio (also podcast), which focuses on interviewing leading thinkers and journalists in the fields of economics, culture, and politics about their books.
https://kpfa.org/episode/behind-the-n…

 

Note #3: As always, no AI was employed at any point in the process of making this piece!

The Asset Class, by Hettie O’Brien, is a perfectly-paced tour of just-right length and breadth, of the whole of the land of PE, Private Equity, and I challenge any prospective reader to depart its pages with anything resembling a sanguine opinion of that industry, its operations, or indeed its operatives…

…of which more in a moment. I wish to begin by stating what I believe these ‘Appreciations’ of mine to be’: they are more than book reviews, and hardly a preécis (my so-called ‘Digested Reads’ come closest to such a bygone animal). Rather they are quotation-heavy ruminations upon what drives me to consider and reconsider a book of nonfiction as worthy of spending more time than is strictly necessary, viz via the reading of it—and why, of course. Perhaps its is because of their centrality to that question of our times which bedevils the more alert among us so: ‘How’d it come to this?!’

Hettie O’Brien’s book gets us a fair ways along the way to answering one of that question’s…sub-questions. It what follows I shall hew fairly closely to the book’s opening chapters, by way of giving a hopefully useful summary to her excellent short history of Private Equity. Then I’ll briefly touch upon some aspects of the case studies she uses to expose the sordid contents of said cases, leaving the prospective reader ample enough to discover by reading the estimable Ms. O’Brien for themselves.

BTW, it should go without saying that I did all this (such as it is) with my own l’il brain, and with no large…language models (there being no actual I in AI). It should, but alas.

Preludial

In The Asset Class, journalist Hettie O’Brien provides a useful, condensed history of the private equity ‘industry’, followed by a number of damning case studies, which further fills out the picture of a very, very late capitalism which is most adept not at producing value, but cannibalizing it.

Both engagingly-written and well-researched, O’Brien turns out to be an adept and quietly impassioned cicerone/consociate on this not-so-Grand Tour through our crumbling neighbourhood, where she astutely draws our attentions to what’s happening behind the scenes to what we formerly took for granted as belonging to (or at least adjacent to) something called the ‘Public Good’—this (former) council estate, that vet practice, our nan’s care home, our once-trustworthy water supply…

And if you know very little about private equity (and, well, that’s precisely by design), like me, you may still of heard of Blackstone—decidedly neither the same thing, thank God, as Blackstone Audio (though, these days, as we shall see, one may never really be sure in these matters), nor Blackwater, the mercenary ‘folks’ (though, these days…). But if you are new to Blackstone, too, here’s a hearty taster, from the book’s ‘Introduction’:

Blackstone is a special type of financial firm. It takes money—money put up by insurance companies and high-net-worth individuals, and pension and sovereign wealth funds—and uses it to buy… things. What sort of things? All sorts of things: almost every type of property and business that you might encounter, from cradle to grave. You probably know several people who live in part of the Blackstone empire without realizing it: in student accommodation, perhaps, or a flatshare in an apartment block, or a retirement community. Not just buildings either. Blackstone bought the back catalog of the pop singer Nelly Furtado, a stake in a popular oat milk brand, and an even more popular dating app where a number of my friends met their partners. It had owned the London Dungeon, the London Eye, and Legoland theme parks. Then there were the businesses that most people have never heard of. The telephone masts across Latin America and Europe. The largest port operator in the United States. Warehouses in Sweden, Britain, and Japan. Stealthily, silently, the company seemed to be buying up the places where people lived, worked, grew old, and died.

It wasn’t alone. […] so much money had flooded into this industry that, by some estimates, it was on track to eclipse the gross domestic product of the entire US private sector.

But that still doesn’t quite tell us about what ‘private equity’ is, or even means, sounding, Ms. O’Brien tells us, ‘both innocuous and prestigious’ at first. Most simply, it means removing (‘delisting’) a previously publicly-traded company from the stock market, because its owners have a 100% stake (all of its shares), and no longer need or wish to have its earnings and operations scrutinized by analysts and the public at large.

On closer inspection, however, it…reveals even less, with its subsidiaries ‘camouflaged by subsidiaries—“topcos,” “propcos,” “opcos,” “holdcos”—each with different names.’ And yet, increasingly, and especially as neoliberal governments have sought to vacate the actual governing space, these enigmatic companies-within-companies-within… have somehow become (passive tense intended) allowed in to ‘manage’ (often with a deliberate prefix, ‘mis-’ applied) larger and larger segments of what had heretofore assumed to be the province of the ‘public sector’….

