Private Equity Deals Gain Clout, May Hurt Workers The recent sale of Chrysler by Cerberus illustrates the growing clout of private equity firms in the U.S. economy. But the growth of private equity firms also raises questions about its impact on workers. Members of a House committee delved into these issues at a hearing on Capitol Hill.
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Private Equity Deals Gain Clout, May Hurt Workers

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Private Equity Deals Gain Clout, May Hurt Workers

Private Equity Deals Gain Clout, May Hurt Workers

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STEVE INSKEEP, host:

This week's sale of Chrysler to the private equity firm Cerberus highlights the increasingly powerful role investment companies can play in the economy. Cerberus Chairman John Snow, a former treasury secretary, recently said the firm will take a deep interest in operations at Chrysler, from labor talks to payroll.

Yesterday, a House committee looked at the effect that private equity firms could have on workers, and NPR's Frank Langfitt listened in.

FRANK LANGFITT: Private equity is just a fancy name for an investment firm that buys a public company, changes management and then — ideally — sells it for a big profit in a few years. But critics point out that some private equity firms slash jobs and contribute to America's growing income gap. Andy Stern runs the Service Employees International, one of the country's biggest unions.

Mr. ANDY STERN (President, Service Employees International): For all the hundreds of millions in dollars of fees and billions of dollars of profits taken out of these deals by private equity firms, the workers at most of these companies have seen no increases in benefits, no increases in wages.

LANGFITT: Jon Luther paints a rosier picture. He runs the company that owns Dunkin Donuts and Baskin Robbins. He says when private equity took over his firm, the new owners didn't fire workers. Instead, they helped him get cheaper financing so he could expand and create more jobs. Since private equity took control two years ago…

Mr. JON LUTHER (CEO, Dunkin Donuts, Baskin Robbins): We've probably opened over 2,000 stores — all brands — worldwide. And what they have done is they have enabled that growth, said go for it and let's go into new markets. Let's seed it with marketing. Let's give incentives to the franchisees to be those great pioneers as we make our march across the country.

LANGFITT: All this is just anecdotal. Nobody at yesterday's hearing could cite a study on private equity's net impact on jobs. And the relationship between private equity and labor is complicated. In fact, some of the money fueling private equity takeovers actually comes from union pension funds. That led Congresswoman Maxine Waters, a California Democrat, to ask union head Andy Stern this.

Representative MAXINE WATERS (Democrat, California): So public employee pension funds and union funds could be investing in deals where people are going to get laid off?

Mr. STERN: Yes, because, you know, they are called limited partnerships because they have a limited role in the decision-making process.

LANGFITT: As Stern pointed out, pension fund managers have one key responsibility: getting the best investment return for the people they represent.

Frank Langfitt, NPR News, Washington.

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