In season five of the hit TV show Billions, the biggest threat to the main character, vulture billionaire Bobby Axelrod, is a “cuddly” impact investor named Michael Prince. 

In one scene, Prince confronted Axelrod about his white privilege and how he acquired his power, right before roping him into charitable service.

“I’m a monster, a carnivorous fucking monster,” Axelrod said proudly, pretty much summing up capitalism and its critics’ chief argument. “You have to be one or you wouldn’t have gotten here in the first place.”

In the age of the Covid-19 pandemic, the argument about capitalism and whether you can really be a “socially impactful” investor, is playing out across many industries in real life. Old structures, systems and business models are breaking down. Pick any industry, look at their numbers, and you’ll see exactly how prepared they’ve been for a global catastrophe all along. 

The private markets are no exception. Many are now forced to rethink doing “business as usual,” with critics becoming louder than ever. More people are paying attention and voicing concerns about working conditions, compensation, board diversity -- the human costs of those high returns and doing business as usual. 

The “have nots” are not happy. There are reasons to be upset.

More than half of companies that defaulted in the second quarter are owned by private equity firms, according to Moody’s report last week, because companies with so much buyout debt are more vulnerable when things turn sour. In fact the private equity firms, arguably the best students of capitalism, didn’t shy away from the government handouts in the form of the Payment Protection Program intended for the small businesses. 

They got “millions of dollars in loans from a taxpayer-backed program despite being told they weren’t allowed to access the money,” the Wall Street Journal reported.

So far “at least 1,322 companies backed by private equity investors” got Paycheck Protection Program loans from the Small Business Administration, based on a review by the Project On Government Oversight (POGO) and the Anti-Corruption Data Collective. In total, these companies received “between $1.5 billion and $3.4 billion” in pandemic loans.

If we’re examining the practices of the past and more PE shops are rolling out their new impact funds, it’s about time to ask fundamental questions about the industry that’s become a “billionaire factory,” what has changed, and why it should be different this time. 

Ludovic Phalippou, the author of Private Equity Laid Bare and professor of Financial Economics at University of Oxford’s Saïd Business School, has been scrutinizing this industry’s practices and methodology for years. 

In 2011 and 2012 he published papers about the hidden fees and conflicts of interest the private equity firms were facing. He’d keep them coming, convincing more of his students with updated PowerPoints, but little would change.

But when he published his latest research in June calling out sky-high compensation and singling out IRR metric as misleading, something was different.

“This time, it went ballistic,” he recalled in an interview. “People are very much aware of what private equity is, especially in the U.S., you have a lot of public pressure to ask questions of politicians.”

Not everyone may be following private equity’s existential growth pains closely, but the public is generally more aware of the industry’s impact on businesses, economy and well-being of the country as a whole. 

One of the arguments of Phalippou’s research, which took him 17 years to compile, showed that private equity firms’ returns are actually comparable to public markets. It’s the performance fees that were exorbitantly higher and made many of the private equity’s major players some of the richest people on the planet.

“The management team also earn, in total, much more than in non-PE owned companies,” Phalippou noted in his paper, which compares performance of PE funds to the public markets. “Despite this lack of clear outperformance, the fee structures are such that a few individuals shared a large performance-related bonus payment, known as Carry, which added up to $230bn for funds raised over the decade 2006- 2015.”

Needless to say, shouting “the emperor has no clothes” and backing it up with some numbers did not go over well with the firms named in the study. Some of the rebuttals included in the paper include feedback from Apollo, Backstone, Carlyle and KKR.

There are plenty of impact evangelists who say that the sector existed long before private equity shops jumped onboard.

“PE firms and funds are inherently focused on the long-term potential of a portfolio of companies -- the stakes can even be higher than other alternatives because PE firms often hold a sizable interest in portfolio companies, or even outright acquire them,” said Rehana Nathoo, founder and CEO of Spectrum Impact, which helps companies integrate impact into their investing strategies. “Now more than ever, accounting for and mitigating risks is not just an operational exercise. An impact thesis -- woven into due diligence and portfolio management -- can actually help mitigate unforeseen risks, and manage downside risks.”  

The question remains about the methodology, accountability of the PE firms, and whether this time will be really different for PE firms.

Why do these companies keep getting away with this?

“They are huge, they are like banks, but nobody is telling them anything because they don’t have depositors, they don’t have savings accounts,” Phalippou said, noting U.S. Securities and Exchange Commission scrutiny has decreased in recent years.

As many private equity-backed companies are going bankrupt, some critics even suggest that we should allow these companies to fail, much to the shock and horror of the CNBC anchors.

“These are supposed to be the most sophisticated investors in the world,” said Chamath Palihapitiya, CEO of Social Capital, referring to “the Blackrocks” of the world who control many of the companies currently running into trouble. “They deserve to be wiped out, the employees don’t get wiped out.”

Phalippou warns that private equity industry’s foray into impact investing is the next big thing, with the risk of greenwashing and continuing legacy of “smoke and mirrors” practices without accountability or disclosing its methodology.

“Some of the responses to my study said ‘fine, but we’re having a very good impact on society,’ ” he said of reactions to his research. “It’s okay to have this kind of return and these kinds of fees because we’re helping the world.”

ESG experts who’ve been a part of the industry for a long time think that if private equity players want to do good, they’ve got to clean their own house first.

“I’m amazed that they get the kind of fees that they do,” said Hewson Baltzell, president of Helios Exchange, noting there is potential in greenwashing going on. “They’ve got to have their own house in order.”

In the post-Covid-19 world, we’re likely to see more firms boost their impact portfolios in reaction to the investor and consumer demand. As they roll out these new investment vehicles, let’s read the fine print.

So the next time you’re buying shoes made out of seaweed that will save Earth and then pave roads on Mars, check who owns the company. Look up how much bailout money they got, how their executives are compensated, and how much the lowest-ranking employees are paid. Make your decisions accordingly.

Ultimately, we are the ones who decide if this time will really be different.