Risky business: How private equity could reshape Canadian child care

Are children put at risk to increase the profits of day cares?  

 

This question is navigated by Camille Hebert in her current quantitative study. As a finance assistant professor interested in private equity, private firms, and the gender gap, Hebert's study falls in her broad research agenda that intersects finance and injustice. 

 

With the help of a research grant from the Department of Management, Hebert commenced her research on private firms' efficiency, using the grant to purchase French administrative data. The project—originally an investigation of the lower innovation tendencies of private firms—now focuses on private equity deals concerning childcare firms specifically. 

 

Hebert explains, "You have investment firms that invest in private firms. They are professional investors who target private firms. They try to modify them, change them, and profit from them. They can resell the firm in a few years and profit from this investment." 

 

However, private equity deals in the childcare sector raise valid concerns. 

 

"It's a tricky sector in that sense because you have financial goals that will conflict with social outcomes," says Hebert. 

 

So, what are private equity firms modifying in daycares to improve profits, and is it ethical? Hebert notes, "it's probably at the expense of the children." 

 

Hebert uses a difference-in-differences methodology to analyze the before and after of private equity firms investing in day cares, comparing them to a control group of day cares untouched by private equity. From a data set including financial information on all day cares in France, Hebert can observe quantitative data like salaries, employee turnover, and profits. However, data concerning the quality of day care is harder to come by.  

 

Hebert states, "We have a lot of asymmetries of information. [Parents] don't know what is happening at day care, their children typically don't tell them." 

 

Hebert continues, "Private equity firms actually manage to run these daycares more efficiently, but is it because they cut the costs? The cost [cuts] could be the salaries of employees, or they order less food for the children." 

 

In 2004, all sectors became competitive in the European Union, which led to increased privatization, especially in day cares. Furthermore, private equity firms investing in childcare collect the subsidies given by the government, which seems to be why they enter the sector. What's happening in France is illustrative of the future in Canada. In attempts to achieve $10-a-day childcare, Canadian public funds are invested into private childcare. As a result, for-profit childcare spreads throughout high-income areas, low-income areas struggle with inequitable access to affordable childcare, and childcare workers struggle with low wages and understaffed operations. 

 

Speaking on Canada, Hebert explains, "Right now, we have a trend towards subsidization of the childcare system. You see, interestingly, a lot of private actors that are entering the childcare sector in Canada. Using the French example, it's informative of what is happening right now in Canada, but we don't have the data yet to run a study." 

 

Hebert's study aims to understand why private equity firms are entering the childcare sector and the subsequent effect of their introduction. Hebert hopes to influence policy surrounding the issue. As a vulnerable population, children are experiencing the modification of their care systems for maximum financial benefit, possibly at the price of their well-being. 

 

Hebert notes, "It's very important to understand how financial goals interact with social goals."