Private equity describes investment partnerships that buy and manage companies before selling them. Private equity investors are largely retirement and pension funds. Public pension funds have long been the biggest single source of private equity funds, at about 30% of the total. This is a pool of money that public and union workers—such as teachers and nurses—contribute to throughout their careers in hopes of having retirement income. They are told that private equity investors are "marketing geniuses," and that these private equity firms will beat the public market by leaps and bounds. However, when you dig deeper, you find that these claims have no backing.
How well do private equity funds actually perform?
There are claims that private equity funds perform equal to, or even less well, than simply just investing in the Stock Market (Investopedia). And when you factor in all the fees that people are charged to use these private equity firms, it can often be less worth while.
Ludovic Phalippou, a professor at Oxford University’s business school, has also published a series of papers demonstrating that the outsized returns promised by private equity firms do not match up with reality. Indeed, private equity firms on average do not beat the S&P 500 index of large companies’ stocks, while charging enormous fees that eat up part of their returns.
The Democratic Party is supposed to be the party to defend the working class. What are they doing on this issue?
In the summer of 2022, the Democratic New York controlled legislature passed a bill to funnel as much as $54 billion more in retiree savings into high-risk Wall Street investments, amid a flood of campaign cash from the financial industry. (Jacobin)
New York’s largest teachers union even backed the legislation, even though the move came after federal regulators — and the union’s own national leaders — issued loud warnings about the risk of such investments.
The legislation was championed by New York City Comptroller Brad Lander (D), an erstwhile private equity critic endorsed last year by progressives like Sen. Elizabeth Warren (D-Mass.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.). Lander, who received more than $115,000 in campaign donations from the financial sector for his 2021 comptroller bid, pledged during the campaign that he would review the city pension “funds’ positions with risky and speculative assets including hedge funds, private equity, and private real estate funds.”
RELATED LINKS
A Big Reckoning Starting for Private Equity and Its Public Pension Fund Enthusiasts (Naked Capitalism, 2-3-23)
US pension funds are on the brink of implosion – and Wall Street is ignoring it (The Guardian, 2-2-23)
How Do Returns on Private Equity Compare to Other Investment Returns? (Investopedia, 7-10-22)
Jeff Hooke | The myth of private equity, market fallacies and the Stockholm syndrome (Investment Magazine, July 2021)
Investment industry welcomes SEC efforts to reform private equity fees (Financial Times)
Public Pensions in New York (Ballotpedia)
DEMOCRATIC NEW YORK LEGISLATURE SUPPORT PRIVATE EQUITY
Assembly Bill A9668A (Relates to investments by public pension funds)
New York Dems’ Giant Gift To Private Equity (The Lever, 6-3-22)
REPORTS
A series of reports on the dismal returns of private equity funds from Professor Ludovic Phalippou (SSRN)
An Inconvenient Fact: Private Equity Returns & The Billionaire Factory (SSRN)
BOOKS
An Inside Look at Wall Street’s Transformative Investments
VIDEOS
How Private Equity Robbed Taylor Swift, Toys R Us & J Crew | The Class Room ft. Adam Conover