Origin Story

And it turns out that in the world of Finance, the lever is debt, and the fulcrum is the pile of regulations on its use that we’ve removed from the playing-field: LBOs typically front 20% of the costs of the buy-out. The rest comes from loans from investors, or, increasingly, from the assets of the company being targeted—in O’Brien’s terms,

executing what’s called a debt pushdown. This means transferring liability for the loan to the company you’ve just bought. You borrow the money; you spend it; and then you transfer the obligation to pay it back to the very thing you just spent it on. In effect, the company goes into debt to pay for itself. But you still own it, and if all goes well, you reap the rewards from its brilliant commercial revival. And if not, well, it’s the company that’s on the hook, not you. You can sell bits of it to satisfy the creditors and still plausibly end up ahead on the deal. What do you care? Heads you win, tails you also win, and you never had to bet much of your own in the first place. […] “The game is that you borrow, and try to have others pay for your debts,” said Stefano Sgambati, an economist who wrote a paper called “The Invisible Leverage of the Rich.” “This is what is ultimately driving the financial system.”

We shall return to the 1980s momentarily, but it is worth noting that, while technically ‘invented’ back then, the heyday of private equity really began after the 2008 financial meltdown, when governments (excluding the U.S.), firms and citizens around the world were brought to hell by government-imposed austerity (‘Between 2008 and 2019’, when, in the U.K., e.g., ‘public spending fell by 23 percent in real terms’. And yet banks were still lending to Private Equity for such Leveraged Buy-Outs, presumably because of the relatively miniscule risk involved for all concerned…

For all concerned, that is, except the workers who would be laid off in order to pay for such deals—and, by extension, the public at large:

Economic life accordingly became more of a zero-sum game, where in order for you to win, someone else had to lose. Rising house prices made voters less supportive of social welfare policies, for example, since people with a valuable home effectively had their own private insurance. Compounded by the looming certainty of the climate crisis, this produced a nihilistic and self-interested style of politics expressed most forcefully by the radical right. The situation reminded me of a phrase that was popular with hedge fund managers before the financial crisis: “IBG, YBG.” I’ll be gone, you’ll be gone.

Private equity was both a symptom and beneficiary of these shifts. Western governments were looking for ways to pay for their public services and infrastructure without taking on government debt. Fund managers were sitting on trillions of dollars of capital and looking for places to spend it. Naturally, politicians rolled out the red carpet, since private equity could provide the investment their economies sorely needed. Failing that, it could at least set them up with a personal sinecure on leaving office; Britain’s then–prime minister, Rishi Sunak, when posing with Stephen Schwarzman at a groundbreaking ceremony for Blackstone’s new Mayfair premises, in February 2024, reportedly quipped, “Where’s my office?”

If that is where we now (very much still) are, all of this was sharp glint in the mind’s eye of one William E. Simon back in the 1970s, when he had just left the Nixon administration and the offices of the U.S. Treasury. Simon, a ‘deficit hawk’, was appalled by the spirit of collectivism he had witnessed in a tour of the U.S.S.R., and believed that a similar spirit addled the brains of mainstream politicians and economists back home, where Keynesianism had not quite yet expired. Somewhat surprisingly, he was also quite critical of current corporate practice, born decades earlier in the era of mutual cooperation (or at least detente) hatched by Roosevelt’s New Deal regulatory environment, which had not only made the previously-much-more-opaque, publicly-traded corporations more subject to transparency, or at least shareholder scrutiny. Competition lessened as conglomerates grew via the labour peace bought by full employment policies at the Federal Reserve bank and somewhat-more-worker-friendly labour laws.

Both Simon and Irving (father of Bill) Krystol believed that, while ‘saboteurs’ (government bureaucrats) had, on behalf of some obscure public good, usurped the once-mighty, socially-transformative powers of Capital, corporate leaders, for their part, had learned to become weak, lazy, and complacent in such an environment, losing the ruthless zeal which once was the Law of the Jungle in the era of the Robber Barons of the 19th Century:

As Simon observed, “America is ruled by a ‘political social intellectual elite’ that is committed to the belief that the government can control our complex marketplace by fiat […] and that is ideologically committed to social democracy.”

