Affordability is the top political problem of the moment, and lawmakers in both parties have increasingly blamed large investors for buying up housing, hospitals, and other staples families can’t do without, while jacking up prices and degrading quality.
Earlier this year, Sen. Jeff Merkley (D-OR), who has backed bills on both fronts, turned his attention to childcare. The ranking member of the Senate Budget Committee sent sweeping document requests to KinderCare Learning Companies and Learning Care Group, the two largest private-equity-owned childcare companies in the country, seeking information like board minutes, subsidy totals, staffing ratios, dividend records, and the investment memos the firms wrote when they bought in. Private equity, Merkley said in announcing the requests, has increasingly prioritized “investor profits over the well-being of the families and communities that depend on these services.”
The federal inquiry follows several years of national childcare advocacy groups warning that private equity, an industry known for acquiring businesses for quick-turnaround sales, should be kept far away from kids.
In 2022, Elliot Haspel, a progressive childcare expert, wrote in the New Republic that private-equity owned childcare chains “ultimately answer to investors or shareholders first, parents second.” Citing their record in nursing homes, where acquisitions have been associated with declines in quality, Haspel wrote that there’s “little reason to think that early care and education would be magically exempt from these sideways influences.” In 2024 the Open Markets Institute, the National Women’s Law Center, and Community Change put out a report contending that private equity-owned centers would not only seek to soak up public funding, but stall reforms limiting their reach long enough to capture local market share, until they could argue they’d become too embedded to remove without harming families.
Since then, lawmakers in at least five states — Colorado, Connecticut, Massachusetts, New York, and Pennsylvania — have introduced or passed bills that write ownership structure into childcare policy, cap what large for-profit chains can draw from state grants, or attach strings to public dollars that apply to those providers alone. The coalition of national groups published model state legislation of its own this past February, built partly on those state experiments.
But a forthcoming paper reviewed by Vox from two leading national researchers focused on the economics of childcare — Jessica Brown at the University of South Carolina and Chris Herbst of Arizona State University — complicates the case that has been building against the private-equity owned centers. In the country’s first systematic, descriptive look at how far private equity has actually spread through American childcare, the scholars found no smoking guns.
If anything in the findings gives Herbst pause, it’s the geography.
Private equity is not sweeping the childcare sector, the researchers report. Its share of the childcare workforce stopped growing around 2010 and has hovered near 10 percent ever since. It isn’t everywhere, either — three-quarters of private-equity childcare centers sit in just 5 percent of US counties, clustered around Phoenix, Las Vegas, Denver, Atlanta, and northern Virginia. Nor do the centers look uniformly distressed. They have been operating for 18 years on average, longer than other chains — and between 2021 and 2024, while non-private-equity providers cut staff, these programs added workers.
“Given what we see,” Brown told me, “private equity is not the reason that childcare is unaffordable.”
Herbst agreed: “You know, we jokingly at one point said we’re gonna call our paper, ‘Much Ado About Nothing.’”
This is not to say the researchers have no further questions. Their work explores the recent past, but their findings are not causal, so they couldn’t say specifically what happened when private equity took the centers over. And their data also couldn’t confirm what the chains pay their teachers, or what benefits they offer. Critics have guessed both ways — that they squeeze wages for profit, or that their size allows them to pay more than a small provider could offer and muscle out competitors.
An important question is what actually separates private equity-owned chains from other large childcare companies. Herbst and Brown found that on price, private-equity chains operate not so differently from large competitors that aren’t investor-owned. They are less likely to take public subsidies (70 percent do) than other large chains (78 percent), but are more likely to hold their state’s top quality rating. Large chains, private-equity-owned or not, tend to locate in wealthier areas with more college-educated families. Private-equity providers, though, seem distinctly drawn to states with looser staffing rules and to counties with the tightest childcare markets in the country.
If anything in the findings gives Herbst pause, it’s the geography. “It may not be that they are rendering low-quality care,” he said. “They may be rendering very high-quality care, but inaccessible to a large number of families because of where they are doing business.”
How this study came to be
Despite the amount of national attention, very little research has existed on private equity and childcare up to this point.
“People were sort of copying and pasting evidence from these other domains like nursing homes and hospitals, extrapolating results from these other sectors to childcare, and we were skeptical about this,” Herbst said.
While they were gathering information, new international evidence did come out — a working paper on Dutch childcare, which found that private-equity centers charged more and had fewer regulatory violations overall, but more staffing-related violations. The Netherlands sets its childcare rules nationally, though, which makes the findings harder to apply in the US, where staffing ratios and teacher qualifications are set state by state.
Nobody had done a deep US analysis before, largely because it’s expensive. With funding from the Alfred P. Sloan Foundation and the Washington Center for Equitable Growth, Brown and Herbst had to stitch together at least seven sources, including two proprietary databases costly enough to be out of reach for most researchers even with a grant — one tracking every business in the country year by year since 1997, the other tracking private equity deals. Then they merged all of it against state licensing records, accreditation files, and an original survey they fielded themselves in three states.
“It took an extraordinary amount of resources — both monetary and labor — to put our datasets together,” Herbst said. The lack of quality national data on childcare providers broadly has been a major barrier for researchers, and leaves the terms of the debate often set by interest groups. No federal survey tracks what providers charge, and most states don’t collect it either. Brown and Herbst could compare prices in only two states, the ones that require providers to report them as a condition of licensing.
