Outside the majestic Wittenbergplatze subway station in Berlin, activist Hedda tells people passing by that the majority of the superrich in Germany have inherited their wealth.
Walking back and forth in front of other protesters and a giant banner with a large polar bear wearing a pink hat, she cites an analysis that found only one in four billionaires in the country is self-made.
“What taxes can the government use to fairly redistribute this excessive wealth generated by the genetic lottery?” Hedda shouted.
“Inheritance Tax!” Someone shouted back. The workers, who are part of a group calling themselves NoSuperReturn, cheer and someone passes the man a golden chocolate coin.
It is the lively start of a week of protests in the German capital around SuperReturn, a private equity conference that brings together participants representing more than $50 trillion (€43 trillion) in assets under management, according to its organizers.
Basics of Private Equity
But why are private equity companies so controversial?
Here’s how they work: First they collect investments from pension funds, insurance companies, banks and wealthy individuals.
With that capital they buy companies with the express goal of selling them again in three to five years. They promise massive returns – much higher than normal returns on the stock market. But that profit is largely achieved through debt, known as a leveraged buyout.
To purchase the company, private equity firms typically finance the acquisition with about 30% to 40% equity and 60% to 70% debt. Therefore, the money comes mainly from investors, while private equity firms make only a small contribution.
In an effort to further increase returns for investors, companies purchased by private equity firms are often reorganized, cutting staff, selling assets and taking on large amounts of debt.
price out and sell high
Extracting value and enhancing returns is the focus of every panel at the SuperReturns conference – no matter whether it focuses on mid-sized companies, the defense and infrastructure sectors or volatile geopolitical times.
“In any purchase, they [the private equity firms] Less than one percent is at stake, which means they’re playing with other people’s money,” said Rosemary Batt, professor emeritus of human resources studies at Cornell University.
With his colleague Eileen Appelbaum, Batt has been studying how private equity operates for more than 15 years.
“They’re taking risks with other people’s money. They win on the upside,” he said. “They don’t lose on the downside.”
One panelist at the conference commented: “The biggest challenge is how to sell at the highest price.”
This is a primary objective for private equity, and yet for years they have had trouble reselling their acquired companies. The so-called exit backlog is a frequently repeated concern at the conference.
taking more out than putting back in
Importantly, the way private equity extracts money from businesses can have detrimental effects on companies, workers, customers and the economy generally, Batt says.
“Profits from companies, from productive enterprises, are going into the pockets of financial actors, rather than being put back into companies to help them grow, be innovative and compete well in the economy,” he told DW.
Batt says, although private equity is present in almost every market, its practices in the health and elder care sector are particularly worrying, because companies often take out more than they invest.
For example, Eloheim, the largest privately owned nursing home chain in Germany, has been passed twice from one private equity firm to another. First from Star Capital Partners to the Carlyle Group, a leading US private equity firm.
In 2017, Carlyle Group sold Elohem to Nordic Capital. Later, Nordic Capital began the process of selling the company to an investment bank. The sale was held in 2024 due to difficult market conditions.
But it seems market volatility can also be beneficial.
Private equity and global instability
“Volatility is our friend,” said one panelist, pointing to various opportunities. This is a sentiment shared by many participants.
Another panelist compared the past years to the “Hunger Games” with the COVID-19 pandemic, Russia’s invasion of Ukraine, as well as tensions in the Middle East and concerns over the Strait of Hormuz.
One bright spot is the German defense industry. According to the manager of a German private equity fund, this is a boon for investors because all the government money is available now and he expects it to keep flowing for the next 10 to 20 years. On the same panel, an American, whose company has been involved in defense contracts for decades, said he had tripled his invested money.
Nevertheless, BAT argues that private equity buyouts do not deliver on their promise of exorbitant returns.
“The median fund has not beaten the stock market since 2006,” he said.
According to him, research also shows that companies affected by private equity buyouts have a bankruptcy rate about 20% higher than the average publicly traded companies.
A polar bear, a pink hat and an elephant
On the third day of the conference, NoSuperReturn activists declared the area in front of the conference hotel a toxic zone and tried to prevent attendees from entering.
Some workers were wearing yellow protective suits and gas masks. Others, dressed in business suits, lay in the street as if dead – victims of an economic system that prioritizes profit over life. But police moved in almost immediately to clear the area.
“We want a change in mentality,” said Dominic Lang, a spokesman for the group. “For an economy that ensures a good life for everyone.”
For their final protest, about 200 people gathered near the conference and walked through the streets making as much noise as possible.
A trio of them had disguised themselves as lobbyists. There were also a dragon puppet, a polar bear in a pink hat, and three stuffed elephants with a banner that read: “The elephant in the room: Tax the rich.”
Edited by: Tim Rooks