“Organization men,” wrote the sociologist William Whyte, who interviewed the managers of companies such as Ford and General Electric, were preoccupied by comfortable suburban existences and “good steak dinners.” Their lives were repetitive and dull: They used words like “treadmill” or “rat race” to describe their work, suggesting plenty of effort but not many goals. In 1957, a year after Whyte’s book, The Organization Man, was published, Ronald Reagan, then working in the public relations department of General Electric, made a similar observation in a speech. Americans were being pressed “into conformity, into a mold of standardized mediocrity,” threatening to negate their “rare qualities of courage and ingenuity.”

Both Simon and Krystol worshipped in the temple of Joseph Schumpeter, who had prophesized that under such conditions, lacking its essential power of ‘creative destruction’, the spirit of capitalism needs must surely wither away.

Schumpeter had warned of an economic endgame in which capitalism grew so successful that it destroyed its own conditions of viability, producing technicians and bureaucrats who drained it of the vigor it needed to survive. Creative destruction relied on adventurers who were willing to risk their own sweat and blood in pursuit of commercial glory; Schumpeter likened them to medieval knights. Yet as armies amassed guns and tanks, the achievements of these individual warriors gradually became irrelevant.

The trick was to kick that ageing spirit out of the rest or care home, so to speak: some years later, in 1981, too radical to remain for very long even in Ronald Regan’s administration, Simon took his ideas into business, with a new partner, one Ray Chambers, a reviver of undervalued, but ailing firms who often borrowed on the sick firm’s assets in order to pay for the ‘medical bills’: their company, Westray’s first acquisition, was Gibson Greeting cards, which somehow overlooked the true value of one of its assets: Garfield the Cat. Simon and Chambers parlayed a $330k (leveraged to $80 million) investment into a ‘windfall of $70 million’ when they flipped Gibsons for $290 million—and a future financial craze was born, fueled through the 1980s by (i) a new theory of corporate governance popularized by a professor at the University of Rochester’s Simon School of Business, one Michael Jensen, who posited that, whatever their original 19th Century charters might say, corporations’ sole responsibility now lay in serving no other public role than increasing shareholder value; and (ii) the takeover market’s increasing appetite for junk food, those under-scrutinized, high yield/high risk loans, or ‘junk bonds’ of Michael Milken fame ….

Simon had shown that you could use debt to do something completely different. You could pledge the assets of a company you didn’t own to borrow money, to buy that company, to enrich yourself.

…though by decade’s end, with the prosecution of Milken as well as a growing perception, ‘too much money was chasing too few deals’, as well as that LBOs themselves were no longer providing the shock doctrine companies needed to thrive, but were ineffective at revivifying firms and were being pursued for their own sake—for the sake of ‘greedy’, ‘cancer[ous]’ middle-men. Some brand management and a PR reboot were now the order of the day:

A new group of businessmen emerged from the frenzy of the 1980s. They appeared, on the surface, more anodyne than their predecessors. Founded at the peak of the takeover boom, many of their names were familiar. Still, they had learned some important lessons. It was best to avoid the limelight: Present yourself as a sober and responsible steward of other people’s money. Phrases like “leveraged buyout” and “hostile takeover” gave way to a more dignified lexicon of “private equity,” a term that omitted any mention of debt and conveyed a glamorous air of insider know-how, which was helpful when persuading pension funds and other large institutions to hand over their cash.

Across the Pond And Back

This success story gave Goldsmith the clout to publicize, whether in sworn testimony (see below), or at Michael Milken’s Drexel Burnham Lambert annual conference, known as the ‘Predators’ Ball, what he saw as the reason for his success: that he was an apex predator.

Goldsmith’s political philosophy was inspired by a sort of primeval law of the jungle, with “predators”—he considered himself one—at the top of the food chain. Predators should be able to hunt without interference, since taming them with taxes and regulation would cause the prosperity of the country to shrivel away. “If you eliminate predators in business, you just create comfortable bureaucracies,” he told a US Senate hearing in 1985. “With no predators, you will have a dead industry.” The by-products of predatory self-interest, Goldsmith claimed, were wealth and innovation. Here he appealed to an even less scientifically robust ecological metaphor, this one apparently taken from The Fable of the Bees, a poem about the relationship between private greed and public welfare by Bernard Mandeville, an eighteenth-century Anglo-Dutch satirist. “The bee doesn’t make honey because he’s doing good,” Goldsmith argued. “He doesn’t go through a lot of soul-searching and say, am I doing good when I make honey?”

