A search of recent business headlines for the term “private equity” yields a bounty of results, particularly those that mention regulation or litigation in the sector. “SEC Takes On Private Equity, Hedge Funds.” “Private Equity, Hedge Funds Sue SEC to Fend Off Oversight.” “SEC Fines Real Estate Private-Equity Firm Prime Group.” “Money-for-Nothing Lawsuits Against Private Equity Founders Get Boost.” Select leaders in private equity also make news: Billionaire David Rubenstein interviews high-profile newsmakers on his Bloomberg and PBS shows, Jerome Powell is the chairman of the Board of Governors of the Federal Reserve, and Glenn Youngkin is the current governor of Virginia. All three are alumni of the Carlyle Group, one of the largest private equity firms.

Private equity is, of course, stock in private firms that does not trade on public exchanges. The term also informally refers to the specialized investment funds and limited partnerships that trade those equities and usually take an active role in the management and structuring of the private firms. There is a lot about these funds that is worth investigating and understanding. Toward that end, Pulitzer Prize and Gerald Loeb Award-winning author Gretchen Morgenson, who now works for NBC News, and financial research consultant Joshua Rosner have collaborated on These Are the Plunderers, a new book that delves into the private equity sector. This is their second book together, the first being 2011’s Reckless Endangerment, which chronicles the history leading up to the mortgage crisis of the 2000s.

The players / Between the book’s title and its introductory chapter, “Let the Looting Begin,” Morgenson and Rosner make clear their position on private equity funds. In wading through an explanation of private equity, the reader is exposed to heaping levels of overwrought rhetoric:

The economic wreckage caused by the takeover titans is real and measurable…. The riches amassed by the people overseeing these money-spinning machines—and most of them are white males—are simply staggering…. Theirs is a distorted kind of capitalism, a setup in which they benefit while many others lose. They have perfected the art of “Asshole Capitalism” … where citizens feel entitled to unlimited personal enrichment even at social cost.

To apply more of a textbook definition to the private equity industry while maintaining their rhetoric, Morgenson and Rosner explain to whom their ire is directed:

Private equity is a catch-all phrase, but the financiers we are highlighting take over companies in transactions using high-cost borrowed money raised in the corporate bond markets from investors willing to take on greater risks. They are not entrepreneurs or traditional businesspeople, prospering while creating jobs and opportunities for others. … These men are America’s modern-age robber barons.

To attach proper nouns to the negative descriptors, the authors give a few examples of the largest of the private equity players, along with further detail on their business model:

The biggest private equity firms are Apollo, Blackstone, the Carlyle Group, and Kohlberg Kravis Roberts. They buy companies and load them with debt while bleeding them of assets and profits. A few years later, they sell these same companies off to new owners, perhaps in an initial public offering of stock, ideally at a substantial gain for themselves and their colleagues and partners. Often the companies they buy collapse in bankruptcy after the financiers have piled on the debt and extracted their profits…. Their business model creates little of value for society; in fact, their job cuts, higher costs of goods and services, and exploitation of the tax code have worn the nation’s social fabric thin.

The authors explain that they reached out to many of the principals of the private equity firms—Henry Kravis, Stephen Schwarzman, David Rubenstein, and Leon Black—to allow them to give their side of the story. Unsurprisingly, none of them chose to do so.

Executive life and Apollo / An outsized share of the book is dedicated to a single case study with related offshoots: a saga regarding insurance products sold by Executive Life Insurance (ELI), which is mentioned more than 80 times in the book. Its history is traced in detail in the first seven chapters—nearly a third of the book—and is mentioned many times thereafter. At the genesis of the story when ELI is first introduced in the book, it is an A+ rated company (financially sound), and it is selling a structured settlement product whereby a customer can contract for a fixed cash stream with a cost-of-living adjustment.

The book tells of Vince and Sue Watson, who purchased one of these insurance products in 1986 that would pay $9,000 per month. They did so upon receiving a medical malpractice award (and at the urging of the awarding court) in compensation for their daughter Katie being permanently brain damaged through her hospital’s negligence in treating her pneumonia. This amount was supposed to cover around-the-clock care for the rest of Katie’s life. Four years after the purchase of the product, ELI made some bad bets in the bond market and was ultimately seized by the California insurance commissioner in early 1991. In what Morgenson and Rosner describe as a “virtual giveaway” and “the deal of the century,” the insurance commission (which was overseen by a California court) sold ELI’s investment portfolio on the cheap to private equity firm Apollo Global Management. The terms of the original insurance product were no longer in force. Federal prosecutors scrutinized the deal, but the case was ultimately dismissed. We are told the Watsons lost their home after being burdened with the bulk of the costs of care for Katie. Additionally, 300,000 other policy holders were damaged by this hit on the investments backing their products, losses of upwards of $3 billion according to a state audit.

The basics of the Watsons’ plight is explained in a few pages in chapter one, but the reader is given an inordinate amount of further detail on ELI, Apollo, and its founder, Leon Black, including details on Black’s upbringing, his family, his ability to build wealth, and his time at Drexel Burnham Lambert; the background of then–California insurance commissioner (and now U.S. congressman) John Garamendi; and the story of Maureen Marr, an activist who gave of her own time to valiantly work for the interests of thousands of ELI customers neglected in the wind-up process overseen by the State of California. This dedication of ink would have made sense for a book about Apollo. But much of the story told of ELI and Apollo is from many decades ago, and dedicating one-third of the book to this narrow example does not give a reader much of a sense of the contemporary state of the private equity industry.