Why is private equity interested in childcare?
One of the main questions looming over the conversation is that, broadly speaking, childcare is a low-margin business — so why is private equity involved at all?
“My answer right now is they’re not interested in childcare writ large,” said Herbst. “They’re interested in childcare in very select communities.”
The classic private-equity playbook is to buy a company, raise its value through expansion, consolidation, or cost-cutting, and sell within three to seven years. This is the model that ran through Toys ‘R’ Us, Payless, and a long line of local newspapers, and helped earn the industry a reputation for loading businesses with unmanageable debt they couldn’t carry.
But not every private-equity strategy is a short-term flip. Over the past decade Blackstone, KKR, and Carlyle have all raised long-hold funds designed to keep companies for 15 years or more. It’s a small slice of the industry, but both childcare companies now under Senate scrutiny fit that longer pattern, with Partners Group having held KinderCare since 2015 and still controlling roughly 69 percent of it after an IPO, and American Securities having owned Learning Care Group since 2014.
A representative from KinderCare did not return a request for comment, but in an interview, Brian Gutman, the senior vice president of public policy at Learning Care Group, told me that yes, their investors want to see a profit and “be a sustainable company.” Something like childcare, he said, is “a long-term play, not a short-term play” because the costs that matter most can’t be recovered inside a short window. Refurnishing a single school might run $100,000 to $300,000, and a firm looking to exit in three years would have to push that into tuition, which wouldn’t be feasible. He put the company’s reinvestment at more than $1 billion dollars.
Merkley’s letter tells a different side of that story. In 2018 Learning Care Group borrowed to pay its owners at least $636 million, and now carries roughly $5.50 in debt for every dollar it earns. In other words, the money went out the door to the owners, but the loan stayed on the company’s books, and the interest is serviced out of the same tuition that pays teachers.
Asked how that squared with the long-term picture he described, Gutman did not address the 2018 payout or the debt load. He said that under American Securities’ ownership Learning Care has spent more than $1 billion on capital expenditures and maintenance — building upgrades, safety systems, classroom technology, not counting acquisitions — and that the company’s average wage growth has outpaced its own tuition increases, inflation, and national wage growth in each of the past three fiscal years.
What private capital buys, he says, is scale. The clearest example is cameras: Before the pandemic, Learning Care put livestreaming cameras in classrooms near military bases so deployed parents could watch their kids during the day. When Covid hit and parents couldn’t come inside, the company put one in every classroom across the chain, meaning tens of thousands of cameras. It’s the kind of investment he said families appreciate and an operator with two or three buildings can’t afford. Access to capital, he argued, is what made it possible.
I reached out to Merkley’s office to learn more about their federal investigation and a staffer told me that it had been prompted by the number of concerning stories his team had been seeing in the media. KinderCare is also headquartered in Merkley’s home state of Oregon, though they said their inquiry wasn’t driven by complaints from his local constituents specifically.
The staffer said they hope to get their report out by the end of the year, but acknowledged that “a lot of the [companies]’ responses have been lackluster” so far. “Legislation is definitely something my boss is thinking about,” they added, but said they are waiting to hash out details until their probe is finalized.
Gutman said Learning Care responded to Merkley’s request, but sees the focus on private equity as a bit of a scapegoat, or red herring. The company isn’t opposed to new regulation, he said, including more transparency about investors, decision-making, and wages. His objection is to rules that sort providers by who owns them. “Where there’s a need for enhanced regulation,” he said, “that’s a need for the sector, not a need for a couple of actors within the sector.”
He said that plenty of large childcare operators, like family-owned regional chains and big nonprofits, aren’t private-equity backed, and that ownership structure doesn’t reliably predict behavior. He cited a venture-capital-backed Montessori chain in Colorado that closed its five locations abruptly. Because the bills moving through statehouses key on private equity ownership specifically, a company like that one wouldn’t trigger regulation.
Haspel said he’s fine with legislation that targets large for-profit chains more broadly, but emphasized that the focus on institutional investors will only become more important as the conversation around universal childcare picks up momentum in the United States. “I don’t think the focus is a red herring…[private equity] presents some real threats potentially if you have bad actors that are attracted by the increased public funding,” he said. He pointed to England, where the competition regulator just launched an investigation last month to examine whether private-equity ownership is serving families or driving up childcare costs. Provisional findings are due early next year.
Gutman said Learning Care Group will fight being cut out of public programs. Some of the state proposals would restrict which providers can access grants or participate in state pre-K, and Gutman argued that in much of the country there isn’t a backup. About 85 percent of the company’s families live within a 10-minute drive of their center, he said. “If we’re the only game in town, and we can’t access a grant program that helps us pay teachers better, I’m not sure who that serves,” Gutman said.
Brown and Herbst’s own immediate recommendation is more public information. More states could collect prices at licensing, they argue, and make wage and staff turnover data easier for researchers to find which in turn would help generate more targeted policy fixes. “I think in some ways people are trying to look for an easy solution,” Brown said, “but the thing is there is no easy solution in childcare.”
This work was supported by a grant from the Bainum Family Foundation. Vox Media had full discretion over the content of this reporting.
Update, August 27, 11 am ET: This article was originally published on August 27 and has been updated to include more details about the study funders.