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Misery Makers

The arch-goons of private equity

Late last year, Goldman Sachs held its annual Builders+Innovators Summit in Santa Barbara, California. It’s the kind of event where elite members of society gather to congratulate themselves for being rich and powerful, while listening to speakers like Hillary Clinton lament the burdens of their wealth.

“There is such a bias against people who have led successful and/or complicated lives,” Clinton had said in an interview with then-Goldman CEO Lloyd Blankfein at a Builders+Innovators Summit a few years earlier, according to leaked emails. She was referring to ethics rules that require elected officials to divest from certain assets before taking public office.

The 2019 summit was three days of hobnobbing, clinics “led by seasoned entrepreneurs, academics and business leaders as well as resident scholars,” and on-stage interviews with Gwyneth Paltrow and others with something to sell. It also included the announcement of the one hundred people Goldman deemed the year’s “most intriguing entrepreneurs”—unknowns, at least to the wider public, who had advanced some new idea. Xiaodong Yang, CEO and founder of a biopharmaceutical company, for example. Or John Lauer, co-founder of a tech firm that enables business-to-customer text messaging.

But one “intriguing entrepreneur” was no doubt recognizable to many people who live far from Wall Street and don’t read Goldman Sachs press releases: Steven J. Schaub. A former apartment property manager in Colorado, Schaub is a founder of Yes Communities, advertised online as a manufactured housing utopia: “Helping people live rich, meaningful lives. One person, one family, one home and one community at a time.” The website’s images call to mind a bucolic existence, where children play on green grass and dads tend the barbeque and everyone has something to smile about. The homes are new and sparkling and surrounded by flowers. The sky is blue. Big American flags sway gently in a soft breeze.

The company’s stated mission “is to create communities that our residents are proud to call home,” which it does by offering not just a place to live, but “a vast array of amenities and services,” including activities and events “that build friendships,” a summer lunch program for kids, free tutoring, and sports teams.

Goldman recognized Schaub because of this “instrumental work that has reshaped the manufactured housing industry through innovation, building community and delivering on the best in class resident experience,” according to a press release. Like the other honorees, he represents “true innovation,” said Goldman CEO David M. Solomon, which is “built from a diversity of perspectives and experiences.” Schaub is “striving to drive meaningful change.”

And it’s true that Schaub has driven change in the lives of Yes Communities residents. But not in the way he’d like you to think. Look a millimeter beneath the press-release pabulum and marketing gibberish and you’ll find that Yes Communities is nothing more than a typical aggressive landlord to those living in 56,000 mobile home sites in 215 trailer parks across eighteen states.

Under his lordship, Schaub has imposed hefty rent hikes on lot fees and fines for minor sins like failing to keep lawns at regulation height, while refusing to fix potholes or provide other basic maintenance. At Florence Commons, a Yes Communities trailer park near Nashville, the homes are sinking into the ground, the park needs streetlights, and trash goes uncollected. If your double-wide is coming apart at the seams, do not expect help. If you can’t afford a 30 percent lot fee increase, too bad.

Why would any of this constitute building or innovating? Because Yes Communities is an arm of the approximately $15.9 billion private equity concern Stockbridge Capital. As numerous other takeovers have shown, jacking up prices while lowering overhead costs are hallmarks of the private equity business model.

It’s a strategy that one man who lives in Florence Commons summed up neatly when he told the Washington Post: “They’re taking advantage of—I wouldn’t say poor people—but working people. Where do you think their profits come from?”

It’s Private

Many news outlets have published stories lately describing this destructive force, a force so powerful that it controls the livelihoods of 5.8 million employees. That’s how many people work in the thirty-five thousand companies private equity firms own in the United States. And some of those articles angrily mock what looks like the ineptness of executives, who buy a company, say they’re going to improve it, then ruin it instead. It seems like repetitious failure. But when private equity executives trot out the line that they are going to improve a company, understand that what they mean is: improve it for their own interests. And when ministrations result in the company’s collapse, understand that that’s private equity working as intended.

“We assume the finance capital is there to create opportunities for capital more broadly to succeed, and I think that is a rather complacent assumption to make in relation to the way finance and business have been structured in the last twenty, thirty, forty years,” Matthew Watson, author of The Market and Uneconomic Economics and the Crisis of the Model World and a professor of political economy at the University of Warwick, told me over the phone in December.