As in nature, not everyone was a predator, and not everyone could become one. Goldsmith believed in his own exceptionalism, which helped to explain his defiance of social convention. He had a number of mistresses and managed his businesses through a labyrinth of Hong Kong and Panamanian companies. When a journalist questioned these arrangements, he explained that they allowed him to “act without asking people.” This attitude wasn’t so unusual among aristocrats, who often escaped the confines of the nation state by placing their wealth offshore. The novelist G. K. Chesterton observed in 1908, “the poor have sometimes objected to being governed badly; the rich have always objected to being governed at all.”

And Goldsmith was not the only raptor teaching British kites, harriers, and sparrow hawks how to soar again: the British Private Equity & Venture Capital Association (BVCA) was founded in 1983, to lobby the Treasury for a favourable tax climate for its members, and in 1984 Margaret Thatcher wrote to one Brian Warnes, the author of The Genghis Khan Guide to Business, that ‘“No-one would be more delighted than I if this revolution in attitudes could be achieved.”’ The desired tax climate was duly granted (after some capital flight ultimatums were sent) at the close of 1986, when the government decided to ‘make Britain a bit more like [tax haven] Jersey’ by treating fund manager payouts (or ‘carry’) not as higher-tax-bracket income, but as capital gains—all without any laws being debated, let alone passed, and over the internal objections of Inland Revenue bureaucrats, who fretted over the optics of such ‘Golden hellos in a new guise’. The results were staggering, and though not at all what PE’s early boosters had imagined, transformed The City for decades to come:

By 1988, venture capitalists were investing just over US$1.34 billion (£1 billion) in the UK, almost a third more than the previous year. But when you drilled into those numbers, it became clear that little of this money was going toward funding the kind of risk-taking enterprise that Joseph had dreamed of, start-ups that might eventually have produced Britain’s answer to the iPhone or the electric car. Instead, these so-called venture capitalists were spending more and more money doing leveraged buyouts.

Nevertheless, the secretive tax break designed to lure fund managers to the UK helped them grow astonishingly rich. Ludovic Phalippou, a financial economist at the University of Oxford and notable private equity skeptic, likened the cumulative impact of carried interest to a “billionaire factory,” so effectively had it created a new class of ultra-wealthy individuals. Between 2006 and 2015, he calculated that private equity fund managers had generated $230 billion in carry globally (this was almost twice the amount that Albania, a country of more than two million people, generated in gross domestic product over the same nine-year period) […]

Despite the evidence that the carried interest arrangement had made private equity into a machine for the upward distribution of wealth, British politicians continued to treat the industry like a husband who might decide to leave at any moment. In 2002, New Labour handed out another colossal tax break to fund managers, allowing them to pay just 10 percent capital gains tax on assets they held for less than two years. While the government later walked this back, no British politician has ever dared to scrap the favorable treatment of carried interest.

Case Studies

You would take a nursing home and split it into an operating company, or “opco,” which dealt with everything concerning the business of care, from staff to beds, medicine cabinets, and cutlery. On the other side you had the property company, or “propco,” which now owned the physical home. After splitting these in two, you could sell off the propco to someone else, allowing you to quickly raise cash […] In theory, sale and leaseback was an efficient way of raising money, with estate agents acting as the middlemen between fund managers who were buying and selling the homes. “In practice, a lot of the deals were bananas,” Paul Saper, a former healthcare consultant, told me. “It was so obviously going to go wrong, because estate agents know nothing about care homes. What a bunch of ripe idiots to have in a room.” A nursing home that no longer owned its own property was like a family that sold its house to a rapacious landlord. If the landlord decided to raise the rent, obviously the family would have less to spend on other essentials.

And ‘Opcos’ rents went up as ‘Propcos’ began to be loaded up with debt, the party lasting until, ca. 2004, just around the time when the British government decided to begin ‘to drastically cut funding for local authorities, squeezing their budget for nursing home fees’. An even greater round of austerity came later, in 2015, when the chancellor George Osborne outlined plans to cut a further US$73.9 billion (£55 billion) from the state’s budget. This trickled down to local authorities’, with predictable results: which cut the funding for nursing homes’, which looked increasingly insolvent, though because ownership had passed through various hands into a ‘black box’ or network of ‘opaque, complex groups of [shell] companies’, no one could easily trace the who-what-where-when and -why of it all. This, of course was by design.

