By Tom Moutes, RLACEI Legislative Director
Would you want to see a doctor who works for a firm that only cares about profits? How about being placed in a nursing home that is less concerned about your care than its costs? How would you like to be competing not only with other home buyers, but also with a big-money firm that can pay all cash for that dream house you have identified? These and other undesirable scenarios are playing out across our country as deep-pocketed private equity firms change the way we live.
LACERS invests in private equity firms to help earn the seven percent assumed investment return it needs to keep our retirement benefits well-funded. Generally, the funds private equity firms offer are divided into venture capital funds and buyout funds. Venture capital funds often invest in start-up tech companies and hope to get in on the ground floor of the next great tech innovations. Buyout funds buy existing businesses to try to squeeze more efficiencies and profits from them, often by integrating these businesses with other ones and/or just implementing cost-cutting strategies.
LACERS, along with most other public pension systems, invests in both venture capital funds and buyout funds. 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.
When a public pension system, such as LACERS, invests in a private equity fund, they are basically investing in a concept put forth by a private equity firm. Most of the time, the specific investments are not known until months or years later. The investors turn over almost all of the investment control for such funds to the private equity firms.
Said differently, when LACERS invests in a buyout firm, it does not necessarily know if that firm will make life worse for the everyday lives of its members. Not only do some private equity firms buy up healthcare systems, nursing homes, and peoples’ houses, they also tend to be anti-union and have been known to raid the retirement funds of some of the companies they purchase. That’s right, some of the investment returns LACERS and other public pension funds receive is based on the poor salaries and working conditions and the raided retirement funds of the private businesses LACERS invests in! Of course, private equity firms would tell you they are saving companies that might otherwise go out of business.
Almost weekly there are articles regarding how private equity firms are making the lives of LACERS members and other Americans worse. For example, recently there were articles about private equity firms buying up mobile home parks and then jacking up the rents. You might want to start keeping your eyes open for articles like that, as well as for Part 2 of this article, which will run next month.