STUMP » Articles » Why Does Elizabeth Warren Hate Public Pension Funds? » 18 November 2019, 12:20

Keeping this quick (yeah, yeah, my hiatus is not that hiatus-y).

I saw this: ‘ROFL’! Elizabeth Warren explains how her plan to ‘rein in private equity firms’ would benefit victims of capitalism like… Taylor Swift?

Here’s Warren’s tweet:

Unfortunately, TaylorSwift13</a> is one of many whose work has been threatened by a private equity firm. They&#39;re gobbling up more and more of our economy, costing jobs and crushing entire industries. It&#39;s time to rein in private equity firms—and I&#39;ve got a plan for that. <a href="https://t.co/r2UD4CT1Ba">https://t.co/r2UD4CT1Ba</a></p>&mdash; Elizabeth Warren (ewarren) November 16, 2019

Oh, she has a plan for that, huh? Let’s check out where that plan resides.

Okay, this is where she keeps her plans…

Unfortunately, I searched for “private” [and came across private prisons] and “equity” [got nothing]. I looked at a few other places, but maybe she’s referring to this one?

Requires very large American corporations to obtain a federal charter as a “United States corporation,” which obligates company directors to consider the interests of all corporate stakeholders, not just shareholders. The requirement would apply to any American corporation with more than $1 billion in annual revenue. It is based on the successful benefit corporation model that 33 states and the District of Columbia have adopted and that companies like Patagonia, Danone North America, and Kickstarter have embraced with strong results.

So, what if the shareholders are primarily public pension plans?

WON’T ANYBODY THINK OF THE POOR PUBLIC EMPLOYEES?!

Here is another “plan”: HOLDING WALL STREET ACCOUNTABLE:

It overhauls the private equity industry so that Wall Street executives can’t bleed companies dry and walk away with millions while workers lose their jobs.

Guess what? The companies will simply go through bankruptcy and get liquidated without the private equity investors, too. You can’t will a failing business to un-fail itself via government fiat. Yes, I know you’re a communist and all that hip jazz, but this is stupid.

Who do you think is trying to benefit from the outsize gains from vulture firms? [those are the ones that swoop in over distressed assets — aka companies going bankrupt/bonds defaulting — and squeeze as much value out of it via lawyering, etc.]

Public pension funds.

CALPERS FALLS SHORT

Take a look at Calpers: CalPERS Falling Short of Private Equity Goals

The private equity program at the California Public Employees’ Retirement System (CalPERS) is continuing to shrink, shows a new report by Meketa Investment Group, the system’s PE consultant.

Meketa says the largest US pension plan needs to be able to increase PE commitments on a steady basis to meet its 8% target allocation to the asset class. CalPERS staff and Meketa agree that the pension will need to invest at least $10 billion per year into private equity opportunities—a substantial increase over the $6.7 billion (2018-2019), $5.3 billion (2017-2018), and $3.3 billion (2016-2017) in fiscal years prior.

…..
CalPERS investment officials have said they can’t find enough suitable private equity investments to build the asset class to the scale they would like. They have acknowledged intense competition among institutional investors to become limited partners in funds run by the most successful private equity general partners.
….
Part of the problem, the report notes, is that not all the money being committed is being called by private equity general partners. The pension plan is also seeing new commitments negated by fund redemptions.

“While the program had an overall value increase of over $2 billion, the underlying managers returned substantially more cash (largely from exited investments) than they called for new investments, leading to a net decline in the Program’s NAV,” Meketa said.

….
In the latest June 30 fiscal year, the asset class produced returns of 7.7%. Over the three-, five-, and 0-year periods ending June 30, it produced returns of 12.5%, 9.6%, and 14%, respectively

So, keep in mind that Calpers is investing a goodly amount of their funds in this asset class… and are finding themselves crowded out by other public pension funds, too.

That’s because public pensions are desperate for returns.

AMOUNT OF PUBLIC PENSION MONEY IN PRIVATE EQUITY: ALMOST $400 BILLION

From the Public Plans Database, we have the following info:

$4.3 trillion in assets
14.5 million active (working) members and 10.3 million retirees
$283.4 billion in benefit distributions annually

(this is for the whole country)

And this:

So let us combine: 9% of $4.3 trillion is $390 billion, so just under $400 billion.

Now, I could be annoying and say that about $400 billion is not a lot of money. It’s only one month’s worth of federal spending.

But I assume the public pensions care very much about being able to get excess returns from private equity.

You could argue that public pensions shouldn’t invest in private equity. I know I have. But that really should be a choice of the people who are the fiduciaries for those funds. You know, the people who have responsibility to do the best for the public pension funds.

Obviously, the President of the United States is not responsible for those things. So perhaps the President should keep their hands off what isn’t their business.

But this is the ultimate problem with all of Warren’s “plans”. All the plans have to do with controlling other people’s stuff.

Well, you didn’t build that.

Mind your own business.

And quit messing with the public pension assets. (and everybody else’s assets).