At Harrisburg pensions panel, private equity firms pitch their soundness as investments

By: - January 16, 2020 4:44 pm

Private equity panel (Capital-Star photo by Stephen Caruso)

Jack Glover has a simple explanation for the rise in criticisms of his industry — private equity.

The industry “has had a lot of success,” Glover, a Pittsburgh-based private equity executive with Incline Partners, said Thursday at a Harrisburg panel hosted by the Pennsylvania School Employees Retirement System. “And when you’ve had a lot of success, you’re going to have a target on your back.”

The industry has been spotlighted by politicians nationally and in Pennsylvania as a factor in rising inequality, even as public pensions invest in the firms to ensure retirees checks don’t bounce.

Thursday’s panel featured four private equity executives from firms that PSERS is currently invested in, including two firms based in Pennsylvania. The panelists explained the industry, answered audience questions, and addressed criticism that the industry is too opaque or that its profits come at the expense of workers.

Private equity refers to investment groups that buy a stake in a company that is not listed on the stock market, or purchase a company to take it off the stock market and keep management in private hands.

What is private equity and why are Pa. lawmakers concerned about the tens of millions of dollars of your money tied up in it?

With $70 billion in unfunded pension obligations, Pennsylvania’s two pension funds have poured money into private equity and other so-called “alternative investments” chasing big returns.

According to PSERS, investments in public stocks beat private equity up until the 10-year mark. After that, private equity has greater returns. Meanwhile, financial whizzes debate whether the industries’ returns, measured by self-reported statistics, are as good as the firms claim.

U.S. firms, “need to make sure that we’re all calculating [returns] in the same way, and there isn’t any B.S. in how the calculations are being done,” Howard Ross, a partner at Philadelphia-based LLR Partners, said.

Glover also pushed back on the idea that private equity makes money by acquiring companies, cutting jobs, and stashing the profits.

“We are growth-focused investors,” Glover said. “We don’t make money by … cutting.”

A 2019 University of Chicago study found that employment at publicly traded firms purchased by private equity fell 13 percent two years after the takeover. Employment at already private companies bought by private equity expanded by 13 percent in the same period.

The panelists  also faced questions about the  transparency of public dollars that flow into private equity.

Pa. pension employees are taking pricey trips to Beverly Hills. But the costs are hidden. Why?

The General Assembly is now considering pension reform legislation that would, among other things, expand public records access to pension investment information.

No one on the panel said they would stop investing with PSERS if the state imposed enhanced transparency requirements. But most panelists rejected the idea that the public needed complete access to investment documents.

“Apple doesn’t share with investors what its new iPhone design is six months before launching,” Williams Jackson, of the London-based Bridgepoint Advisors, said.

Philadelphia’s Ross also rejected the argument, put forth by state Treasurer Joe Torsella, that the fees and charges levied by  private equity companies made the firms a bad investment.

Judging investments based on  private equity profits, Ross contended, ignores the above-market returns a pension fund could reap, even after fees.

“It’s a question of returns, that’s the whole point of investment,” Ross told the Capital-Star after the panel.


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Stephen Caruso
Stephen Caruso

Stephen Caruso is a former senior reporter with Pennsylvania Capital-Star. Before working with the Capital-Star he covered Pennsylvania state government for The PLS Reporter.