Colorado lawmakers this year drew a hard line barring private equity investment in law firms.
They also built new regulations for autism treatment providers — which are increasingly owned by private equity investors — to fight the profit-driven lower standards characterized by that financial sector.
But similar efforts have fallen flat in recent years when it comes to stopping profit-over-patients hospital mergers and establishing guardrails on how private equity owners can operate childcare centers, showing the difficulty some lawmakers face when trying to rein in the growing and often-criticized business force.
Private equity has caught legislators’ eye as the financial practice — often tied to layoffs, mergers and rising prices — has risen in public prominence. Private equity firms are often multilayered, deep-pocketed and mostly opaque. To critics, the investment class has become shorthand for ruthless profiteering through corner-cutting, leveraged buyouts and the forcing of public-facing businesses to take on massive debt to the benefit of their new owners.
Lawmakers, however, have run into philosophical opposition and worries that too big of a swing could wound businesses and communities on the periphery. Their attempts at regulating the sector have also faced the inevitable difficulties that come with taking on big businesses that have stakes driven deep into vital services like healthcare.
The concerns stem from the popular, and often proven, view that private equity investors seek to extract the maximum value from a business they’re purchasing in the shortest possible time — leaving communities holding the bag for shuttered hospitals, families worried about lax standards of care and clients wondering whose interests the business truly represents.
“It’s like an octopus with tentacles everywhere. And from my perspective, fairly problematic,” said Rep. Emily Sirota, a Denver Democrat who ran the failed 2025 bill targeting private equity’s involvement in childcare. “I’d challenge anyone to show a business that has improved, particularly from a customer experience, once private equity has entered into that sector.”
Regulating private equity in some sectors has proven easier than in others. Earlier this year, the state legislature passed a bill aimed at preventing private equity firms from buying Colorado law firms with overwhelming bipartisan support. But another effort, aimed at stopping them from buying up hospitals, died in its first committee.
With a new legislature — and a new governor — on the horizon next year, backers of the effort to regulate private equity activity promise to continue their push against this modern-day juggernaut.
‘The goal is to get rid of the worst effects’
The term “private equity” has become a catchall for corporate raiding and consolidation under a usually opaque, multitiered ownership structure — often used to refer to a business tactic as much as an investment and ownership structure.
But private equity investment has become enough of a flash point that even Christmas movies have villainized the business model.
Defenders argue private equity firms provide influxes of money and management to failing or imperiled businesses. They often rely on large pools of cash from sources like pensions, institutional investors and exceptionally wealthy individuals.
Since 2000, the number of private equity-backed companies has grown from about 2,000 U.S. firms to more than 11,500 — a nearly 600% increase, according to a 2024 analysis by Citizens Bank.
Analysts cite different figures for how much money is behind private equity, but it’s always in the trillions of dollars.
One article published this year by the University of Chicago Business Law Review says private equity firms control more than $9 trillion in assets and have stakes in businesses that employ more than 11 million workers nationally. The author, who was granted anonymity by the publication, is described as “a senior partner at a leading international law firm and an adjunct professor at a leading United States law school.”
“You’re not going to get rid of private equity investment,” said Matt Parr, the communications director for the Private Equity Stakeholder Project, a nonprofit watchdog organization. “The goal is to get rid of the worst effects of that type of investment. … Everyone wants private investment in your sector, but you don’t want it if it’s going to negatively affect your state or your local community.”
The firms are known for being “much more aggressive in profiteering” than other financial institutions, such as venture capital, Parr said, and often have little to no regard for the long-term health of the businesses they buy or communities in which they operate.
A common practice is a “roll-up strategy,” in which the firms buy up swaths of fragmented industries to then command a clear market share, he said. Another strategy is a leveraged buyout, where the private equity firm pays for the acquisition by borrowing money against the purchased company’s assets and revenues. The new owner can then cut services and staff, raise rates and otherwise maximize profits.
The firms are also known for their “sale-leaseback” moves. They buy a company, sell its physical assets to another entity under the private equity firm’s umbrella, and then force the company to lease back the original property — allowing the private equity firm to pocket the cash.
One of the most notorious examples of the practice involved Steward Health Care. In 2010, the private equity firm Cerberus Capital Management bought a small nonprofit hospital system in Massachusetts and remade it as the for-profit Steward.
Steward sold off its property only to lease it back, and then used the immediate proceeds to buy more than two dozen hospitals across the country. By 2024, the hospital chain was bankrupt, jeopardizing care for thousands of patients, but was making hundreds of millions of dollars for investors and company leadership, according to the Harvard School of Public Health.
Establishing guardrails against some of private equity’s worst impulses is a goal that bridges traditional Democrat-Republican divides, Parr said. States with Republican-led governments have sought to regulate the industry, just as blue-hued states have. And the federal bipartisan housing bill that recently became law sought to limit private equity’s involvement in the housing industry by capping institutional investment in single-family homes.
