Why is the Chicago Teachers Pension Fund Still Investing in Private Equity?
During this year’s Pension Trustee Election, the Chicago Teachers Union leadership caucus CORE distributed a flyer that attacked Teacher Trustee Phil Weiss for investing in private equity.
“Called for the CTPF to invest in a private equity firm that fired over 30,000 employees at ToysRUs, charged exorbitant and hidden fees to funds, and funded fracking and oil extraction at the expense of poor and indigenous people.”
Phil Weiss is the Investment Chair of the Chicago Teachers Pension Fund (CTPF), and he has boasted at recent board meetings about the great returns of the Fund’s private equity managers. The Fund has about 8 percent of its money invested in private equity.
But this recent attack calls into question why CTPF would invest in private equity if it is as bad as CORE says it is.
The CTPF Trustees voted to divest from oil and gas companies because of concerns for the environment despite this sector’s high returns. CORE boasted previously that they no longer invest in Hedge Funds because they charge high and hidden fees and destroy companies and communities.
But Hedge Funds and Private Equity are essentially the same thing.
Private Equity is the personification of evil today. Two books were published this year about the industry, and they both have the word ‘plunder’ (the violent and dishonest acquisition of property) in their titles. The first was written by NY Times reporter Grechen Morgenson called Plunderers: How Private Equity Runs - and Wrecks - America, and the second Plunder: Private Equity’s Plan to Pillage America by Brendan Ballou, a prosecutor who worked for the U.S. Dept. of Justice.
According to Ballou in an interview on the 403(b)Wise Podcast, Private Equity has bought up almost 15 percent of the nursing homes resulting in 20,000 premature deaths over 15 years.
Private equity firms often go after businesses that target poor people, such as payday lenders, for-profit colleges, and prison services. Ballou said he thinks it’s because low-income people do not have alternatives to turn to.
He said prisoners were forced to pay $20 for a 15-minute phone while others were forced to take ‘drug holidays’ because the health care providers didn’t have enough medications, and a woman gave birth in her cell with no one around due to the staff shortages that resulted from the private equity owner’s cost-cutting methods.
Private equity has pushed foreclosures and helped institutions buy up homes in bulk and then push up their rents. Blackstone had spent $14 million on a campaign to stop legislation that would have allowed tenant protections in single-family homes in California.
Another gross example the author gave was when a group of mobile park residents sued the Carlyle Group that was buying up their homes. This private equity firm has billionaire owners, including one who is now the Governor of Virginia. The mobile owners were collecting cans so they could afford a lawyer to prevent this group from throwing them out of their homes!
Ballou called private equity a remix of what is awful about the American system. Whereas before it was the rapaciousness of trusts, the collapse of the savings and loan industry, and the subprime disaster 20 years ago, today it’s private equity!
Private equity is also focused on stripping teachers and other workers of pension obligations via bankruptcy.
The Securities and Exchange Commission (SEC) Chairman Jay Clayton who was in charge of regulating private equity left to become the chairman of the Apollo Group, the second biggest private equity firm.
Ed Siedle, who has sued public pension funds for risky investments, said private equity has so many fees and hidden secret side agreements that it makes no sense for any public pension fund to invest in them.
“Private equity funds are the Wild West,” he wrote on his substack newsletter Pension Warriors.
He wrote that the industry grants preferences to certain investors which inevitably disadvantages others.
And good luck on figuring out their fees and agreements with the Chicago Teachers Pension Fund. Their reps tell the CTPF and other pension funds that they are bound to long-term investments so it is difficult to pull money out when they are losing value.
Many public pension funds have chosen to invest in private equity because of the potential enormous returns when they need to make up lost revenue. Randolph Wieck wrote in a comment that the Kentucky Teachers Union chose to side with private equity firms even after they were made defendants in a pension lawsuit.
“They are now paying the price,” wrote Randolph Wieck on Substack. “Unfortunately, so are the KY’s clueless teachers.”
And it’s only getting worse. Pension experts say they need more money and they are looking toward 401(k)s and 403(b) retirement accounts.
Ed Siedle, who worked for the Securities and Exchange Commission (SEC) before he started investigating Public Pension Funds, wrote in an article that private equity investments charge myriad opaque fees and expenses exponentially (10x) greater than traditional stocks and bonds, they are not subject to the same degree of regulations as mutual funds, and many inflate their fees and expenses charged to companies in which they hold stakes.
More than half of about 400 private-equity firms that the SEC examined charged unjustified fees and expenses without notifying investors.
“In my forensic investigations of over $1 trillion in retirement plans,” Siedle wrote, “I have never encountered a pension that fully understood the dangers of investing in private equity.”
“Private equity companies succeed when the companies they buy fail,” Dan Otter from 403(b) Wise said.
How big are they? The private equity group Blackstone just reached a trillion dollars in managed assets. The US GDP is 25 trillion.
Chicago Public School Teachers know how bad Aramark is as the company the Chicago Board of Education hired that cut its staff so we had to file so many grievances for filthy schools.
Guess who owns them. Yup, private equity!