“If we put a conventional framework of understanding business success and business failure onto private investors, we probably can’t really understand how it is they continue to survive and prosper in the modern economy. We have to move that frame of reference to understand how they can prosper from other people’s adversity.”

The homes are new and sparkling and surrounded by flowers. The sky is blue. Big American flags sway gently in a soft breeze.

The 2017 demise of Toys “R” Us under its private equity owners, Bain Capital, KKR, and Vornado Realty Trust, for example, put thirty-three thousand employees out of work. It was a similar story last spring when Debenhams, once the UK’s largest department store chain, collapsed under the private equity ownership of Merrill Lynch, CVC, and Texas Pacific Group. So far, 660 people have lost their jobs this year and more layoffs will likely follow as the company closes additional stores. These are just two examples of private equity, which falls under the larger category of private markets, sometimes called “alternative investments,” which also includes hedge funds and venture capital. But those distinctions don’t really matter to the people they harm. Look, for example, at former Goldman Sachs arbitrage acolyte Eddie Lampert, who used a hedge fund to buy up Sears and Kmart and merge them in 2003–2005; he loaded the retailers up with debt, and then started closing stores, laying off thousands of employees, and by late 2018 Sears ended up in bankruptcy. Or look at venture-capital-owned WeWork, which tried last year to go public under the disastrous and bizarre leadership of its former chief executive, Adam Neumann, and instead cancelled its IPO, got bailed out by its top investors, and then promptly announced it would lay off 2,400 employees, with plans to eventually slash another thousand jobs.

The common thread running through many private equity stories is the creation of over-leveraged companies run by overconfident outsiders—that model has long plagued media companies, as the takeover and implosion of the once-popular sports website Deadspin dramatized last fall.

Yet, as Watson explains, what looks like a failure to us is not a failure to them. “A failure for them would be very, very easily understood as an investment they made that didn’t produce a new income stream for them,” Watson said. “It’s a simple baseline calculation of that very, very short-term and self-interested nature, and I really don’t think they’re bothered that they might blow up loads of firms in the meantime. There seems to be this very aggressive, macho attitude that, well, if a firm comes within their clutches, that means there’s something wrong with it in the first place. It doesn’t deserve to survive.”

That strategy might present worrisome image problems for a public company. But a private one? “The way they treat workers is immaterial,” Andrew Ross, a professor of social and cultural analysis at New York University who researches labor issues and has spoken out against cruel labor conditions, told me over the phone in December. “In the history of capitalism, that’s a pretty common pattern. You have to take a bit of a loss to send a message to workers that they have to stay in line,” he said. And, besides, “they’re not household names. It’s the household names that are easy targets.”

Trailer Cash

Steven J. Schaub is not a household name. Nor are the leaders of Stockbridge Capital, founder and executive managing director Terry Fancher and executive managing director Sol Raso. And the $13 billion at their disposal is nowhere near the biggest in the private equity industry, which as of 2018 held a record high of $5.8 trillion—an amount so large that it would cover the entire U.S. federal budget for 2020 and still have $1 trillion left to spare.

But I’m using them as an example because even in their middling status they hold power over the lives of thousands of people—potentially millions, if the buying spree continues. More than 22 million people live in manufactured homes in the United States, according to the Manufactured Housing Institute, which also says that the number of manufactured home shipments has steadily risen since the financial crisis, since fewer people can now afford traditional site-built homes. And what’s more: they can’t afford to leave, which is what makes mobile home parks such a good investment for someone willing to squeeze. In fact, that very detail is why it’s the only type of real estate that hasn’t declined in operating income since 2000, and why private equity companies have poured money into mobile home sites across the United States in the recent years. It’s why millionaire trailer park owner Frank Rolfe likened mobile home residents to Waffle House diners chained to their booths. (He has since defended his quote on the website for his school on how to invest in mobile home properties.)

I’m using them as an example because they illustrate the corruption of our economic system, which private equity embodies perfectly, and which mobile-home private equity distills even further.

You do not need to be a financial genius to make this strategy work. You do not even need a degree in business or finance to be involved and profit. All you need is to get a lot of money—and don’t worry, there are rich investors clamoring to provide it. And you need to not care who you’ll hurt. If you can do that, then you, like Schaub, have a shot at rising from the humble background of state school attendee to the owner of a $5.7 million home with thirteen bathrooms who enjoys accolades from one of the largest investment banks in the world.

