An increasing share of the U.S. economy is controlled by private equity. In the mid-1990s, there were about 8,000 public companies in the U.S. — now there are about 3,700. And private equity is only growing: Global private equity assets under management are expected to reach $8.5 trillion by 2028. In spite of the recent fundraising challenges some firms are experiencing, private equity is changing our economy in ways that many people are only beginning to understand.
With that understanding has come a barrage of criticism of private equity, from both policymakers and civil society. Sens. Elizabeth Warren, D-Mass., and Ed Markey, D-Mass., for example, introduced the “Health Over Wealth Act,” which would impose onerous restrictions on healthcare businesses owned by private equity. Think tanks ranging from American Compass to the Center for Economic and Policy Research have written extensively about the ills of private equity. While much of the criticism is thoughtful and valid, it often doesn’t propose a workable solution or alternative to the status quo.
Such criticism also generally fails to account for the large range of practices across private equity firms. While some funds are extractive, others create shared prosperity.
The New York City Employees Retirement System (or NYCERS), one of NYC’s five pension funds, recently adopted a different approach. When New Yorkers reported that increasing investor ownership of residential property was driving up rents and pushing out existing residents, the comptroller's office kicked off a two-year process to engage fund managers and other stakeholders in the development of fair standards for investor-owned housing.
The result is the Responsible Property Management Standards (or RPMS), which NYCERS recently voted to incorporate into its investment policy statement and apply to future investments. These standards take the form of seven principles that prescribe things like fair rent increases, practices to minimize evictions and standards for maintaining quality and accessibility of housing. Landlords will also have to disclose eviction rates, reasons for tenant exits and average time to resolve maintenance requests. These standards complement local regulations designed to protect tenants and are specifically designed to separate the good from the bad actors in investor-owned housing.
The original impetus for wanting to address the role of private equity in New York City’s housing market was a fund capitalized by the Texas Permanent School Fund, a special-purpose governmental corporation that invests public money for the benefit of Texas schools. But this issue is not specific to Texas or New York; investors have been buying an increasing percentage of single-family homes around the country. The private equity firm in question could just as easily be using New York pension fund money to buy homes in Dallas or Houston, or California pension funds to buy real estate in Florida.
The RPMS is a model that would benefit communities around the country, especially those places where rents and home prices have been rising fastest. Perhaps more importantly, it is a model that can be used across sectors to ensure that private equity operates responsibly and not at the expense of tenants, consumers, patients or taxpayers.
For example, we could develop an analogous set of standards in healthcare, financial services or around job quality. This type of approach to standards would allow pension funds and other long-term asset owners — most of which steward funds for retirees or taxpayers — to ensure that their funds make money in ways that serve the interests of their beneficiaries. It is an approach that should resonate across diverse political constituencies.
Our nation may be divided politically, but we can unite around our shared goal of having a supply of housing — and an economy — that works for everyone.
Margot Brandenburg is senior program officer at the Ford Foundation. She is based in New York. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I’s editorial team.
