*This story has been updated to correctly spell Eileen Appelbaum’s name, and to clarify that Platinum uses investors’ money to pay for the trips.
On a Friday morning in November 2017, an employee who works for one of Pennsylvania’s two public pension systems hopped in an Uber outside the Beverly Hills Hotel.
After a 15-minute, $8.60 ride, he was dropped off at an office building at 1844 Avenue of the Stars in the Los Angeles neighborhood of Century City, according to travel logs and receipts the Capital-Star obtained through a public records request.
The employee, who works for the Pennsylvania’s Public School Employees’ Retirement System, or PSERS, was staying at the hotel — where rooms can go for more than $700 a night — to attend the annual meeting of Platinum Equity, a Beverly Hills-based private equity firm.
A PSERS employee has attended a similar meeting in Los Angeles every year since 2012.
And over the past two decades, PSERS has pumped $1 billion in taxpayer money into Platinum, according to the pension’s website, seeking big returns to shore up the underfunded system.
The meetings’ costs are baked into contracts that PSERS pays with public dollars. But the full scope of these travel expenses cannot be fully gleaned through public documents — even though the money is spent on a public employee, who is checking on the investment of taxpayer dollars.
State officials have previously criticized the high price of doing business with private equity firms. At the same time, they’ve waged a legislative fight to make expenses, from travel to management fees, more transparent.
The Uber ride was for the pension employee to check on a potential investment, according to PSERS. Because that ride was paid for by the employee, who was then reimbursed by Platinum, the expense is a public record.
But other expenses from that same 2017 trip — such as lodging — were booked* by Platinum. So they’re shielded from public view.
According to public records obtained by the Capital-Star, Platinum Equity reimbursed PSERS for nearly $1,400 in travel costs over the course of the seven trips to Los Angeles between 2012 and 2018.
The reimbursements varied wildly for the seven trips examined by the Capital-Star. Receipts for those trips, also requested by the Capital-Star, were only available for the two most recent trips.
But they averaged out to slightly more than more than $199 per-trip. That’s for one employee, for travel lasting between three to five days.
The average trip’s price is also $100 less than the cheapest flight from Harrisburg to LA, according to Google Flights. It doesn’t even begin to cover a night at the Beverly Hills Hotel.
The upscale travel is borne by PSERS and every other investor into Platinum, in what a Platinum official termed “partnership expenses.” The cost of the flights, hotel, and other related costs are included in the investment contracts Platinum’s backers sign with the firm.
In 2019, PSERS reported paying $46 million in similar partnership expenses to its money managers — on top of hundreds of millions of dollars in management fees, carried interest, and other expenses.
Seeking healthier pensions, lawmakers have now taken up the transparency fight, arguing the public has a right to know more about these shadowy costs.
“Whether it’s such things as travel costs, carried interest, or other contractual arrangements, the results impact the bottom line of the pension fund and — ultimately — the taxpayer,” Rep. Brett Miller, R-Lancaster, told the Capital-Star.
But the push has led both state pension funds — the State Employees Retirement System, or SERS, as well as PSERS — to warn that Miller’s proposed transparency reforms could impact how they do business, and by extension, the bottom line of the state’s retirement obligations.
The proposed transparency changes put PSERS “at a competitive disadvantage as it would no longer be able to guarantee confidentiality and therefore, will not receive confidential information necessary to perform due diligence or negotiate fee reductions,” PSERS executive director Glenn Grell wrote in a Nov. 15 letter to the Independent Fiscal Office, a non-partisan state budgetary research agency.
‘Trust but verify’
With nearly $60 billion in assets, PSERS manages the pensions of more than 600,000 current and retired teachers and other school employees.
Those assets need to be invested to keep up with the demand for pension payments. Sometimes that’s the stock market, but sometimes that means private equity.
Private equity refers to financial firms that solicit contractual, multi-million-dollar buy-in from large investors to directly invest in private companies, including startups and struggling businesses.
