President Donald Trump picked an odd political moment to remove guardrails from the private equity industry. A July poll commissioned by Americans for Financial Reform found that a 65 percent majority agreed with the statement, “We need guard rails for Wall Street firms like private equity because otherwise they maximize short term profits for themselves, cut jobs, and reduce the quality of products and services.” There was surprisingly little partisan difference on this point. A 59 percent majority of Republicans agreed with a 78 percent majority of Democrats.
The public hates private equity so much that the once-arcane phrase “private equity” (in the 1980s we called it the leveraged buyout racket) is a political hot button in this year’s midterm elections. Earlier this week, the Financial Times reported that nearly three times as many congressional candidates in competitive races pilloried the industry by name as compared to congressional candidates in the previous five election cycles (when the preferred term of derision was ‘big banks”).
Yet Trump keeps removing restrictions on private equity!
In August 2025 Trump issued an executive order to free defined-contribution pension funds such as 401(k)s to invest in private equity, and this past March the Labor Department issued a proposed regulation to do so. The Securities and Exchange Commission followed through on Wednesday by approving a proposed rule allowing retirement-fund managers to charge a larger universe of clients the sort of high-performance fees associated with private equity (typically 20 percent above a certain benchmark). Currently such fees may be levelled only on “qualified” (i.e., rich) clients, defined either as any whose net worth is $2.7 million or more (excluding their primary residence) or as any for whom the retirement fund in question totals $1.7 million or more. Under the SEC proposal, which has not been made public (summary here), average Joes would pay these higher fees while investing their retirement funds in risky private equity. What could possibly go wrong?
The lure for these average Joes is that private equity, like most investment schemes in which the buyer assumes greater-than-normal risk, can deliver greater-than-normal returns. The key word here is “can.” According to the private equity firm KKR, over the past 25 years private equity netted, on an annualized basis, a four to five percent higher return than “public equities” (i.e., stocks). But lately private equity returns have lagged the AI-torqued stock market. According to the Private Equity Stakeholder Project, a nonprofit watchdog group, during the past three years the median return on the fifteen largest “evergreen” private-equity funds—i.e., those funds in which assets don’t get locked up, and therefore private equity’s likeliest retirement vehicle—was half the median return for the S&P 500. More traditional (and more numerous) private equity funds in which investors lock up their assets for 10 or more years have fared even worse than the evergreens.
It’s gotten so bad that in April, the analyst Henrique Schneider of the forecasting firm GIS, wrote an obituary for the private equity industry:
The pressure to deploy vast sums of capital—a staggering $2.18 trillion in global “dry powder,” the committed but uninvested capital held by private equity, as of March 2025 —has led to a chase for deals at any price…. The industry is now sitting on a bloated inventory of an estimated 31,000 companies, collectively valued at a staggering $3.7 trillion, with a persistent and widening gap between on-paper valuations and what a rational buyer is willing to pay in the real world.
This desperation helps explain why private equity in recent years has moved into various government-subsidized sectors that a more sensibly regulated nation than ours would never allow. These include retirement homes and hospice care. The results have been just as damaging to the quality of care as you’d expect. Private equity has also invested heavily in single-family homes. Private equity’s intrusion here has inflated prices for single-family housing to such an extent that Trump told the Treasury department last January to put some brakes on it. We have, after all, a housing shortage. Congress followed through in July with a housing bill that banned for-profit entities that owned more than 350 single-family homes from purchasing any more. Private equity’s infuriating role in bumping up housing prices is the main reason the industry gets pilloried so much these days by political candidates.
Even here, though, Trump can’t resist siding with private equity. In an August 31 letter to Department of Housing and Urban Development Secretary Scott Turner and Federal Housing Finance Agency Director (and sometime intelligence chief) Bill Pulte, Democratic Senator Elizabeth Warren, who co-sponsored the housing bill, complained that these agencies cancelled a 30-day purchasing period that formerly gave owner-occupiers an advantage over private equity in acquiring foreclosed homes. The Trumpies just can’t help themselves.
Private equity’s desperation for new markets is why it pushed Trump (largely, it appears, through Blackstone chief executive Steve Schwartzman, who gave Republicans $40 million in 2024) to give ordinary investors greater access to private equity in the name of “democratizing” it. But there’s some question whether these ordinary investors even want it. When The Wall Street Journal surveyed investors last fall via a Harris poll, only 10 percent said they were dissatisfied with their current retirement-fund options. But the same survey found that these ordinary investors were persuadable; informed that most companies with revenue exceeding $100 million were privately held, 59 percent said sure, okay, they’d like to invest in these behemoths. Who’s going to tell them they only got invited in because the party was already over?
You’ve probably heard the term “lemon socialism” to describe government investment in a failing enterprise that, in the event of recovery, gets to keep the profits. (Many of us used that term during the 2008 financial crisis to describe the Bush administration’s bank bailout.) The Trump administration’s attempted rescue of the private equity industry is a related phenomenon, lemon deregulation. (I believe I am the first person to use this term.) Lemon deregulation works like this: Take a failing industry. Throw it a lifeline by removing prohibitions that prevent it from operating in a manner that endangers the public. Then do the best you can to ignore the damage.
Can lemon deregulation revive private equity? That’s an open question. But even if it does, the cost will be unacceptably high to people who can’t afford to risk big losses to their nest egg. And quite apart from the substance, Trump is throwing his arms around an industry that even many Republican candidates right now are turning into a political bogeyman. Politically, he can’t afford that. Maybe this last part should be our little secret.
