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2026 Univ. Chi. Bus. L. Rev. Online Edition 1 (2026)

handle is hein.journals/uvierschia2026 and id is 1 raw text is: The Dark Side of Private Equity Anonymous' Private equity (PE) funds control over $9 trillion in assets and thousands of companies, yet their leverage-driven model often amplifies financial fragility and social harm. This article argues that the core tools of PE value creation-high leverage, cash extraction, and short-term exit incentives-externalize predictable risks to third parties including workers, healthcare patients, consumers, unsecured creditors, communities and the environment. Drawing on empirical studies, it identifies how debt-amplified fragility and profit-pressure dynamics can degrade quality, safety, and resilience particularly in sensitive sectors such as healthcare, energy, education, childcare and corrections. This article proposes a targeted regulatory framework to internalize these costs, including leverage-indexed insurance and bonding, minimum staffing and quality standards, and ownership-linked disclosure reforms focused on these sensitive sectors. These limited, pragmatic measures would preserve the benefits of the PE investment model while realigning incentives toward long-term stability and social welfare. IN TR O D U CTIO N .................................................................................................................................................. 1 I. OVER-LEVERAGE AND CORPORATE FRAGILITY...................................................................................... 2 II. PROFIT PRESSURE, SOCIETAL HARM, AND REGULATORY FAILURE...................................................... 3 A. Healthcare: Nursing Homes, Hospitals, and Emergency Care .......................................................... 4 B. Environment: Externalized Risks and Legacy Liabilities ................................................................. 5 C . O ther Industries and Service Sectors ................................................................................................. 5 D . Synthesis: From M icro Incentives to M acro H arm ............................................................................ 6 III. TOWARD REFORM AND TARGETED REGULATION ................................................................................. 6 A . In su ran ce a n d B on d in g ............................................................................................................................ 7 B. Quality Regulation and Ownership Disclosure................................................................................... 7 C O N CLU SIO N ...................................................................................................................................................... 8 INTRODUCTION Private equity (PE) funds control more than $9.4 trillion in assets under management including around 11,500 companies that employ more than 11 million American workers.2 Their core technique-the leveraged buyout 1 The author is a senior partner at a leading international law firm and an adjunct professor at a leading United States law school. The views expressed herein are solely those of the author and do not necessarily reflect those of any institution. The author's identity is known to The University of Chicago Business Law Review and is on file. 2 UBS Editorial Team, Private Markets Are Too Big to Ignore and Growing, UBS GLOBAL WEALTH MANAGEMENT (Jan. 14, 2025), https://perma.cc/2YDE-MHKP; Scott Reed, The Public to Private Equity Pivot Contirues, CITIZENS BANK (Dec. 2024), https://perma.cc/W6D9-UQWB; American Investment Council, Private Equity & the Econormic Recovery (2021), https://perma.cc/UHK7-5EKH. 1