Tag: private equity

Private Equity Pays To Silence Investor-Whistleblowers Aware Of Fraud

Mary Pat Campbell

Link: https://www.forbes.com/sites/edwardsiedle/2021/02/28/private-equity-pays-to-silence-investor-whistleblowers-aware-of-fraud/?sh=45191ea71cee

Excerpt:

For fiduciaries overseeing other people’s money, private equity’s disparate treatment of investors, abusive industry practices and alarming lack of transparency should be deal-breakers. To the contrary, pensions in recent years have dramatically increased their allocations to private equity funds—either because they don’t understand the dangers lurking in the shadows or simply don’t care as long as above-market returns are promised (which will supposedly reduce severe pension underfunding).

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Securities and pension regulators have paid little attention to the “side letter” agreements private equity funds enter into with investors granting preferential treatment. It’s no secret that these agreements exist—the practice of entering into them is disclosed in offering memoranda and is openly discussed throughout the industry. As a result of increasing institutional investor domination of private equity, and the regulation applicable to these investors, it is now standard practice in the industry for each investor to demand its own side letter. As a consequence, there has been a proliferation of the number of side letters being negotiated with investors, as well as the kinds of arrangements and provisions included in them.

Author(s): Edward Siedle

Publication Date: 28 February 2021

Publication Site: Forbes

The Relationship Between Public Pension Investments and Declining Bond Yields

Mary Pat Campbell
The Relationship Between Public Pension Investments and Declining Bond Yields

Graphic:

Excerpt:

The visualizations display how private equity investments have grown in popularity. Private equity allocations are now the third-largest asset class for public pension plans, growing from 3.62 of nationwide plan portfolios in 2001 to 9.15 percent in 2019.

Portfolio managers should be free to pursue whatever investment philosophies they believe are in the best long-run interests of their plan members. However, policymakers, pension plan members, and taxpayers should be aware of these trends and the risks that come with them. Pension systems and lawmakers need to address the growing risk of volatility in ways that maintain a plan’s resiliency to unpredictable market factors. Also, plan stakeholders should be wary of a situation where the tail wags the dog—with pension systems swapping safety for risk and volatility as they chase outdated and overly optimistic investment return assumptions.

Author(s): Jordan Campbell

Publication Date: 25 February 2021

Publication Site: Reason

Gov. Wolf puts critic back on $60 billion pension board

Mary Pat Campbell

Link: https://www.inquirer.com/news/torsella-psers-garrity-muth-20210225.html

Excerpt:

In November, Democrat Joseph Torsella lost his position as an overseer of Pennsylvania’s $60 billion school pension fund when he lost reelection as state treasurer. But on Thursday, Gov. Tom Wolf tapped Torsella to return to the PSERS board as his representative.

The appointment, which requires majority approval by the State Senate, would restore Torsella to a growing reform bloc on the 15-member board for PSERS. That stands for Public Schools Employees’ Retirement System, which sends checks to about 250,000 retired teachers and other former school workers.

During his single four-year term as treasurer, Torsella, by dint of his position, served on the PSERS board and that of its smaller, $30 billion sister fund for state employees, known as SERS.

Author(s): Joseph N. DiStefano

Publication Date: 25 February 2021

Publication Site: Inquirer

Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes

Mary Pat Campbell

Link: https://www.nber.org/papers/w28474

Abstract:

The past two decades have seen a rapid increase in Private Equity (PE) investment in healthcare, a sector in which intensive government subsidy and market frictions could lead high-powered for-profit incentives to be misaligned with the social goal of affordable, quality care. This paper studies the effects of PE ownership on patient welfare at nursing homes. With administrative patient-level data, we use a within-facility differences-in-differences design to address non-random targeting of facilities. We use an instrumental variables strategy to control for the selection of patients into nursing homes. Our estimates show that PE ownership increases the short-term mortality of Medicare patients by 10%, implying 20,150 lives lost due to PE ownership over our twelve-year sample period. This is accompanied by declines in other measures of patient well-being, such as lower mobility, while taxpayer spending per patient episode increases by 11%. We observe operational changes that help to explain these effects, including declines in nursing staff and compliance with standards. Finally, we document a systematic shift in operating costs post-acquisition toward non-patient care items such as monitoring fees, interest, and lease payments.

Author(s): Atul Gupta, Sabrina T. Howell, Constantine Yannelis & Abhinav Gupta

Publication Date: February 2021

Publication Site: NBER

How Wall Street Kills Grandma

Mary Pat Campbell

Link: https://www.dailyposter.com/p/how-wall-street-kills-grandma

Excerpt:

The study from University of Pennsylvania, University of Chicago and New York University researchers evaluated data from 15,000 nursing homes across the United States, alongside Medicare patient data, to assess the impacts of private equity ownership on patient outcomes. In all, the researchers found that the deaths accounted for “about 160,000 lost life-years.”