Private equity people tended to be better than just about anyone else at two things: managing huge amounts of debt and concealing the inner workings of their companies. They disclosed so little information that even seasoned accountants and finance academics struggled to see how much money businesses were making, or where it was going. This could also make other forms of profiteering harder to spot. Fund managers could charge mysterious “monitoring” and “transaction” fees to a company they owned. Or they could borrow against that company to pay themselves or their investors a dividend. Whenever I spoke to policy researchers or trade unionists about this dynamic, the picture they painted wasn’t so different from the argument often made about foreign aid: that it’s pointless pouring money into countries with corrupt governments, since a group of middlemen will siphon off the donations before they can reach the people who need them.

Likewise, if it wasn’t possible to see how much money a nursing home was actually making, its owners could more easily pressure the government for more funding. […Such] inscrutability meant that local authorities and elderly residents had fewer ways of telling what portion of their money was going toward the business of caring. This was particularly provocative when you considered that nursing homes were funded by everyone, taxpayers and families alike, and that staff who worked in them earned so little that many had begun to leave the profession for better-paid jobs in supermarkets.

And as we shall see with the case of privatized water companies, it is somehow left, not to complacently clueless official regulatory agencies (who, to be fair, have also been deliberately starved of the resources needed to fund^[1] investigations), but to citizen-activists to attempt to trace the causal (ownership) path through all this…quite literal shit— ‘“Every single day, I hear about people who haven’t been fed, or given fluids, or are left in their own feces”’, said Eileen Chubb, who began sleuthing in 2013, ‘running undercover inspections of nursing homes’ by pretending that her mother was a prospective client. She would be unsurprised to find that by 2021, an American researcher found that deaths in care homes acquired by Private Equity were 11% higher than in other care homes for the period of 2004-2015.

And then came COVID, with the NHS discharging infected elderly into care homes, sending the death rate so high that the CQC censored statistics concerning them, ‘partly—by its own admission—to protect the commercial interests of providers’. And since, again, all of this was only brought to light by the activists, it was (is) almost as if the government was in bed with Private equity in this—but not a care home bed….

(ii) Princes of Denmark

By 2024, the average house price in California outstripped the average wage by a factor of more than eight. In that year alone, the typical owner of a single-family home gained $55,000 in asset appreciation, nearly as much as the median salary for a full-time employee. Housing has become an engine of downward mobility: The median net worth of US renters was just 2.6 percent that of homeowners in 2024—$10,400 versus $400,000, while the average rent in California more than doubled from 2000 to 2020.

In the most developed economies on Earth, the number of homeless people had risen at an alarming pace. France’s rate of homelessness doubled between 2011 and 2022. Over a similar period, the number of rough sleepers in Britain increased by 164 percent. A common explanation for the crisis held that there wasn’t enough housing. It was supply and demand: If there were more houses, those houses would become cheaper. Then again, as an English medical officer observed of the Bengal famine, lack of food was a minor factor compared to people’s inability to pay for it, and so the poor “died in the streets in front of shops bulging with grain.” A similar paradox applied to housing. People could be surrounded by empty buildings and still have nowhere to live.

And yet, I would add, centrist politicians’ seem to imagine, with their proposed, yet rote non-solutions to these problems, that we are still living in the ‘optimistic’ times of the Thatcher-Reagan anti-Keynesian shock-treatment market reforms—and we are, in a way, as Thatcher’s famous TINA acronym, ‘There Is No Alternative’ (to neoliberalist policy, to government disinvestment in the public sphere coupled with increased concentration of wealth in the private sphere, especially in the opaque world of private equity in this so-called ‘free’ market) are is still very much in play, are the only conceivable game in town…O’

This is true of the Democrats in the U.S., the Liberals in Canada, and of Labour in the U.K., just for starters… even this past summer here in Canada, Mark Carney’s (neo)Liberals gave private property developers sweetheart backstop loans to build more houses for the rental market which people cannot afford, rather than investing in social housing, the way countries around the world did after World War II…. It’s as almost as if these right-thinking, so-called centre-left governments have been ‘legislatively captured’ by deep-pocketed bipartisan donors, are somehow in the pockets of private equity in spite of their rhetoric about creating a more ‘caring’ society in which all may thrive….

(/rant.)

