The intense appetite among private-equity firms to get a bigger piece of the stimulus windfall has put a spotlight on the numerous ties between wealthy industry figures and Trump and his family — raising questions about potential conflicts of interest as the Treasury Department writes the rules for handing out billions of dollars in loans and grants.
One significant connection to the industry is through Kushner, a top White House official whose family real estate company received millions in loans from Apollo Global Management, a New York-based private-equity firm.
Two weeks ago, a partner at Apollo sent a personal email to Kushner suggesting steps the administration should take to ensure loans are available to firms with a wide range of risk, according to two people briefed on the correspondence, who spoke on the condition of anonymity to describe the private communication. Such a move could benefit some private equity firms, as well as other investors that hold debts such as mortgages and commercial real estate loans.
More broadly, top private-equity leaders have given Trump counsel as the coronavirus pandemic has shaken the economy. Days before the passage of the $2 trillion stimulus package, an elite group of financiers — including the heads of two major private-equity firms, Blackstone Group and Vista Equity — offered advice to Trump and Vice President Pence on a conference call, according to people familiar with the discussion.
The private-equity industry is pushing to qualify for various pots of stimulus funds, arguing that companies with investors should not be left out of the relief effort.
Some private-equity firms want their companies to be able to tap the stimulus’s loan program for small businesses, which is limited to companies with fewer than 500 employees. Many also want their companies to be eligible for other loans aimed at larger businesses, even though some of those businesses are at higher risk of defaulting.
Drew Maloney, director of the American Investment Council, the industry’s trade group, said private-equity firms simply want a level playing field for the companies they back and are not lobbying for special treatment.
“What we’ve highlighted is, our employees are suffering just as much as those in any sole proprietorships and public companies,” Maloney said. “The virus is not discriminating against businesses based on ownership structures.”
In the past week, a bipartisan group of lawmakers including House Speaker Nancy Pelosi (D-Calif.), Rep. Ro Khanna (D-Calif.) and Sen. Jerry Moran (R-Kan.) have blitzed Treasury Department and Small Business Administration officials with letters on behalf of companies backed by private-equity or venture capital funds.
The lawmakers have called on the administration to waive a rule that would normally disqualify “equity-backed” companies, such as ones receiving private-equity or venture capital funding, from winning small-business stimulus funds, because it treats multiple businesses controlled by a single investor as one entity.
An aide to Pelosi said the House speaker’s letter was intended to help venture-capital-backed companies, which are particularly prominent in her San Francisco district, and that private-equity representatives had not approached her about waiving the rule.
Khanna said he is concerned that start-ups backed by venture capital will be left out.
“This rule change is needed to protect thousands of workers,” he said in a statement. “It has nothing to do with equity interests.”
On Friday, the financial industry secured a modest victory: The Treasury Department issued guidance waiving the rule for a small subset of small businesses backed by private equity and venture capital, to include those in the accommodations and food-service industries, as well as franchisees.
Treasury Department officials did not reply to requests for comment.
Critics say the federal government needs to prioritize taxpayer money for small businesses that are not controlled by major financiers and for companies that are more likely to pay back their loans to the government.
“We’re going to have our radar up on how private equity is going to try to maneuver this whole issue,” Sen. Ron Wyden (Ore.), the ranking Democrat on the Senate Finance Committee, said in an interview last week. “Our argument is that private-equity companies shouldn’t be trying to milk the small-business side.”
Some of the private-equity industry’s most influential executives have long-standing ties to key members of the administration, including Kushner and Treasury Secretary Steven Mnuchin, a former investment banker.
In late 2017, Apollo loaned $184 million to Kushner’s family real estate company, Kushner Companies, to help it refinance the mortgage on a Chicago skyscraper.
It was one of the larger real estate loans Apollo had made at the time, according to information the company provided to Congress, and it allowed Kushner to refinance a purchase he had made at the peak of the real estate bubble. Kushner had resigned from the company when he joined the White House, but he retained stakes in dozens of subsidiaries of Kushner Companies, over the objections of ethics experts.
Kushner had also discussed a possible White House job for Apollo co-founder Josh Harris soon after Trump’s inauguration, the New York Times reported in 2018. Harris became an outside adviser to the White House on infrastructure policy but never joined the administration.
Two weeks ago, Apollo co-founder Marc Rowan emailed Kushner, arguing for expanded access to a new Federal Reserve loan program. The email was first reported by NBC News.
Rowan urged that the Federal Reserve overhaul its program, known as Term Asset-Backed Securities Loan Facility, or TALF, to loan money to even those companies at higher risk of defaulting on their loans — all to get money moving through the economy again.
Apollo spokeswoman Joanna Rose said Rowan was arguing for expansion of investments “across the investment grade market, which would efficiently reach the largest number of companies and do the most good.”
She said Apollo’s companies would not benefit from such a change. “Our private-equity companies are not investment-grade,” she said.
Kushner forwarded Rowan’s email to the White House team working on the stimulus, according to an administration official.
White House deputy spokesman Hogan Gidley said Kushner’s practice is to simply pass on any such suggestions.
