It was the free croissants that gave it away. And the Scandinavian-style furniture. And the tasteful pastel walls. It was different from other nurseries I’d viewed: marginally more expensive, the aesthetic equivalent of a WeWork for toddlers. I was eight months pregnant, on a tour of various nurseries in south-east London for my daughter. At the time, I didn’t realise that this wasn’t just a nursery, but a prototype for an immense experiment that is quietly playing out across Britain.
The nursery I visited is backed by private equity, a surreptitious and tremendously powerful realm of finance that now has its hands on just about everything. Private equity funds and related asset managers own water companies, apartment blocks, student accommodation, care homes, children’s homes, funeral parlours and more. The titans of this industry have perfected a cradle-to-grave model of investment focused on the places we live, work, grow old, and eventually die, capturing these core services and squeezing them for profit.
To be clear, I have no problem with free croissants. The problems emerge when fund managers get to decide the fate of the institutions that hold society together. Nurseries backed by private equity have sprouted up across the UK over the last five years, taking over independent businesses and merging them into gigantic chains. To an outside eye, many of these look the same as before, but they report profits that are as much as seven times greater than the surplus made by non-profit nurseries, spend up to 14% less on staff, and have far higher rates of staff turnover than nurseries run from schools. Their zealous search for profit means such nurseries are less likely to open in poorer areas, and can close at a moment’s notice, as parents in Hackney recently discovered when their nursery suddenly closed down. This isn’t any way to run a vital social service.
I’ve spent the last four years researching private equity, and during that time I’ve been blown away by both the sheer scale of its involvement in our lives, and by what it reveals about how power and wealth now operate. A clue lies in its name: private equity deals in companies that are private. Unlike publicly listed companies, private equity-owned firms publish as little as possible about their activities and accounts, making it hard to follow the money and see how your childcare fees are spent, or whether a company is loss-making or not.
“The light of day is the best disinfectant,” the supreme court judge and liberal reformer Louis Brandeis once said. When information disappears, so does effective scrutiny. As a style of ownership, private equity resembles the opposite of democracy. It concentrates power among a small group of exceptionally wealthy dealmakers who reap the benefits of society’s failure to hold them accountable. It’s no surprise that Republicans have been pushing for legislation that would strengthen this industry’s grip over the US economy.
The term itself is a kind of camouflage, involving no mention of the vast amounts of debt involved in most of its deals. The basic mechanism at their heart involves something known as a “leveraged buyout”. It works like this: you, a fund manager, buy a company using a sliver of your own money and borrow the rest. Then, you load this debt on to the company you just bought. If the deal goes well, you pocket the winnings. If not, it is the company, not you, that is on the hook. In theory, this debt is supposed to create leaner, meaner, more efficient businesses. In practice, it can have disastrous effects on public services. In the case of nurseries, despite amassing vast debts, private equity-backed nursery chains have done little to address the shortage of childcare places, and may be more vulnerable to collapse. This leaves parents without childcare and workers without jobs.
The story of how high-octane finance collided with such mundane places started, like so many things in Britain, in the 1980s, when ministers in Margaret Thatcher’s Conservative government worried that their country was in the doldrums and looked to the US for answers. When the government waived through an agreement in 1987 allowing fund managers to pay less tax on their gains than the rest of us pay on our incomes, ministers believed they were ushering in “venture capitalists”, whose Silicon Valley style of business might one day produce an iPhone or electric car. Instead, they got fund managers who snapped up companies on the cheap and loaded them with debt.
The more time I’ve spent rifling through archives, interviewing financiers and reading the biographies of deceased dealmakers, the more I’ve come to think of the industry’s methods as a metaphor for how power now operates in 21st-century Britain, where private extravagance has become the flipside of public austerity. Governments have strained public spending in the name of fiscal responsibility, even while the owners of formerly publicly run services rack up reckless levels of debt. Investors have played extravagant games with our vital infrastructure, while regulators have been cut back so far that many have ceased properly investigating the problems this creates.
This all reflects a darker turn towards an economy where debt-driven speculation has become one of the most dominant routes to building wealth. Today, it’s not just fund managers doing leveraged buyouts. Scroll through TikTok and you’ll encounter a cottage industry of influencers preaching the prosperity gospel of “passive income” and instructing their followers how to use debt to buy houses to rent to hapless tenants. As Stefano Sgambati, an academic who has written about these weird developments in our political economy, told me: “The game is that you borrow, and try to have others pay for your debts.”
For the last 80 years, capitalism’s principal claim to legitimacy was the idea that the economy would keep on growing, offering everyone a share in its spoils. People were willing to tolerate others having larger slices of the pie so long as they believed they would be left with more than just crumbs. But in an unequal and stagnant economy, capitalism starts to look less like a gradually increasing pie and more like a zero-sum game where, in order for you to win, someone else has to lose. In order for your house to go up in value, someone else has to be locked out of buying their own. In order for a fund manager to generate a return by buying up student accommodation, some student, somewhere, has to foot the bill.
In this context, acquiring essential services makes perfect sense. Even if people are forced to cut back on all other forms of spending, they’ll always need water, energy and somewhere to live. Their elderly grandmothers will still need a care home. If they have children, they’ll still need a nursery. Private equity’s takeover of the public realm is symptomatic of something deeper and more troubling: capitalism doesn’t really need to grow in order to survive. Instead, those on top have discovered an even easier formula for building wealth: buy up the basic tenets of our lives, heap them with debt, and push the consequences on to the little people.
