Toledo Blade Editorial: A pension plunder-blunder (The story of STRS? You be the judge!)
Editorial: A pension plunder-blunder
“Public pension funds provide the very oxygen private equity firms need to exist. Without them, private equity would be a far smaller industry and doing less damage,”
~ Gretchen Morgenson
THE BLADE EDITORIAL BOARD
MAY 10, 2023
A new book published by Simon & Schuster documents the destructive power of the $12 trillion private equity industry in America — and the damage it causes right here in Ohio.
In These Are the Plunderers, How Private Equity Runs — and Wrecks — America, Pulitzer Prize-winning writer Gretchen Morgenson and financial policy analyst Josh Rosner cite examples of private equity harm to the former HCR ManorCare and how it’s used to exaggerate value in the State Teachers Retirement System of Ohio.
Plunder is a strong word. Ms. Morgenson and Mr. Rosner use it to refer to the $6.3 billion takeover of HCR ManorCare by Carlyle Group in 2007.
After Carlyle bought the Toledo-headquartered nursing home operator, which owned 550 facilities employing 60,000 in 30 states, it sold off the company’s real estate and started charging rent on the facilities, plus management fees.
The ensuing debt of $40 million a month forcing staff cuts and service cuts ruined the quality for reputation that the company had built.
The company went bankrupt and was acquired in 2018 out of bankruptcy by ProMedica.
The National Bureau of Economic Research concludes nursing home patients in facilities owned by private equity are 10 percent more likely to die than residents in all other nursing homes.
Private equity and health care is a lethal combination but it is still fast growing. Private equity funds simply have so much money to make deals that they can make offers that doctors, dentists and hospital administrators can’t refuse.
And where’s the money for private equity coming?
From partners like Ohio STRS.
“Public pension funds provide the very oxygen private equity firms need to exist. Without them, private equity would be a far smaller industry and doing less damage,” according to Ms. Morgenson.
A reason public pensions pump so much money into private equity is it enables them to make fantastic claims on investment returns without any transparency.
“Private fund managers have much leeway to mark their portfolios in ways that benefit them but that may not reflect reality,” Ms. Morgenson said.
Questionable public equity valuations have helped STRS investment staff qualify for performance bonuses boosting their compensation by six figures at a total cost over $10 million last year.
STRS is set to vote on more than $11 million in staff bonuses this month.
Former Trustee Wade Steen, ousted from the STRS board Friday by Gov. Mike DeWine, was the leading opponent of both bonuses and private equity investments.
Mr. Steen was the first Ohio pension board member to see a plunder has occurred, and now, Governor DeWine has removed him from the board.
The alternative investments have only benefited STRS staff, whereas STRS investment in transparent index funds would have paid better returns.
posted by Kathie Bracy at 8:42 PM
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