“Sec. Mnuchin, [National Economic Council Director] Larry Kudlow and Chief of Staff [Mark] Meadows led the negotiations along with all of the Senators and Congressmen who speak to and get input from many people,” Gidley said in a statement. “When Jared receives suggestions from industry experts he shares them with the economic team as appropriate.”
Rose said Rowan emailed many people his ideas for the bailout package, including Kushner.
“He didn’t have any further conversations with Jared, to my knowledge,” she said. She said Harris had not spoken to Kushner about the stimulus and that she was not aware of any conversations he had with other administration officials.
Rose said the firm has not received any special access or treatment from the administration because of the company’s support for Kushner Companies.
Private-equity firms represent some of the wealthiest players in the financial industry, and invest money for other large financial players, including pension funds and college endowments. Sometimes they invest in small and promising companies. The firms also often buy distressed companies at bargain prices, such as Toys R Us, then cut wages and benefits and lay off workers to make the most profit.
One of the biggest figures in the industry, Blackstone Group chief executive Stephen Schwarzman, has been a frequent guest at Trump fundraisers and White House events and a top adviser to the president on China.
Since 2017, Schwarzman has given $250,000 to Trump’s inauguration committee and about $700,000 to a joint fundraising committee supporting Trump’s reelection campaign, federal filings show.
On March 24, Schwarzman joined other financial chiefs on a call with Trump to discuss how the novel coronavirus was affecting the economy and the need for Congress to support both the major financial sectors, as well as small and midsize businesses, according to people familiar with the discussion.
On the call, which had been arranged by Pence’s office, Trump asked several questions about what was driving volatility in the market, how the credit markets were faring and how Federal Reserve actions were being received, the people said.
In addition, Blackstone has ties to Kushner’s family company. In 2016, it financed a $340 million Kushner purchase in Brooklyn, according to loan documents filed with the city. In all, it has provided the company with more than $400 million in financing, according to a 2017 Bloomberg News tally.
A company spokesman said the firm’s principals are not lobbying the administration to adjust stimulus rules for private equity.
No one “from Blackstone has spoken to the Administration about including PE-owned companies” in the stimulus package, said Blackstone spokesman Matthew Anderson.
However, Blackstone is a prominent member of the American Investment Council, which is actively involved in the push and has sought support from lawmakers.
Critics say the private-equity model often leads to more unemployed workers because firms are focused on ruthless efficiency and investors’ bottom line, rather than long-term growth and workers.
One 2018 study found companies bought by private equity lost 4 percent of their workers, on average, within two years of the purchase; large public companies bought by private equity lost far more workers, with an average of 13 percent of jobs lost.
“The idea is that, if there is some labor or employees who do not fit with the new vision of the firm and private-equity firm, they can be let go and find a job somewhere else,” said Amit Seru, finance expert at the Stanford Graduate School of Business and a senior fellow at the Hoover Institution. “In the process, their hope is that the firm creates more value for their investors and the economy. The vilified nature comes typically from the fact that there are, many times, employees that get fired.”
Private-equity leaders argue their companies are an increasingly large part of the economy. An industry-commissioned report said private equity generated $1 trillion for the U.S. economy and employed 8.8 million people in 2018. The industry says that 12,000 of the companies it backs are small businesses.
Currently, most small companies in a private-equity firm’s portfolio don’t qualify for stimulus funds provided through the Small Business Administration under what is known as the “affiliation rule.”
Businesses must report if they have major investors, and they are blocked from the program on the theory that they can borrow money from their larger and deep-pocketed private-equity backers, rather than taxpayers. The purpose is to make sure that businesses truly owned and operated by individuals can benefit from the loan, rather than opening the funds to companies that must answer to the interests of shareholders and parent companies, experts said.
“The Small Business Administration needs to focus on small businesses. Firms controlled by private equity aren’t really small businesses,” said Joshua Sewell, senior policy analyst at the nonpartisan budget watchdog Taxpayers for Common Sense. “The private-equity firms have access to resources, financing vehicles, technology and the like that small mom-and-pop companies don’t.”
Private-equity firms say many of their small businesses will have the same struggle to get cash, regardless of who invests in them.
Other stimulus programs will make loans to much larger businesses. But some economic experts fear that companies backed by private equity often have a higher risk of failure and defaulting on loans, arguing that taxpayer money shouldn’t be risked on these investments.
The Institutional Limited Partners Association, the trade group for companies owned by private-equity or venture capital funds, urged the Federal Reserve and the Treasury Department in an April 2 letter to be more flexible in allowing companies in danger of defaulting to apply for loans.
Companies that are rated to be higher-risk represent more than 5 percent of the gross domestic product as the corporate sector has taken on more debt over the years, and a significant percentage of them are backed by private-equity firms, the group wrote.
But some economic experts warned about using stimulus loans this way.
“They are basically asking the Fed to think about investing in junk-grade debt, because that is where a large chunk of investments in the economy are currently,” Seru said.
Tom Hamburger, Ashley Parker and Erica Werner contributed to this report.