Texas’ ‘High Risk’ Wall Street Relationship

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Texas is among the top 10 states at risk of Wall Street’s corrupting influence.

Texas has a private equity risk score of 84/100, reflecting the “very high risk” private equity firms pose to the state’s healthcare industry, housing market, public pensions, and workforce, according to a new state risk index from non-profit watchdog Private Equity Stakeholder Project (PESP).

While the negative influence of private equity buyouts can be seen all across the United States, it is becoming increasingly prevalent and noticeable in Texas due to the state’s booming population, business-friendly regulatory environment, and low taxes, among other things, as previously reported by The Dallas Express.

The general risks associated with private equity-controlled companies include reduced staffing levels, lower wages, benefit cuts, job losses, and economic instability. There are also outsized risks to the state’s healthcare industry and housing market.

Risks to the healthcare industry involve deteriorating patient care, higher medical costs, and the closure of critical healthcare facilities, while risks to the housing market include increased instability, higher rental prices, and unsafe living conditions.

“By providing transparent data on the risks associated with private equity investments, we empower communities, working families, and policymakers to advocate for change and protect their states from the threats posed by unchecked private equity firms,” said Chris Noble, policy director at PESP in a press release.

In addition to being among the top 10 states for its share of private sector workers at private equity-controlled companies, Texas is among the top 10 states for its share of hospitals controlled by private equity and single-family homes purchased by corporate investors over the last five years.

Based on the four categories tracked by the risk index, Texas’ public pensions (84/100) are most at risk of being negatively influenced by private equity. While nearly 18% of state pension assets are invested in private equity, none are covered by private equity fee disclosures or responsible contractor policies.

According to PESP communication director Matt Parr, as the share of state pension assets invested in private equity increases, so does the fiduciary and headline risk involved.

Parr told The Dallas Express in an interview Friday that private equity firms often use a high level of debt when making investments and acquisitions. Since these investments are typically illiquid, they require more supervision and oversight. Without proper oversight, the pension could lose money, impacting police officers, teachers, firefighters, and other public servants.

Parr explained that, in many cases, unreported or opaque fees will distort the pension’s actual return on investment (ROI). For instance, Parr told DX that the average return over the 12 months ending in Q3 2023 was just 6%, down from a 16.6% ROI between 2017 and 2019.

He said that even though private equity can advertise higher rates of returns, this is not always reflected in the results.

Since stakeholders have a new resource to track the relative risks from private equity, they also have a tool to protect against bad actors.

Sen. Elizabeth Warren (D-MA) recently called the state risk index “a razor-sharp tool in the fight to hold private equity accountable.”

“Let’s call out private equity’s abuse for what it is: legal looting,” said Warren. “Together, we’re taking on this trillion-dollar, behemoth industry that’s hurting working people and sucking money out of the rest of the economy.”

The 10 states facing the greatest risk from private equity include:

  1. New Mexico (100/100)
  2. North Carolina (91/100)
  3. Arizona (89/100)
  4. Florida (89/100)
  5. Nevada (88/100)
  6. Georgia (86/100)
  7. Washington (85/100)
  8. Texas (84/100)
  9. Colorado (84/100)
  10. Tennessee (83/100)

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