The American Prospect has a fascinating if harrowing new report on the cyclical violence of the finance sector. It goes like this: public employees invest in pension funds, which are managed by private firms. The option to do this is, of course, a smart move, and largely a good thing, at least according to the capitalist structure under which we live. In turn, those private firms then take those pension funds and invest them, hoping to get the highest return, for both themselves, and the pension holders. That's how those same funds end up being major investors in private equity firms — which then take that money, and eviscerate the livelihoods of their workers in under to turn a profit for their investors, who, it turns out, are largely public employees.
From the article:
Public pension funds are now the largest backers of private equity, based on a database of 6,700 buyouts between 1997 and 2018 collected by recently graduated Columbia Business School Ph.D. student Vrinda Mittal. Pension funds, which are almost one-third of all investors in private equity, have invested 13 percent of their capital in the asset class—over $620 billion in 2022—up from 3.5 percent in 2001 and 8.3 percent in 2011, according to data from public pension research nonprofit Equable Institute. Pension funds like CalPERS, the second-largest in the U.S. with $462 billion in assets, said they are planning to allocate more money to private equity.
"Private equity is fundamentally dependent upon public pension funds. [This] gives them a lot more power," said David H. Webber, a Boston University law professor who writes about shareholder activism.
Public pension funds have been unmoved by an array of studies showing that private equity buyouts have led to job losses, wage cuts, lower revenue, labor productivity decline, and company bankruptcies. There are even examples of public employee savings being used to cut the wages of their own members. In 2011, Aramark, then private equity–owned and backed by 37 state and local retirement funds, underbid a custodians' union for school cleaning contracts, and then offered the custodians their jobs back at $11 less per hour.
"If you're killing jobs, even if you get a good return, you could be hurting the fund because now you don't have people paying into it," Webber said.
In a way, it makes me think about the recent debates over ESG or Environmental, Social, and Governmental Funds. Some financial institutions offer targeted investments that focus on companies that hit certain environmental goals, for example, or companies that demonstrate certain levels of ethics or transparency or diversity commitments. Some lawmakers have complained about these funds — not because of the obvious cynical reason that, hey, isn't this just a dressed-up neoliberal marketing scheme that perpetuates a problematic system with a few friendly platitudes? But rather, because those lawmakers think that everyone — particular public employees — should be required to invest their capital into anything that will give them the most ROI, no matter how much it destroys the planet, or their own livelihoods, or anything else.
But it turns out, you don't even need to block ESG funds to ensure that the investment system continues to feed the beast. What's that saying about ethical consumption under capitalism?
Workers Funding Other Workers' Misery [Rachel Phua / American Prospect]