New study assesses risks for institutional investors exposed to American Securities funds
Private equity firm American Securities facing key risk areas for its investment funds
July 31, 2024
The Private Equity Stakeholder Project announced the release of its latest report, “American Securities Risk Assessment.” This comprehensive report aims to provide pension funds and other institutional investors with critical insights into the risks associated with private equity firm American Securities and its various investment funds. By highlighting key risks, the report seeks to guide investors in making informed decisions and ensuring that their investments align with their financial and ethical standards.
Founded as a family office in 1947 and opening its private equity fund to outside investors in 1994, American Securities has grown substantially under the leadership of CEO Michael Fisch. With $27 billion in assets under management as of 2024, the firm operates in 49 countries, and the companies in which it is invested employ some 149,000 people.
American Securities has raised tens of billions of dollars from institutional investors, including pension funds, university endowments, and foundations. The “American Securities Risk Assessment” report emphasizes the importance for these investors to critically evaluate whether the returns generated by American Securities’ investments are commensurate with the risks involved. The PESP research highlights several key areas of risk for institutional investors:
- Strategy and Execution Risks
- Headline Risks
- Regulatory and Legal Risks
- ESG Risks tied to Privatization of Public Services
In recent years, several of American Securities’ investments have filed for bankruptcy or experienced financial distress, raising concerns about potential vulnerabilities in the firm’s investment strategy. The report also details the reputational risks faced due to companies the firm owns, such as prison telecom corporation ViaPath and defense contractor Amentum, where media coverage may negatively impact the value of the investments. ViaPath, in particular, has faced scrutiny for numerous predatory practices, including imposing exorbitant fees for families to communicate with incarcerated relatives, sometimes up to $1 per minute. ViaPath has recently generated net losses, and the company’s $1.4 billion refinancing deal is on hold after the Federal Communications Commission approved game-changing industry regulations that cap rates for phone calls as well as never-before-capped video calls in prisons and jails.
One significant example of regulatory and legal risk is American Securities’ 2019 antitrust settlement, where the private equity firm paid $13 million to resolve allegations of price fixing at portfolio company General Chemical that occurred during the private equity firm’s ownership.
The report underscores the broader impacts of American Securities’ investments on various stakeholders, including patients needing life-saving care, incarcerated individuals seeking to connect with loved ones, and students affected by the ongoing education crisis. Given these considerations, institutional investors are urged to thoroughly assess whether American Securities’ investment strategy aligns with their risk tolerance and ethical standards.
“PESP believes that transparency and thorough risk assessment are crucial for institutional investors and their inherent fiduciary duty,” said Azani Creeks, PESP researcher and report author. “These investors, including the large retirement funds of public employees around the country, have millions of dollars exposed to private equity investment funds. Our report aims to equip investors in American Securities with the necessary information to make informed decisions about their investments and the future of their capital.”
For more information and to access the full report, please visit pestakeholder.org/reports/