Colorado is one of the few states “that has made real progress” in regulating private equity investments, Parr said — though his organization still ranks the state among those that are the most vulnerable to private equity.
Mixed results in the legislature
Lawmakers have found it difficult to issue blanket regulations for private equity. That’s in part because, as opponents see it, the private equity problem is a business model as much as a specific type of company. Some legislators are wary of targeting a specific sector, and others worry that sweeping regulations will cause unintended harm.
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But opponents of the practices of private equity have found some success.
Rep. Kyle Brown, a Louisville Democrat and member of the Joint Budget Committee, successfully ran House Bill 1425, which Gov. Jared Polis signed into law earlier this year.
The law established licensing requirements for clinics and practitioners involved in applied behavior analysis, a kind of therapy for people with autism. While the law was not explicitly about private equity, Brown said its growing influence in the sector was a “subtext throughout the entire bill.”
He also noted that the bill was drafted to focus on business practices and standards, not on ownership structure.
In this case, personal stories from parents of children with autism, coupled with very real financial concerns around bad actors looking to fleece the state, helped push the bill across the finish line — and secure bipartisan support.
“We had stories of real patient harm — and in this case (affecting) kids — and that made all the difference,” Brown said.
Another proposal, Senate Bill 41, had likewise sought to go after the business practices often associated with private equity rather than targeting the firms themselves. That bill would have given the Colorado Attorney General’s Office more oversight when it came to hospital mergers.
The measure also had a subtext of “Yes, healthcare consolidation is a problem in general, but when consolidation happens in the hands of private equity firms, it becomes even more problematic,” Brown said.
He views the healthcare sector as a type of public good, and he worries a pure profit motive doesn’t align with low costs and better patient outcomes. Brown cited a study by the Harvard Medical School that found patients at hospitals with private equity owners experienced 25% more problems from their stays.
“Healthcare has had some really epic challenges in private equity investments and, in some ways, it has really decimated health systems,” Brown said.
However, the measure died for the second year in a row — and received a “no” vote in committee from Sen. Lindsey Daugherty. The Arvada Democrat otherwise had sponsored the autism therapy bill and the bill restricting private equity involvement in law firms.
Daugherty said her concerns on the hospital bill, similar to other broader attempts at regulating private equity, were that it involved such a wide playing field, with so many entities. She worried about broader disruption to the healthcare system. She contrasted it with bills that she described as more narrow. (She also said she saw the autism therapy bill as “a very human bill,” and she didn’t think of it as specifically about private equity.)
“The devil’s in the details for those bills,” Daugherty said.
Protection for law firms embraced
Daugherty found success in the regulation about law firms and outside ownership — a measure aimed at preventing private equity investors from buying stakes in Colorado law firms the way they have in other states.
She saw that measure as about making sure Coloradans who need legal help get it from Colorado attorneys, not from firms driven by out-of-state interests. Daugherty, like a good chunk of her colleagues in the legislature, is a lawyer.
The bill won the backing of the Colorado Trial Lawyers Association and the Colorado Chamber of Commerce, which don’t typically see eye to eye on many policy proposals. It also attracted Republican support. Rep. Jarvis Caldwell, the House minority leader and a sponsor, said he saw that issue as distinct from private equity involvement in other fields, where he was more agnostic.
People hire law firms because they feel there was an injustice, he said. He was swayed by arguments that out-of-state investors would create “a perverse incentive” for lawsuit-chasing and quotas, not firms taking on worthy cases.
“The Democrats and myself probably don’t align on a lot of feelings toward private equity in general,” Caldwell said. “The reason I was interested in this one in particular — the way I view the mission and the task of a law firm is to right a wrong and correct an injustice. Which is different than private equity in childcare or healthcare and things of that nature.”
Rural areas, meanwhile, might need some kind of private equity investment to keep places like childcare centers afloat. And more investment, as a general principle, is good for Colorado, he said.
Like other lawmakers — though with notably less enthusiasm than proponents — Caldwell also expects Democrats to push more private equity regulation.
Attorney General Phil Weiser, the Democratic nominee for governor — and likely the favorite in November, given Colorado’s blue hue — has made antitrust lawsuits a defining aspect of his tenure. It’s an interest Weiser would continue to have as governor, campaign spokesperson Nate Jackson said in a statement.
“As governor, Phil Weiser will fight unlawful corporate consolidation and its harmful impacts. That includes taking on illegal private equity roll-ups in healthcare and ensuring fair competition,” Jackson said. “As he has done as attorney general, Phil will always fight against anticompetitive corporate mergers and for Coloradans.”
A spokesperson for Republican gubernatorial nominee Victor Marx did not return a request for comment about his potential approach to private equity regulation.
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