Investment strategies often include buying out public companies, including distressed companies, and delisting them from the stock exchange. Sometimes, those investments are in controversial firms that, for example, collect student debt.
- READ MORE: What is private equity — and why are Pa. lawmakers concerned about the tens of millions of dollars in your money that’s tied up in it?
Some, such as Democratic state Treasurer Joe Torsella, have raised concerns about investing in such firms, but private equity’s seemingly high returns have attracted the dollars of public pension funds trying to stretch limited state contributions.
PSERS has about 14.5 percent of its assets in “private markets,” which includes private equity.
Attending private equity fund meetings is a necessary form of due diligence, PSERS spokesman Steve Esack said. He equated it with the old journalism adage “trust but verify.”
Going to the meetings has an added significance for PSERS, because the pension system sits on an investor advisory board within Platinum.
Appointed by the private equity managers, board members are usually big money investors, and exist to address conflicts between the investors and the firm, according to a memo from Morgan Lewis, a law group.
By serving as an advisor, PSERS can review audits, offer input, and “get a more in-depth look at the portfolio investments than we would if we were not on the board,” Esack said.
PSERS also gets another perk with the board seat — travel expenses.
While other investors would have to pay their own way to Platinum’s annual meeting, PSERS doesn’t have to write a check as a board advisor.
Board members “attendance at the [advisory committee] meeting is a benefit to all investors, and so their costs are covered by the partnership as a partnership expense,” Mark Barnhill, director of investor relations for Platinum, said in an email.
For Platinum’s investor adviser, that means airfare to and from Los Angeles, transportation to and from the airport, as well as the hotel room and “incidentals at the meeting location” are covered, Barnhill said.
Flights and hotels can either be directly booked by Platinum, or the advisory board member can book themselves and be reimbursed, Barnhill said.
Some might stay at other hotels because their policies require it, while “some ask specifically not to be reimbursed or paid for, because their policy prohibits it,” he added. “Some go even further and ask us to invoice them for the cost of lunch and sodas.”
Those reimbursed funds are fair game for the state’s public records law. But expenses booked by the firm are not, PSERS’ Esack said. He added the board follows a gift and travel policy similar to those instituted by Gov. Tom Wolf.
The $1,392.09 in travel expenses that PSERS has been reimbursed for doesn’t equal the total estimate for the two most recent trips — let alone every trip since 2012.
PSERS estimated a $875 expense in 2017 and a $725 expense in 2018 on travel request forms filed with Gov. Tom Wolf’s office.
Those two estimates, which do not include lodging costs for the multi-day trips, come out to $200 more than PSERS has been publicly reimbursed for since 2012.
The estimates included meals, but few can be found among the receipts the Capital-Star reviewed from the past two trips. Just three transactions, totaling $17.57, included food.
A $622.42 total reimbursement in 2017, which included a flight, was the highest among all the years for which the Capital-Star received data. A reimbursement for $41.59 in 2018 was the lowest, records showed.
The 2017 receipts included a payment record for a flight from Harrisburg to Los Angeles, but the most recent trip did not.
PSERS’ Esack said this was from a difference in booking — the state booked the flight in 2017, which meant that it was reimbursed by Platinum. The 2018 flight was booked by the firm, which means there was no publicly available receipt.
And none of the publicly available costs take into account the pricey accommodations that Platinum books at the Beverly Hills Hotel.
The hotel has been associated with such celebrities as Fred Astaire, Howard Hughes and Elizabeth Taylor, among others. It also was the inspiration for the rock anthem “Hotel California,” by The Eagles.
Eileen Appelbaum, an expert in, and critic of, private equity at the progressive Washington D.C.-based think tank the Center for Economic and Policy Research, said it’s common practice for private equity firms to bring investors to exotic destinations while wining and dining them.