O’Brien is not the first journalist to diagnose the global rise of the neo-fascist far right can be traced to such neoliberal willful perfidy and intellectual bankruptcy. But in this chapter (titled ‘A Very Danish Drama’ ), O’Brien shows that it is also possible to fight back, however: when, fronting for investors which included benign-seeming pension funds, but also^[2] autocrat sovereign wealth funds (see case study iii below) like those of China and…Saudi Arabia, Blackstone came to Denmark in to do to Copenhagen (ca. ~2017) what it was already doing elsewhere and to great effect—scooping up as much former public housing and other rental accommodations as it could, putting these behind an opaque wall of ownership to ensure that tenants had no one to complain to while raising rents and cutting down on required upkeep…

Copenhagen is a small city. Outrage travels fast. One tenant told Danish TV that her apartment had been soaked in rainwater after workmen removed parts of the roof; another said that cracks had started to appear in her ceiling. 360 North even offered some residents sizable sums to vacate their homes for good. Then, once it had renovated an apartment for new tenants, it would sometimes double the rent (Danish housing law allows landlords that make significant improvements to their properties to raise the rent accordingly). A TV channel broadcast a documentary called City of the Rich, which cast Blackstone as its villain.

Across Copenhagen, these tactics became known as ryste bygningen—or “shake the building.” “Imagine someone standing at the base of an apple tree, shaking at the trunk to get the apples loose from the branches,” wrote one journalist of 360 North’s partnership with Blackstone. “In the real estate world, the occupants are the apples, the apartments are the branches, and when a landlord ‘shakes the building,’ it is to get the tenants out.”

… tenants there formed a union to shame their complicit government into…well, governing, on the citizens’ behalf, and not the moneyed investors (in this case foreign) for once—though the Danish pension funds and other private landlords were also caught up in the public backlash against shadowy foreign owners. An election on this issue swept the Social Democrats to power, promising to ‘prevent landlords from hiking the rent on apartments they renovated until ten years after their initial purchase. That would stop not just Blackstone but every investor in Copenhagen.’ Compromises were inevitably made with industry lobbyists, of course, but the citizen-activists had kept up pressure on the pragmatist government, and showed real change was still possible:

As well as blocking new landlords from raising the rent for five years, the new legislation also barred them from offering tenants money to move out. It targeted all landlords, pension funds, and big investors. Blackstone was just the wedge that propped open the door.

(iii) From Russia (to Kenya—via Dubai) With Love

In Chapters Six and Seven (‘Good Guys R Us’ and ‘Buried Treasure’), O’Brien first sketches, albeit somewhat briefly, the road two denizens of the former USSR, turned oligarch, took toward PE-land, first by the usual loans-for-shares route former State factory managers used to acquire large private stakes in the firms they once managed on behalf of their comrades, then, by virtue of surviving the ascendency of Vladimir Putin, towards becoming one of the principal investors in the PE firm Altpoint, then-new owners of the U.S. state of Marylan’s privatised voting infrastructure, via a company which they controlled called ByteGrid. His name was Vladimir Potanin, while another, Viktor Vekselberg (reputed to be ‘one of the world’s friendlier oligarchs’—leaving out precisely who held title to the superlative?!) took the aluminum smelter route to America, where he ‘reportedly paid half a million dollars to Trump’s attorney Michael Cohen, whom Vekselberg had supposedly met at Trump Tower just days before the president’s inauguration, to discuss strengthening Moscow’s relations with Washington’—all quite innocently, of course. Only kidding:

Taken together, these two stories suggested how private investment funds might serve as a means for oligarchs to deploy their resources undetected. The secrecy of these financial arrangements meant these cases gave only a minuscule insight into the kinds of money that could be flowing into the financial and political system, from people the government might wish to know about. And it wasn’t just Russians who were making the most of this opacity […]

Since an investment adviser managing a US private fund wasn’t legally required to ask the type of know-your-customer questions that are designed to filter out money launderers, a criminal could hide behind an anonymous company, approach an investment adviser, who would then—all going well—agree to their business. In fact, there was a perverse incentive for the adviser not to ask too many questions about the true source of this money […], because not asking meant you could claim you genuinely didn’t know. Once the money was invested in the fund, it would then be placed in a US bank account, to slosh around with money from other, more legitimate sources.