Private equity firms raise their money from a variety of external sources. One of the largest groups of investors is public pension funds, which means that ordinary taxpaying employees contribute to this misery-making project. Stockbridge’s $13 billion worth of funding, for example, comes mostly from two sources, one of which is the Pennsylvania Public School Employees’ Retirement System. (Private equity firms that buy mobile home parks can also get money from the U.S. government, as Stockbridge did when it got a $1.3 billion loan from Fannie Mae, which justified it by saying it was helping low-income renters.)

Why would public pensions invest in something so destructive? According to financial experts (who also happen to stand to make a buck with this assertion), private equity funds allegedly outperform public markets across the world—a necessity, from the pensions’ point of view, given that pensions around the country are underfunded to the tune of $1 trillion. And I say “allegedly” because there are plenty of studies that shed doubt on whether private equity firms are the cash cow they claim to be.

Whatever the justification, the deal we’ve struck is that for one group of people to retire after a lifetime spent teaching third grade, we’re willing to risk another group being made jobless or homeless.


Private equity was made famous in the early 1980s by the conservative Catholic businessman William E. Simon, who worked as the head of Salomon Brothers’ municipal and government bond department before giving up his Wall Street salary of at least $2 million a year to become Nixon’s deputy treasury secretary. He rose to secretary, was reappointed by Ford, and today is credited as an architect of the modern conservative movement and characterized even by his friends as awful. One account holds that he would sometimes awaken his children by throwing cold water on them. He was “a mean, nasty, tough bond trader who took no BS from anyone,” his friend, Heritage Foundation co-founder Edwin J. Feulner, once told a reporter.

Private equity had been around as a minor investment strategy since shortly after World War II. But after his government service ended with the Ford administration, Simon used it to make such an outsized profit that even though other big deals had come before, bankers of the day credited him with prompting the deluge of takeovers that followed. In short, Simon and his business partner raised some $80 million and bought Gibson Greetings, a greeting card company that RCA Corporation had been trying to get rid of. Within eighteen months, they sold it for $290 million. Simon’s personal investment had been $330,000. He walked away with around $70 million. “It’s kind of frightening to make this kind of money,” he later told a reporter.

Some people noted back then that it wasn’t through financial prowess or uncanny good luck that the deal had turned out so well; it was because of connections and paper-shuffling. Simon had gotten the money to buy Gibson thanks to a $13 million loan from an affiliate of Barclays Bank, another from General Electric Credit Corporation for $39 million, and through a complicated resale transaction of his own real estate holdings to raise another $31 million—a deal that also gained another of his own companies $4 million in profits. None of that would have been possible had it not been for the high gloss that public office had given his already-shiny Wall Street credentials, wrote Michael M. Thomas, the Lehman Brothers partner who left Wall Street to pen financial thrillers and other works, in his cover story for a 1983 issue of New York magazine.

“This prominence set Simon on a path to wealth available only to men with access to large amounts of credit and privileged information. His post-Washington career is a miracle wrought as if by an invisible hand, a hand belonging to Uncle Sam,” Thomas wrote. “It’s hardly what we might expect from a man who has preached, also to his considerable profit, a gospel that says if we’re going to make anything of ourselves we have to cut loose from Washington.”

Thomas also noted an aspect of the Gibson deal that has been replicated in so many takeover targets filing for bankruptcy in the years since. In order to get the loans, Simon had to put up collateral. And he did: Gibson itself. The company’s debt more than doubled, from $22 million to $59 million within a year; in this kind of a gamble, a “leveraged buyout,” the hope is the company will make so much more money under its new owners that it will be able to pay it all off. But that’s not a given, and when a target company can’t, the owners will simply let it die—as was the case with Toys “R” Us.

