The Chicago Teacher Pension Fund Trustees finally knocked down private equity by voting against a measure to invest another $10 million in the KKR Ascendant Fund.
This was the first time since I’ve been covering the sad state of private equity that the trustees voted against the wishes of an industry that the Fund is heavily invested in despite its reputation for plundering the companies they buy up.
KKR said this new investment strategy would focus on fabulous returns of up to 20 percent in a middle market and would avoid energy and retail, two areas this company is notorious for exploiting and gutting. Sensing the changing winds, they stated they also aimed to make every employee an owner in the businesses they controlled in this fund. Former Trustee and watchdog Tina Padilla had earlier questioned the sincerity of this gesture by noting that these employees are not offered a defined benefit pension like the CTPF.
CTPF Chief Investment Officer Fernando Vinzons, sounding more like a KKR pitchman, extolled the virtues of the dark prince of private equity by stating they are diversified and their management fees will be cut substantially from their usual 2 percent to only 1.5 percent.
“I reiterate that every employee will have ownership, lower management fees and a middle market focus which is performing better,” Vinzons told the trustees before the vote at the CTPF Board Meeting on March 21, 2024.
Retired Teacher Trustee Lois Nelson started the heated discussion that turned KKR into a pinata by noting they seem to still be a hedge fund. Teacher Trustee Paula Barajas, who has been a vocal critic of private equity, said KKR is trying to be a better player, but they were asking the trustees to bet on doing this in the future with no guarantee.
“I’m not 100 percent sure how I feel, not about this strategy, but about the company,” Teacher Trustee Quentin Washington said. “(They) already have money so it makes me wonder, should we give them more?”
Teacher Trustee Victor Ochoa who supports private equity said he isn’t going to lose sleep over this investment and it is the right thing to do as a fiduciary of the fund.
“I understand what Trustee Ochoa is saying, but we have a company who is in litigation,” Trustee Barajas said. “They have companies that have gone bankrupt under them, and I think it is our fiduciary responsibility to think about that also.”
CTPF VP and Investment Chair Jacquelyne Price Ward spoke out most forcibly against giving KKR any more money.
“They need to repair their reputation,” Price Ward said. “We need to make sure we are in business with the right people. That it is humane. We are a public fund. And we are the real people that have to draw this pension. I need to see them go a little further in that growth strategy and prove that this is what you’re doing.”
The CTPF held a special investment committee educational session in Feb. on private equity that defended the industry. Presentations were made by venture capital companies that said they focus on growing companies, not cutting jobs. One speaker from the industry said the private equity industry got a bad rap after the publication of the book Barbarians at the Gate, which told the story about how KKR bought out RJR Nabisco and loaded it up with debt that resulted in thousands of layoffs and diminished pensions.
“I saw with my own eyes with Nabisco, and we actually joined that picket line and they were near me,” Price Ward said. “All those people (were) thrown out with no severance pay.”
Trustee Washington said he wanted to rescind his second on the motion to vote for extra funding, however the CTPF lawyer said he could not, but he could just vote no.
The Trustees voted 7 - 2 against the motion to approve a recommendation to invest $10 million with KKR Ascendant Fund. The two no votes were Ochoa and Retired Teacher Trustee Mary Sharon Reilly.
The CTPF has currently allocated about 8.6 percent of its funds in private equity (about $1 billion), despite its sordid reputation and high and hidden fees. They said they are working to bring down that amount to their targeted goal of five percent. The Callan investment consultant told trustees at the March 21 meeting that private equity has performed very well, and that they are winding down certain long-term investments.
The Trustees voted 6-3 to approve the private equity pacing plan and allocation which would invest another $50 million in private equity this year because they have to continually invest in PE. Trustees President Jeffery Blackwell, VP Price Ward, Reilly, Tammie Vinson, Washington and Ochoa voted yes, and Trustees Barajas, Lois Nelson and Maria J. Rodriguez voted no.
If you can do 20% gains consistently you are a Warren Buffet grade investor. Funny, there only seems to be one Warren Buffet and one Berkshire Hathaway.
Thank you for keeping an eye on this and reporting!