Private equity firms typically take over existing corporations with borrowed or investor money and then impose cost-cutting measures to maximize revenues — often in preparation for selling off the newly stripped down firms at a profit. In the health care sector, private equity buyouts have been associated with lower staffing levels, more frequent citations for health and safety violations, shortages of supplies like ventilators that are crucial for COVID patients, and other failings tied to the constant imperative to cut costs.

In all, 70 percent of nursing homes currently operate as for-profit businesses, far more than other healthcare facilities. Only about one quarter of hospitals, for example, are for profit.

Author(s): Julia Rock, David Sirota

Publication Date: 22 February 2021

Publication Site: The Daily Poster

Examining Private Equity in Public Pension Investments

Mary Pat Campbell
Examining Private Equity in Public Pension Investments

Graph:

Excerpt:

However, there are reasons to be skeptical of public pension investment in private equity. While it is true that most private equity benchmarks outperformed the S&P 500 during the 2010s, it appears that public pension system investors did not benefit from this outperformance: their returns on public and private equity holdings were similar. Furthermore, it appears that private equity underperformed in 2020 and may not recover its edge in the decade ahead.

Over a long time period, annual returns on leveraged buyout funds are highly correlated with those of the S&P 500, raising questions as to whether private equity meaningfully adds to the diversification of pension system portfolios.

Pension systems should thoroughly evaluate the downsides of private equity investing before increasing their allocations to this asset class. These disadvantages include illiquidity, challenges in obtaining timely and accurate valuations, high investment costs, and lack of transparency.

Author(s): Marc Joffe

Publication Date: 27 January 2021

Publication Site: Reason

CalPERS’ Former CIO on Saving America’s Public Pensions

Mary Pat Campbell

Link: http://pensionpulse.blogspot.com/2021/01/calpers-former-cio-on-saving-americas.html

Excerpt:

Gordon thinks very highly of Ben Meng and so do I. I’ve had the pleasure of talking with him a few times since he was appointed CIO at CalPERS and not only is he brilliant, he was always very nice and generous with his time.

The last time I spoke with Ben was in the summer via a webcast where he explained that CalPERS is not leveraging its portfolio by $80 billion. We spoke about a few things and I recommend you read my comment here to gain an appreciation of everything he was tying to do at CalPERS.

That was before his crucifixion In August where he was forced to resign.  

I’m on record stating the way Ben Meng was treated was absolutely shameful and disgusting.

I don’t need to expand on this, suffice it to say CalPERS lost one of the best CIOs in the world and they still haven’t replaced him.

Author: Leo Kolivakis

Publication Date: 19 January 2021

Publication Site: Pension Pulse

Saving America’s Public Pensions

Mary Pat Campbell

Link: https://www.project-syndicate.org/onpoint/public-pensions-how-to-increase-long-term-returns-by-ben-meng-2021-01?barrier=accesspaylog

Excerpt:

The main challenge facing the public pension industry is the high assumed rates of returns on pension assets relative to what equities or bonds are likely to deliver.Many US public pension funds expect a rate of return in the neighborhood of 7% per year. But in today’s capital-market environment, achieving that sustainably over the long term has become an increasingly daunting task.

In fact, this is not a new problem. As Chart 1 illustrates, the gap between the risk-free and assumed rate of return has been widening for the past four decades. In the1980s, the risk-free rate (as approximated by the yield for ten-year US Treasury bonds) was often far higher than the assumed rate of return, making it relatively easy for pension funds to hit their targets. Today, however, the risk-free rate is more than six percentage points below targeted return.

Author: Ben Meng

Publication Date: 15 January 2021

Publication Site: Project Syndicate

Investors ready for change as Democrats take control

Mary Pat Campbell

Link: https://www.pionline.com/washington/investors-ready-change-democrats-take-control

Excerpt:

While the COVID-19 pandemic and its economic impact present the most pressing challenges, Democratic control of Congress and the White House could also spur action on issues ranging from climate change to scrutiny of private equity practices.

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Mr. Neal’s first bill introduced in the new 117th Congress addresses the multiemployer pension crisis that he said “has only worsened” in the COVID-19 economic downturn. A similar proposal was introduced by members of the House Education and Labor Committee, whose chairman, Robert C. “Bobby” Scott, D-Va., said the pandemic could cause as many as 180 more multiemployer plans to become insolvent, adding up to 300 plans facing failure. Both leaders are urging that the proposed Emergency Pension Plan Relief Act of 2021 be attached to a COVID-19 relief measure now before Congress.

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Potential legislation is expected to build on the panel’s climate action plan calling for clean energy tax credits and jobs initiatives, investments in water infrastructure and research into land and ocean climate solutions, among other ideas.

Author: Hazel Bradford

Publication Date: 25 January 2021

Publication Site: Pensions & Investments