Simon sold Gibson before he had to deal with that. His windfall drew the attention of other investors, and the years between 1979 and 1989 saw more than two thousand leveraged buyouts, valued at more than $250 billion, according to one estimate. It also drew the attention of journalists, who would label private equity actors “corporate raiders,” for their ruthlessness in buying companies and then selling them off, bit by bit, as Carl Icahn did when he sold TWA’s prized London routes to American Airlines for $445 million following his hostile takeover of the company in 1985. Icahn then took the company private, a deal that resulted in $469 million for himself and $540 million in debt for TWA, which eventually led it to file for bankruptcy and close. The end of the 1980s saw what was then the biggest leveraged buyout in U.S. history, when KKR bought the conglomerate RJR Nabisco, predecessor of today’s R.J. Reynolds Tobacco and Nabisco, for $31.1 billion.

You do not need to be a financial genius to make this strategy work. You do not even need a degree in business or finance to be involved and profit.

And then the cracks began to show. Saddled with the debt needed to facilitate their purchase, buyout targets started to go bankrupt. The RJR Nabisco deal needed an extra $1.7 billion from KKR to stay afloat. Drexel Burnham Lambert, an investment bank that handed out much of the money private equity firms used to make their buys, pleaded no contest to six felonies and paid a $650 million fine, and in early 1990, filed for Chapter 11 bankruptcy protection.

But the lessons Wall Street learns from such a trajectory aren’t the same ones you or I might. Remember: Failure to them is different than failure to us. Just like companies are once again dealing in subprime loans even though that’s what tanked markets in 2008, companies in the 2000s began super-charging their private equity buys, financed through massive amounts of borrowed money—debt they assigned to their targets. That era saw hundreds of buyouts, including the biggest buyout in U.S. history yet, KKR’s purchase of Texas power company TXU Corp. for about $45 billion—a deal that will only be eclipsed if KKR’s proposed $70 billion leveraged buyout of Walgreens Boots Alliance goes through. The era’s deals also included Sears and Toys “R” Us: billions of dollars spent, right up until the markets crashed. The price tag for deals in 2007 was $365.9 billion in the United States. Now, on what is widely considered to be the eve of another recession, private equity firms have a record $2.44 trillion of unspent money—cash they can use to buy up more companies—according to research firm Preqin.

Secrets of the Looters

All this money means lots of people have pinned their hopes on an investment strategy that harms others. It means lots of people will fight against anything standing between them and their payday, like the bill Elizabeth Warren put forth last summer that would curtail some of the activities that make private equity profitable, though it wouldn’t outright forbid them. The Stop Wall Street Looting Act would, for example, make it “more likely” that a worker gets a severance package if her company goes bankrupt under a corporate equity owner. But it wouldn’t demand it.

What it would demand, though, is something private equity managers are even more afraid of. It would bring to light certain details they’ve never had to reveal, including the fees they charge their investors, the returns they give back to them, the debt they’ve placed on the companies they’ve taken over, and the annual performance of their funds. Private equity firms are allowed to keep all of that secret, which is the main reason the gambit is so impenetrably confusing to anyone on the outside.

Here’s what we know about them generally: a private equity firm derives its spending money from wealthy outside investors, like pension funds, who give it a significant amount of money on the promise that they’ll get it all back, plus a cut of the profits, ten years or more down the line. Those investors are the limited partners. The private equity firm pools that money and buys several companies, which they use to compose a portfolio. That’s the private equity fund, which other investors, again, usually pension funds, invest in. Private equity firms usually require institutions to put at least $200,000 into the fund, and they also charge this second tier of investors an annual fee of 2 percent of all the money in the pot. The equity firms also typically take 20 percent of the profits. (Hedge funds often operate with the same fee structure, usually referred to as “2 and 20.”)

The fund’s pool of money goes up when the firm sells one of its targets to another buyer or takes it public in an initial public offering. Those returns are collected and shared among the investors. The general aim is to outperform a benchmark like the S&P 500 by 3 percent, an amount meant to be high enough to justify the high cost of investing in a private equity fund.

But those are all generalities, and for the most part, the only way to get detailed information about how specific firms operate is if an investor or limited partner publishes them, or if they’re revealed in a legal document like a bankruptcy filing, or if an insider whispers them to you.

Details are so hidden, in fact, that it’s impossible to know for certain whether private equity isn’t just one giant pyramid scheme. It may as well be, for all we know.