Governments became aware of this problem, but PE lobbyists are good at what they do, and so, until the Russia-Ukraine war, little was done to ‘put oligarchs in the spotlight’. Even then, with sanctions rolled out and new Treasury department rules requiring fund managers to know and show where their money was coming from, the ever-larger funds were gaining leverage over national governments, rewarding influence peddling at the highest levels of government, a la neophyte fund manager Jared Kushner and his $2 Billion PE investment from Saudi Arabia, who were seemingly untroubled by the Trump son-in-law’s lack of experience actually managing money…

With the help of a post-9/11 US law which exempted private equity from ‘Know Your Customer’ regulations (red tape?!) intended to prevent the kind of accelerating levels fraud that the 21st century has become known for, the Emirates’ financial hub of Dubai became notoriously essential for helping shield the origins of its depositors as rules became somewhat tighter Stateside, and it is well worth quoting the book at some length on this:

This dependence on Gulf investment developed in the 2010s, when Western firms dispatched sales teams to scour the Arab petrostates for funding, opening offices in Riyadh and Dubai. Sovereign wealth funds, state-owned pots of money typically generated from the proceeds of oil and natural resources, invested huge amounts in private equity, quickly becoming so important that Western fund managers often cut them in on better terms. These developments reflected two uncomfortable truths. First, the ethos of Anglo-American capitalism meant that anyone was free to participate in the marketplace, and there were no barriers to a nation with a proclivity for beheading its own citizens and a reputation later tarnished by its murder of a Washington Post journalist. Second, the wealth of the Middle East had made the region more powerful than Wall Street.

The Saudi sovereign wealth fund, Public Investment Fund (PIF), elided the boundary between investment and political influence. This was why bin Salman overruled its board when it raised questions about investing in [Kushner’s] Affinity Partners. It was also why PIF had begun assiduously accumulating soft power through sports partnerships, acquiring Newcastle United Football Club, a slot in the Formula One calendar, and even taking over the PGA professional golf tour. Western media devoted time and space to the ethics of accepting money from a despotic regime, but the kingdom’s quest to launder its reputation through targeted acquisitions was mostly humored, and occasionally welcomed. “It’s been a long, long time […] since any Arab leader wore me out with a fire hose of new ideas about transforming his country,” wrote The New York Times columnist Thomas Friedman, who interviewed bin Salman during a press trip to Saudi Arabia in 2017. The Gulf state was the first foreign country that Trump visited in each of his presidential terms. If Western private equity funds were courting its investment, that was merely a sign of the times. […]

The growth of sovereign wealth funds and the close relationship many of them enjoyed with Wall Street represented the ascendancy of a geopolitics grounded in patronage, self-interest, and the pursuit of deals that bolstered the power of individual leaders rather than the well-being of their populations. Yet the idea that foreign actors could be gaining a foothold in Western democracies via the finance industry received surprisingly little attention.

So we can see how democracies crumble, via the privatization of a nation’s ‘social fabric’—in Denmark, the special focus was housing; in America, medical services; in the UK, care homes…but by the 2010s, PE was looking elsewhere, specifically to previously ‘neglected’, poorer nations in the global south, where strong growth rates were occurring, and the kind of youthful upwardly-mobile demographics that western investors had ignored—with Dubai providing the laundering facilities for a con, led by ‘Arif Naqvi, founder of the Middle East’s first homegrown private equity fund’, which told ‘a “capitalist fairy tale,” a deceptive Cinderella story in which everyone could do well by doing good’ in the global south (my italics).

This did philanthropists like Bill Gates and governments DFIs (‘development finance institutions’) load Naqvi’s fund with money for…

an “aspirational ocean lifestyle village” in Mauritius, gated communities in El Salvador, and two luxurious hotels in Nigeria […] private schools in sub-Saharan Africa, [and] the Nairobi Women’s Hospital in Kenya, a chain of nine for-profit hospitals that treat men as well as women. Abraaj had invested in the company before, and in May 2017, its healthcare fund acquired 75 percent of the chain. Later that year, a Kenyan TV station sent an undercover reporter to one of the hospitals and found that twelve patients were being detained on its fourth floor after failing to pay their bills. The longer they stayed, the more debt they racked up.

…all while insuring that the local poor in those countries received little from the supposed ‘trickle-down’ effect, since continually rise profit rates could never be ensured by ‘developing’ anything which benefited these populations—unless prolonged, coerced hospital stays counted, of course.

