Editorial, Toledo Blade: Ohio’s five public pensions should be prohibited from investing in private equity.

From ORTA Staff

April 30, 2024

Blade Editorial: Unions not the issue 

"Ohio’s five public pensions should be prohibited from investing in private equity. Not only would it stop Ohio from profiting off of unsavory business practices but it likely would result in better long term growth for the state’s public pension funds." 

A little-noticed event at the White House last week should serve as an opening to the important question of whether private equity funds — known for leveraged buyouts — should be operating with money from public pensions. 

The White House convened public pension funds and private equity firms on April 23 to discuss worker rights. And while the meeting reached some accommodation in requiring private equity investors to be neutral when it comes to union organizing, it didn’t go far enough.

Private equity, to a disturbing extent, is profitable because of its unique business model: it buys existing low-debt businesses and saddles them with debt, which often then drives these businesses into failure. 

Public employee pensions should not be financing their members’ retirements based on rapacious practices like this. 

Ohio’s five public pensions should be prohibited from investing in private equity. Not only would it stop Ohio from profiting off of unsavory business practices but it likely would result in better long term growth for the state’s public pension funds. 

At the White House meeting, National Economic Adviser Lael Brainard and Acting Secretary of Labor Julie Su brought in pension funds with a trillion dollars invested in private equity for a lecture on labor neutrality. 

The Biden Administration message was that union workers would make the private equity business model more politically palatable. 

The better message would have been for public sector pensions to get out of private equity investments entirely. 

State pension dollars allow private equity to pay top dollar to buy up businesses. The equity is stripped and replaced with tax deductible debt, completing the circle of subsidy from working class to the rich. 

There’s no worse abuse than in nursing homes, where a National Bureau of Economic Research study shows resident deaths in private equity-owned facilities are 10 percent higher than all other facilities. 

Toledo has sad experience with this reality. HCR ManorCare was bought by private equity and stripped of value by selling off nursing home facilities to generate cash, but added huge new expenses for rent, and then sold to ProMedica. The subsequent failure of the nursing home business, compounded by the dynamics of the pandemic, contributed to a financial crisis for ProMedica that has had far-reaching consequences for Toledo. 

The business model of high debt and low staff is deadly to elder care but not unusual thanks to capital provided by foolish state pensions like Ohio’s five funds. 

The Biden Administration has acknowledged the problem but without the needed resolution, which is to prohibit public pensions from investing in private equity. 

Read this editorial online: https://eblade.toledoblade.com/.pf/showstory/20240429004/1