This article originally appeared on the Wall Street Journal on December 15, 2019.
In her continuing effort to punish success, Sen. Elizabeth Warren is going after an important piece of America’s thriving economy: the private-equity industry. Her subtly titled Stop Wall Street Looting Act would put private-equity investors in a legal category separate from other investors, severely limiting the legal protections available to them and diminishing their incentive to take risks and invest.
Ms. Warren’s legislation would hold private-equity firms, but not other investors, responsible for the liabilities of the companies in which they invest, “including debt, legal judgments and pension-related obligations.” No other shareholders in the U.S. have to take on such liabilities. This excessive legal and financial exposure would dramatically reduce the incentive for firms to invest in struggling businesses. Ms. Warren would additionally ban dividends for two years after a private-equity firm buys a company, forcing the firms to tie up their investors’ funds for longer and reducing their returns.
The senator is trying to set private equity up as a boogeyman to fear. Nothing could be further from the truth. Private equity is an overwhelmingly positive component of the free-enterprise system. It generates value for investors while creating jobs and wealth for a broad spectrum of individuals and entities.
I have personal experience with the benefits of private equity as a former chief executive of CKE Restaurants. After the financial crisis crashed the stock market, CKE needed to de-emphasize quarterly earnings and focus on building the business, something the public market often punishes. So we explored the possibility of going private.
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