I want to end this unhappy discussion with the tale of one person in particular, Jim Spanfeller, a portfolio manager for private equity firm Great Hill Partners. That firm, which as of 2017 managed $4 billion, bought Gizmodo Media Group from Univision in April last year, changed the name to G/O Media, and gave it to Spanfeller to run as its CEO. Within months, he had closed its political news website Splinter, and driven out the entire editorial staff of its sports news site, Deadspin. Those roughly two dozen journalists joined the ranks of the more than 7,800 media employees who are estimated to have lost their jobs in 2019.

The Deadspin debacle was, as most media people saw it, an unforced error, a result of decision-makers who didn’t understand what caused the site’s heavy traffic. On a Monday in October, a G/O editorial director issued a memo to employees that dictated that sports would be “the sole focus” of the site—even though its mix of politics, sports, and culture had been wildly successful, as an analysis by the Los Angeles Times showed. By the end of the week, almost all the staff had walked out. By the beginning of this year, Spanfeller had written a letter to the union representing G/O workers announcing hopes to “restart the Deadspin publication” and to move its headquarters from New York to Chicago.

All you need is to get lot of money—and don’t worry, there are rich investors clamoring to provide it. And you need to not care who you’ll hurt.

It was hard not to see an anti-union agenda in Spanfeller’s wrecking-ball approach to Splinter and Deadspin, especially given that he halted negotiations with unionized members who left. But at the same time, his alleged behavior toward his new employees was so childish and unnecessarily shitty that it’s hard to square it with the fact that he is an adult human being. In one claim against Spanfeller, plaintiff Michael McAvoy, former president and CEO of The Onion and executive vice president of sales, describes the kind of boss who plays employees off each other and treats the female ones as disposable.

In a separate lawsuit, plaintiff Nadine Jarrard, former G/O vice president of West Coast sales, describes him not just as a bully who caused her “severe, substantial and enduring emotional distress, including humiliation, embarrassment, anxiety and indignity,” not just a bore who regaled female employees with stories about Harvey Weinstein, but a fool whose decisions cost the company millions of dollars.

Now, in the great scheme of things, it doesn’t really matter to Spanfeller and Great Hill if their Gizmodo buy nets them some bad press for a little while, or even if the whole enterprise collapses. They’ll still make a lot of money because it’s just one asset in a portfolio of other assets and because, if they’re like typical private equity shops, they’re charging investors that 2 percent and contributing just a little to the pot. When a private equity firm starts a fund, it usually only contributes one percent of the total dollar amount, meaning, it’ll get 20 percent of the profits without much risk. Whatever strategy they’ve used, it’s worked in their favor so far: Dow Jones ranked Great Hill among the highest performing private equity firms in 2019—though as for the details of exactly how profitable they are, nobody knows but them.

But the more I looked into Spanfeller’s history, littered with failure, the sadder the story of private equity became to me. Not because I have any sympathy for the guy or his fellow vampires or vultures or however you’d like to visualize them (my preferred metaphor is the “zombie ant fungi”—a fungus that can take over the central nervous system of a host ant), but because private equity casts a light on the way we’ve handed over the well-being of so many to a small group of nihilists.

There was his tenure as CEO of between 2001 and 2009, a period marked by a rivalry between the website and the print edition. It coincided with Elevation Partners’—a private equity firm owned in part by U2 singer Bono—acquisition of a minority stake in the company for an estimated $250 million. That Christmas, Forbes froze the employee pension plan, and in January 2009 fired members of its web and print staff before merging the two warring sides. Spanfeller ducked out seven months later, though he says it’s because the job became “less interesting.”

There was the 2010 lawsuit alleging that the board members of Freedom Communications, which included Spanfeller, had breached their fiduciary responsibilities to the company’s shareholders by distributing millions of dollars in dividends to the firm’s partial owners Blackstone Group and Providence Equity Partners, despite the company’s near insolvency. The case was dismissed in 2012 after a settlement.

There was his launch of Spanfeller Media Group, which publishes two websites, The Daily Meal and The Active Times, and a claim that it would act as a “repair shop” for established websites. Spanfeller had earned his reputation then as a “builder and a fixer,” someone who was reshaping the media landscape to suit a new age of technology. By 2013, The Daily Meal was publishing roughly two hundred stories a day from twenty staff members and more than eight hundred contributors, with a goal of more than tripling that amount. And why wouldn’t he be able to, what with the $13 million in venture capital funding SMG had secured since 2010. Yet when he sold it in 2016 to Tronc (now Tribune Media Company) it was for just $7.6 million. And even that seems like too much: who needs a food website that tells you “Secrets Shopping Malls Don’t Want You to Know” (desirable items are placed at eye-level), or an outdoorsy one that tells you “coding,” “doing magic tricks” and “collecting anything” are “40 Hobbies to Pick Up After 40”?

