Private Equity in Childcare: A Closer Look at the Numbers

The recent controversy surrounding private equity’s role in childcare has been escalating for years. Lawmakers and advocacy groups have warned of potential harm to children and families when private investors take over childcare centers. However, a new study by Jessica Brown and Chris Herbst challenges this narrative.

Brown and Herbst’s systematic analysis reveals that the share of private equity in the childcare workforce stopped growing around 2010 and has remained near 10 percent since then. This raises questions about the assumptions underlying calls for regulation or prohibition on private equity in childcare. Are lawmakers and advocacy groups fighting to protect children from private equity, or are they joining a broader crusade against big business?

The geography of private equity in childcare is striking. Brown and Herbst found that three-quarters of private-equity centers are located in just 5 percent of US counties, clustered around urban areas like Phoenix, Las Vegas, Denver, Atlanta, and northern Virginia. This suggests that private equity may not be as widespread or pervasive in childcare as some have claimed.

Private equity-owned centers appear to operate for longer periods than other chains – an average of 18 years, compared to just a decade or so for non-private-equity providers. While critics have accused these centers of exploiting their size and resources to drive out competitors, Brown and Herbst’s data show that they actually seem to be adding staff during a period when others are cutting back.

One criticism leveled against private equity-owned childcare centers is that they prioritize profits over quality. However, the researchers’ findings suggest that this may not necessarily be the case. Private-equity chains operate at similar price points as their non-private-equity competitors and are more likely to hold top quality ratings in some states.

Critics have pointed out that the study only explores the recent past and cannot establish causal relationships between private equity ownership and outcomes for children or families. Despite this limitation, Brown and Herbst’s research highlights the importance of rigorous research in informing policy debates. By relying on anecdotal evidence and extrapolating from other sectors, advocates may have been overstating the problem.

This study suggests that lawmakers and advocacy groups need to rethink their strategy. Rather than painting all private-equity-owned centers with the same brush, they should focus on specific issues – like the concentration of private-equity providers in certain areas or states. The findings also underscore the need for a more nuanced conversation about private equity’s role in childcare.

Ultimately, Brown and Herbst’s study is not a complete exoneration of private equity, but it does offer a dose of skepticism – and a reminder to be careful when regulating big business in childcare.