It’s easy to pile on private equity. The industry’s predilection for heaping debt and risk onto companies and workers, while paying itself lavishly, has been blamed for the demise of brands from Toys R Us to Hostess Brands. Last month, TOMS Shoes, the social enterprise darling bought by Bain Capital in 2014, was handed over to creditors as it struggled to repay a $300 million loan.
To be sure, changing market conditions and other factors played a role in the busts. But “PE” has made itself a target for critics, including presidential candidate Elizabeth Warren, whose Stop Wall Street Looting Act would rein in some of private equity’s most abusive and lucrative practices.
If Warren is wielding a stick, Delilah Rothenberg is dangling a carrot to entice the industry to reform itself. As founder of the Predistribution Initiative, she’s trying to nudge private equity fund managers to create investment structures that share wealth with workers and communities. Rothenberg spent 15 years in finance and private equity herself before having “a bit of an existential crisis” about her own responsibility in exacerbating inequality.
Her manifesto last year called out PE’s excessive compensation, which can top $100 million at the largest firms. (The initiative’s name suggests that instead of only redistributing wealth via taxes or charity, we should also address the means by which that wealth is created).
As Rothenberg and her team have met with fund managers, asset owners, labor advocates and other stakeholders, she has sharpened her focus on fund structures. One proposal: earmark some of private equity managers’ carry, or share of profits, for workers who create value at the portfolio companies. Many private equity fund managers themselves know change is coming. Says Rothenberg, “I’ve been pleasantly surprised by the willingness to engage by some of these asset managers.”