The median private equity firm, Appelbaum said, doesn’t do much better than a standard stock market investment. But firms host lavish meetings to persuade investors “that this fund will absolutely be top quartile;” meaning that it will outperform all its competition.
According to PSERS’ Esack, Platinum has been a good investment. He said the pension fund has received $1.72 for every dollar invested in the firm. But Appelbaum points out that firms can design their own measures of success.
As for the expensive meeting space, Platinum uses the Beverly Hills Hotel because it is close to the firm’s Beverly Hills office, has multiple meetings rooms and a restaurant “that fit our needs,” and can provide a room block for attendees, Barnhill said.
If that hotel is unavailable, the firm also uses the Four Seasons Beverly Hills, the Beverly Wilshire and the Waldorf Astoria, he added.
All are five-star locations, and cost more than $600 a night.
The state’s two pension systems have an estimated $68 billion in unaccounted pension obligations — or benefits that must be paid to current or future retirees.
In an attempt to find savings, a 2018 report prepared by state treasurer Torsella, and state Rep. Mike Tobash, R-Schuylkill, who’s a noted critic of pension debt, pointed to an estimated $12.4 billion in fees or carried interest paid to PSERS’ and SERS’ money managers since at least 1980.
Those dollars went to private equity firms, hedge funds, and other so-called “alternative investments.”
“We have paid Wall Street handsomely for mediocre returns. Lavish fees … represent not just a waste of money but a [waste] of the trust of the people,” Torsella said in 2018, according to the Financial Times.
Right now, these fees aren’t regularly disclosed.
For example, a public version of a 2012 contract between PSERS and Platinum on the state treasury website puts the agreement’s worth at $200 million — “plus reasonable normal investment expenses.”
What those “reasonable normal investment expenses” are is not explained in the public contract. Those details, PSERS’ Esack said, are not in any public documents.
The 2018 report pressed for more transparency and efficiency from the states’ two pension boards. Its suggestions have been picked up by House Republicans as a five-bill reform package now working its way through the Legislature.
In the package, along with a proposal to merge the two pension funds investment operations, is a proposal from Lancaster Republican Miller, requiring the two pension boards to live-stream their meetings.
It also would open to public view a host of records in both funds, force the funds to publicly disclose all fees the board pays to investment groups, and “all travel or other expenses incurred by staff and paid for by an external investment manager, fund or consultant.”
In a memo asking colleagues for their support, Miller wrote that the bill “will help ensure the solvency of the plan by exposing potentially high and unnecessary management fees.”
The pension bills are currently in the House Appropriations Committee, and have not been acted on since mid-November.
The Senate would get a chance to pass or modify the bills before they’d go to Wolf for his signature.
If the transparency proposal passes, PSERS warned it could be shut out of further investments with private equity firms, and estimated a $30 billion cost over the next 30 years.
But private equity experts aren’t buying the hand wringing over the extra sunshine.
Katey Bogue, the head of private markets for the financial analytics firm eVestment, told the Capital-Star that she understands the transparency concerns from private investment groups.
Bogue said equity firms want to keep their investment documents close to avoid running afoul of Depression-era federal laws limiting advertising, and to stay competitive.
The documents could include deals or fee structures that are a trade secret, and help them nab new investors, Bogue said.
But she was skeptical that private equity funds would give up on pitching to public pensions over the new rules.
“Public plans are a very large part of the investable capital available to private markets managers and it would be challenging [for private equity] to continue to raise funds of the size they have been raising without including that capital base,” she said in an email.
Critic Appelbaum agreed. She argued that there was “every reason a public pension firm should make public every single deal they got” — even if transparency might not be in the interest of firms.
In fact, Appelbaum said these public investors, guarding the futures of teachers, janitors, bureaucrats and bus drivers, should stick up for themselves.
“Who’s going to walk away from that kind of money? In most cases, the customer is boss. It’s their money,” Appelbaum said. The problem when a pension fund and private equity cross paths, she added, is that “it’s the private equity firms that call the shots.”