The authors lay much of the blame for the ELI fiasco on the private equity industry. They use it as an initial exemplary case in their journalistic prosecution of the industry that is the core focus of the book, supported by a quote from the Watsons: “Leon Black got the deal of the century on the backs of the handicapped and the brain damaged.” To be sure, the Watsons and others are highly sympathetic figures. But shouldn’t the blame for their plight fall at least as much on the original management of ELI that got the insurer in such dire financial straits, or the California insurance commissioner who made the decision to intervene and managed its liquidation, or the California Public Employees Retirement System (CalPERS) that invested in Apollo and the funds it managed, or the various courts that encouraged the initial product purchase and allowed the ELI sale to go forward? Although the authors briefly mention those (mostly state) actors, they don’t get anywhere near the heat as the private equity firm that purchased the crippled insurer.

Healthcare and retail cases / Another dedicated chapter focuses on the role of private equity in the healthcare industry. The authors introduce the topic early by explaining:

Beginning in 2005, these money-spinners began prospecting for riches in healthcare, spending over $1 trillion to buy up hospital systems, physician practices, nursing homes, medical billing services, and other companies in the field…. Historically, healthcare was run for patient outcomes rather than profits or efficiency, but since these firms began taking over the industry, they’d cut back on investments in ventilators, beds, excess supplies, and staff.

No citations were readily available for these transformational claims. No discussion is offered of other factors contributing to these factors, like the ever-expanding presence of government in healthcare. Another case where details were lacking is Morgenson and Rosner’s critique of the private equity industry’s defense: “One of its claims: Private equity is improving healthcare. Reams of unbiased academic research and a rising number of practitioners say otherwise.” Yet they offer no citations for these reams of unbiased research.

Among the authors’ case studies that readers may be familiar with are some iconic American brands. They appear early in the book as part of a tirade against job losses Morgenson and Rosner ascribe to private equity:

Between 2003 and February 2020, retailers owned by these financiers eliminated over a half million jobs across America. Among them were positions at the bankrupted Sears, Kmart, Linens ’n Things, Claire’s, and Toys ‘R’ Us. Some of these failures can be attributed to the rise of online shopping, but only some.

This time there is a citation for the authors’ broad-brushed accusations: a report from the progressive group Americans for Financial Reform, a collection of self-appointed consumer and labor groups as well as other special interest groups. But the report is a position paper and not a serious analysis balancing the causal factors for these business failures, allocated between online shopping, the private equity industry’s leveraging of the businesses pre-bankruptcy, and additional factors. Morgenson and Rosner blame private equity for the firms’ financial troubles, presenting the case studies as if the businesses were in fine shape before their buyouts.

Conclusions / None of my criticisms should be interpreted as saying that private equity is always an angelic force. But These Are the Plunderers presents thin evidence on those issues where private equity rightfully should be criticized, and I would like to have seen more and better analyzed examples.

The authors do properly point out contradictions in the funds’ practices:

These unbridled capitalists have mounted expensive lobbying campaigns to ensure continued enrichment from favorable tax laws…. In 2020, Apollo was one of the first firms to mount a D.C. lobbying campaign to insulate their interests from a COVID collapse.

There are other troubling cases that the authors could have explored. For example, Stephen Schwarzman was a self-serving proponent of the massive TARP bailout during the 2008–2009 financial crisis who demanded that Treasury secretary Hank Paulson take swift action. But instead of telling that story, the authors write of Schwarzman’s pay checks:

[During] 2021 when much of the nation was worried about where their next paycheck was coming from, Schwarzman took home $1.1 billion in compensation and dividends…. [His] net worth more than doubled that year, from $16 billion to $35 billion.

Another flaw in their broad-based critique is their assumption that immediate or quick asset disposition should always be avoided because it leads to a depressed sale price. They write, “Even a dullard knows a fire sale is precisely the wrong way to get the highest price for something you want to sell.” That blanket assertion is simply untrue; the alternative is a holding strategy, and there are risks to that approach, too. The price of a depressed asset can go down even further, and if one chooses a “holding strategy,” choices must be made about timing the market, deciding when an asset should be disposed of. The authors dedicate a chapter to critiquing the fire sale approach and raise the same issue elsewhere in the book, presenting a one-sided and superficial approach without setting out contrary arguments. Finance principles are rarely so cut and dried.

Putting aside ideological concerns, the book has a serious practical flaw: there is no index, at least in the version I purchased. As the case studies toggle between historical examples and the present day, it is a challenge to track some of the characters without ready access to an index. Its absence is unexplained.

I think I would have enjoyed a balanced book that provided the breadth of analysis on the good, the bad, and the ugly of the private equity industry, leaving me to make my own judgment on private equity. These Are the Plunderers is not the book I was looking for. I need a solution to address this imbalance. Either I can find a book with a more balanced presentation of the facts or else find one with a one-sided presentation that gives the view from the private equity perspective. I’ll keep looking.