Now, I could go on…

…discussing O’Brien’s superb analysis of the impact PE had on British water and sewage services…

By the end of the twentieth century, Britain’s experiments with privatization had made it a profitable target for a financial creation in search of new opportunities. To a deal-hungry financier, water companies were a great bet: They enjoyed virtual monopolies, provided a service so vital that people would die without it, and were overseen by a somewhat sleepy regulator, Ofwat. “It was in the UK where this model of water privatization was prototyped, tested, and worked out to the fullest,” said Brett Christophers, a political economist who has paid more attention to this subject than perhaps anyone else, documenting how asset managers came to own so much infrastructure—particularly Britain’s—in his book, Our Lives in Their Portfolios

… or her thorough examination of a pair of short sellers who had targeted a trend that O’Brien also discusses at some length, how opening PE to ‘Retail Investors’ would make John and Jane Doe DOA, because the very tendency or drift that PE firms have toward decadence, bloat, bloat, and self-dealing, vastly undermining their initial pitch, oh so many years ago, that their invention had been necessitated to keep bloated, self-dealing CEO of mega-corps in check, and ensure shareholder value…

[…] the sheer proliferation of private equity funds rang alarm bells. Since 2008, the number had nearly doubled in the United States alone. Even Kim Kardashian was entering the market, announcing in the summer of 2022 that she was launching her own firm with a former partner from Carlyle. Koppikar and Matagrano weren’t alone in thinking that these were the morbid symptoms of a market where too many people were chasing too few opportunities.

That criticism was sharpened by the fact that private equity made a lot of money for its fund managers and much less for everyone else. A 2011 report produced by the World Economic Forum observed that the industry had been organized so that “most of the rents from these skills go to the fund managers themselves, rather than to the [investors].” Some of the industry’s most powerful investors—the Saudi royal family, say—had enough clout that they could negotiate better terms, or even come on board as “co-investors,” which meant they didn’t have to pay the 2 and 20 fees that made the fund managers rich. Ordinary people would never have this clout. Instead, the risk was that they would become the mark that the fund managers could swindle for fees.

…or the absolutely killer-diller final chapter, ‘Barbarians and Bureaucrats’, about how our entire house of cards of a financialized casino economy, accelerated by unregulated PE, was duping (or, OK, openly bribing our ostensibly elected officials into helping them destabilize, for greater profit, the entire lifeworld we normies are nevertheless determined try to survive in for some reason…

On the face of it, private equity’s business model belonged to a more stable world when debt was cheap. But what about the other, more unsettling possibility: that private equity was in fact destabilizing the world? This isn’t quite as far-fetched as it might sound. Its basic logic—as conceptualized by William Simon in the years after his eye-opening trip to Moscow—was to use finance in order to unleash disruptive energies: dry powder to blast the dead wood from the foundations of those complacent postwar corporations and save the West from economic decline.

Yet numerous people had told me that one of the industry’s latter-day innovations was so risky that they feared it could now detonate the entire financial system. The same asset managers who invested in private equity had begun creating private credit funds that lent money rather than borrowed it. In effect, they were creating their own banks, making loans to their friends who were doing leveraged buyouts. These “shadow banks,” as they were known, didn’t have to share information about how much money they were lending, or how their loans were performing, making it difficult to tell how much leverage was building up in the system, or what might happen to the rest of the economy if this were to explode.

…but I won’t, saving you the pleasure of reading these important case studies for yourself.

All in all, then, this was a most satisfying, thoroughgoing, yet also rather terrifying deep-dive into what we’ve allowed our world to become. Hopefully, more journalists will take up Hettie O’Brien’s baton and keep us riled up enough so that we demand our politicians do something about it for everyone’s sake, before we are finally compelled to torces, pitchforks, &c.

Thanks for reading!

1. Staff at the Care Quality Commision (CQC) ‘logged 153,000 calls and emails about safeguarding issues between 2016 and 2017. They also received almost 8,000 reports from whistleblowers, yet only carried out a follow-up inspection in 11 percent of these cases. In the six years leading up to 2024, in-person nursing-home inspections fell by two-thirds,’ Obrien Writes.↩︎
2. From Ch. 6, ‘Good Guys R Us’:
   ‘There was another thing that bothered the former [US Financial Crimes Enforcement Network] official too. The bigger the industry grew, the more power it exercised over governments, and the more attractive it became to people who wanted to buy influence. Jared Kushner, Donald Trump’s son-in-law, founded his own private equity fund, Affinity Partners, soon after leaving office. It promptly received a $2 billion investment from Saudi Arabia’s sovereign wealth fund. The fund’s advisers raised concerns about investing so much money with Affinity given what it saw as the “inexperience” of its management, but these concerns were brushed aside by its board, led by Crown Prince Mohammed bin Salman.’↩︎