We can fight for a fair society with that in mind, one that detangles money and morality. The alternative is—no, we’re already living in the alternative.

But the episode in Spanfeller’s career that I found truly chilling—the origin story of someone who chose the wrong side—came shortly after he graduated in 1979 from Union College, a liberal arts college in Schenectady, New York. Spanfeller, only child of a beloved New York illustrator by the same name, left school with a degree in English literature intending to write the great American novel, according to a news story published on the university’s website. He got a job at Soho News, a Manhattan weekly that had covered arts and politics since 1973 and published a column by legendary writer Doug Ireland.

Spanfeller “soon realized that he could influence more people as a publisher,” the news story says. “So he switched to the business side of the paper, advanced quickly, and, after travels in Europe, took a job at AMP Marketing Systems.” If you take that at face value, it’s grim in and of itself, a tidy summation of how someone with creative intentions can be sucked into a very different life. But it leaves out a critical detail: the same year that he started at Soho News, its founder Michael Goldstein sold it to Associated Newspaper Group, the British corporation that also owned the Daily Mail, a fleet of London taxis, and portions of Esquire and The American Lawyer.

It was an unhappy regime, and three years later, after the paper’s fifty full-time employees voted to form a union, ANG told the editor-in-chief and publisher John Leese to either sell the paper or close it. The diktat was a massive blow to morale, as one editor told the Washington Post: “It was like trying to make a piece of wet spaghetti stand up and salute.” So Leese closed the paper down.

How could the event not have made an impression on young Spanfeller, fresh from college? How could anyone who truly wanted to become a writer watch that happen, then years later do the very same to others? “Maybe the lesson he learned is either you do that, or it’s done to you,” Dr. Harriet Fraad, a mental health counselor and a founder of the journal Rethinking Marxism, told me over the phone in December. A young man new to the workplace might think, “don’t fight ‘em, join ‘em. This is how it works . . . I think he may figure, ‘OK, I’m going to survive and that’s all that counts.’”

Maybe there is truth to that; Spanfeller says he’s been working on a novel for over two decades. Maybe his is a case of dreams deferred. But if that’s too charitable, if he’s been on the side of the zombie ant fungi all along, it’s still a tragedy for what it says about how we allow powerful people to treat the rest of us.

“The person who lays off hundreds of thousands of people like IBM did a few years ago can say, ‘If they weren’t lazy, they’ll get jobs,’” said Fraad, who writes about how our economic system affects our psyches and hosts the podcast Capitalism Hits Home. “They can see themselves as really smart to rip people off, smart to fire people and save money. I think they say to themselves, ‘they can get another job.’”

Meanwhile, she says, the ones left without a job are crushed, because it’s simply not true that one can just go out and get another. “If you’re in a system that so rewards money it’s so hard not to be tempted to go after it, regardless of the human cost,” Fraad said. “And it’s very hard for the people who are sacrificed to not feel worthless . . . and they go on feeling like that” unless they believe they can do something about it. In France, for example, “when something goes wrong people are in the streets, protesting. . . . there’s a sense that you have some recourse.”

Not so in the United States. “Capitalism has a sociopathic aspect because you don’t look at the social effects of what you do—and it’s particularly bad in the United States—you look at your own personal wealth,” Fraad said. One reason young people prefer socialism to capitalism, she says, is that “they know there is something terrible going on here and the doors of opportunity are closing on their fingers.” Various polls bear that out: 61 percent of young adults aged 18–24 in a poll conducted on behalf of Axios said they had a positive reaction to the term socialism. Another poll published by Axios says 55 percent of women ages 18–54 would prefer to live in a socialist than a capitalist country.

We can take heart from that. We can fight for a fair society with that in mind, one that stops using money as a stand-in for morality. The alternative is—no, we’re already living in the alternative. We’re making it as we speak. “We’re creating a whole society of dysfunctional individuals who cannot respond to one another’s needs,” said Watson, the economist at the University of Warwick, “Who do not even recognize what one another’s needs might be.”