By Tom Moutes, RLACEI Legislative Director
Last month I detailed some the issues private equity buyout firms cause in our society. Those issues include, but are not limited to, pursuing profits above care in the healthcare and nursing home industries; outbidding individuals who want to purchase homes; and buying mobile home parks and dramatically raising rents. Some buyout firms increase profits by eliminating positions and even slashing pensions at the firms they acquire.
With all of those issues regarding buyout firms, it would be reasonable to ask why LACERS invests in them. LACERS, along with most other public pension systems, invests in buyout funds to help the systems meet their assumed investment returns – 7 percent in LACERS case. Investing in these funds has become even more popular in recent years as it has become more difficult for public pension systems to consistently meet or beat their assumed investment returns without such investments.
If LACERS chooses not to invest in buyout funds, other investors will gladly jump on the investment opportunities, as access to these funds often is highly competitive. While not investing in buyout funds may give LACERS a moral high ground, it would make it more difficult for the LACERS Board and staff to ensure a well-funded pension system.
Because investors in buyout funds turn over almost all of the investment control for such funds to the private equity firms, LACERS would not be able to influence the specific investments the firms make. So once LACERS invests, it has extremely little influence.
Even getting a coalition of public pension funds across the country to not invest in private equity buyout funds likely would not work due to sovereign wealth funds and other wealthy investors who would largely fill in the funding gap.
So, what is the solution to help ensure pension funds are not investing in ways that will make the everyday lives of their members worse? We need federal legislation and/or oversight on the acquisitions buyout funds make. This will not be at all easy. Even the small proposed change to the way private equity profit is taxed recently got pulled (again) from proposed federal legislation as the vast profits buyout firms make can pay for an army of lobbyists and huge political contributions.
I hope LACERS can work with some of the state and national organizations to which it belongs to help craft proposed legislation that would help regulate private equity buyout firms. This legislation could help minimize the aspects of these firms that are detrimental to the lives of many Americans, while possibly allowing buyout firms to continue to operate in less problematic ways.