The deals Deval Patrick made at Bain Capital could face the same kind of scrutiny that Mitt Romney — who co-founded the firm — dealt with during his 2012 presidential campaign
When one of Deval Patrick’s partners at Bain Capital spoke at a conference last year, he described the work they were doing together in lofty terms. Warren Valdmanis, Patrick’s partner, argued that impact investing — the strategy that Patrick’s fund at Bain Capital employed in an effort to make money while doing good — could help narrow the vast difference in life expectancy between two Boston neighborhoods.
Residents of Back Bay, the wealthy enclave where Bain Capital is headquartered, live decades longer on average than the residents of Roxbury, a largely black neighborhood a couple of miles away, Valdmanis told the audience.Before leaving Bain Capital last month to run for president, Patrick dedicated much of his 4½ years at the private equity firm to investing in companies with the potential to help such disadvantaged communities — while also delivering outsize profits to clients. They included a franchise of Planet Fitness gyms located in underserved communities such as the Flint, Mich., suburb of Burton and an outsourcing firm that seeks to bring jobs to small and midsize American cities “overlooked by the digital revolution.” But a POLITICO review of the deals Patrick struck show the fund also invested in several companies that have been hit with lawsuits in recent years. Among the investments were a chain of vegan fast-casual restaurants currently being sued by its namesake and a health care company the Massachusetts attorney general sued while Patrick was the state’s governor. Patrick has struggled so far to break 1 percent in the polls that have included his name since he entered the race last month. And with the field of candidates jostling to prove their progressive bona fides, Patrick’s time at Bain Capital — along with earlier stints at Texaco, Coca-Cola and the parent company of the now-shuttered subprime mortgage lender Ameriquest — could open him to further attacks. The deals he made at Bain Capital could face the same kind of scrutiny that Mitt Romney — who co-founded the firm — dealt with during his 2012 presidential campaign. Romney’s record at Bain Capital was a double-edged sword, said Eric Fehrnstrom, a top adviser on his campaign. On one hand, it allowed Romney to run on his record as a businessman and turnaround expert. On the other, “we found ourselves defending private equity deals that resulted in job losses and plant closures,” Fehrnstrom said. The companies Patrick invested in at Bain Capital don’t appear to have bled jobs, but they haven’t been entirely devoid of troubles. Ashworth College, a for-profit institution, settled charges in 2015 that it deceptively marketed its program with the Federal Trade Commission. An $11 million judgment against the school was suspended because of its inability to pay. “When schools promise students they can transfer course credits or get a better job after completing their programs, they’d better be able to back up those claims,” Jessica Rich, who ran FTC’s consumer protection bureau,at the time. “Ashworth College didn’t tell the truth when it made those promises to prospective students.” Penn Foster, an online school that Patrick’s fund and other investors bought into last year, said in February it had acquired Ashworth College.agreed to a settlement with Oregon’s attorney general in 2015 over similar claims that it had told a student he could transfer the credits he earned when he could not. Martha Coakley, Massachusetts’ attorney general at the time, sued HealthDrive, a Wellesley, Mass., health care company, for overbilling the state’s Medicaid program. The company settled for $1.5 million in 2017 and was acquired by Bain Capital this year. And Chloe Coscarelli, who co-founded the vegan restaurant chain by Chloe, sued by Chloe’s parent company last year, after Patrick’s fund invested in it, for what her lawsuit describes as an “illegal and brazen attempt to steal her ownership interest.” The celebrity chef Tom Colicchio and Coscarelli sued again over an alleged attempt to stop them from opening a popup restaurant. “They’ve basically said, ‘You cannot make a living as a chef,’” Ronald Schutz, Coscarelli’s lawyer, said in an interview. “We own your face, we own your name.” Bain Capital itself is not a defendant in the suits, which have been combined. The suit is expected to go to trial next year, according to Schutz. A separate legal dispute between Coscarelli and the chain is in arbitration. Bain Capital and Patrick’s campaign declined to answer questions about the lawsuits. Patrick’s campaign also declined to make him available for an interview. “Deval Patrick joined Bain to launch an impact investing fund, believing that there is room for an approach that delivers both financial return as well as measurable social or environmental good,” Aleigha Cavalier, a Patrick campaign spokeswoman, said in a statement to POLITICO. “He believes that to deliver long-term value, it’s not possible to manage to a financial bottom line alone.” More than 10 percent of the $390 million Patrick’s fund raised came from Bain Capital employees, according to the firm. But Patrick’s campaign wouldn’t say how much Patrick invested in the fund or other Bain Capital funds. The campaign also declined to say how much Patrick was paid at Bain Capital, how much his stake in the fund is worth now, or whether he advised partners at the fund on other deals unrelated to impact investing. “The campaign will be releasing detailed financial information, including Bain compensation, in the weeks ahead,” Cavalier said. Presidential candidates are required to disclose their finances by May 15, though every Democratic contender has done so already except Michael Bloomberg, Tom Steyer and Patrick, according to the Office of Government Ethics.once compared the concept to a houseboatBut Patrick’s decision to help Bain Capital start what the firm dubbed the Double Impact Fund after leaving the Massachusetts governorship in 2015 was well-timed. More and more private equity firms, including behemoths such as KKR and the Blackstone Group, have started impact investing funds, driven by demand from investors. “The last five years has been when it’s picked up,” said Steven Kaplan, a University of Chicago finance professor who’s studied the private equity industry. Patrick’s fund set out to raise $250 million — a modest amount for Bain Capital, which has more than $100 billion under management. He ended up raising $390 million, heOnce he raised the money, Patrick and his team set about making investments. They focused on relatively small companies “where we can generate both a private-equity-style return — a financial return — and measurable impact in one of three areas: sustainability, health and wellness, and what we’re describing as community building,” Patrick said at the conference. Impact Fitness, for instance, the group of Planet Fitness gyms in underserved communities, aims to achieve impact in the areas of health and wellness and community building by increasing its membership and the number of visits those members make to the gym. By Chloe, the vegan fast-casual chain being sued by its co-founder, is trying to reduce carbon emissions by serving avocado toast and plant-based meatball subs . Bain Capital estimates the chain reduced emissions “equivalent to taking 600 cars off the road” last year by serving 456,000 plant-based burgers to diners in New York, Boston, Los Angeles, London and Providence, R.I., according toBain Capital measures the impact of the companies it’s invested in using a method developed by B Lab, a nonprofit that scores companies based on their answers to about 200 questions. Impact Fitness saw its score rise from 48 in 2017 to 81 the next year. Patrick’s fund’s decision to include its portfolio companies’ scores in its annual report is an unusual mark of transparency, according to B Lab. The number of examples “of authentic and accountable efforts by investors to use their capital to have a positive impact is still far too few,” Andrew Kassoy, one of B Lab’s co-founders, wrote in an email to POLITICO. “Governor Patrick’s fund is one of the few examples of big, mainstream [private equity] firms choosing to create that kind of accountability.” Patrick has acknowledged there are unanswered questions about using private equity as a way to make the world a better place. Among them: What happens to the companies the fund has invested in once it sells them off to make a profit?
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