11 ms·

The irony is that PEs exist largely because of pension funds. So to sum it up (not so nicely) we are transferring value from our current standard of living to p

The irony is that PEs exist largely because of pension funds. So to sum it up (not so nicely) we are transferring value from our current standard of living to pay for retirement checks for our old folks. Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone would scream bloody murder. But with the higher returns from PE they have 40-50 year runways and people can pretend everything is fine. So PE firms exist to extract value from basically all high quality goods and services to show a high ROI to prop up pensions. They extract wealth by buying up companies and gutting the “extra” things in them - for luxury goods, it’s quality, customer service and warranties (like my venta humidifier or reformation dresses), for services it’s stripping the underlying excess risk management and quality control. One can argue that PEs make the business more efficient but in my opinion they just turn worker or consumer related benefits into profits (stakeholder and business benefits). It’s a transfer of value from worker and consumer to business and asset holders at a massive scale. But sadly it’s not some evil dudes at the top doing this transfer, the market force behind it is because we promised old people way too aggressive paychecks when they retired. Pensions need to invest massive amounts of money into higher rates of return and PEs just happened to be the medium that is the most successful. Sure the people running the PE firm extract a ton of value drying up all luxury quality and robust services from the daily lives of working families, but their take home is a tiny fraction of the wealth they extract (but yes they take home a massive amount of wealth for an individual). Instead the wealth extracted shows up on a 1400$/m for some old person probably living in a retirement home somewhere. So if you wanna fix or ban PE, solve pensions.

didip 4mo ago
Had pension fund just invest in VOO, PE won't need to exist.
nemomarx 4mo ago
Why don't pensions just invest in index funds generally? High required rate of returns or?
- alistairSH 4mo ago
  Yes, underfunded relative to future payout promises, so higher rates of return required to remain solvent.
  - sieabahlpark 4mo ago
    [dead]
- pjc50 4mo ago
  They do (and will generally track the index themselves), but PE offers a higher risk/return profile and diversification.
- mamonster 4mo ago
  There are multiple reason: 1. If you assume that P.E is uncorrelated/has a low correlation to the stock market (subject of many years of diatribes), then you decrease volatility of your portfolio by adding it. 2. Because a pension fund has a lot of years until they need start to paying out, then it is natural for it to attempt to harvest the illiquidity risk premium. 3. The (edit: removed extra words) "high required rate of return problem" is really a defined benefit problem. A DC plan can (and probably should) just be in mostly straight indices unless it's so big it can negotiate a good fee with asset managers for other classes.
- ninjagoo 4mo ago
  > Why don't pensions just invest in index funds generally? Answering the implied statement - pensions invest in PE only to the tune of about 14%. [1] [1] https://publicplansdata.org/quick-facts/national/ https://publicplansdata.org/quick-facts/national/
thijson 4mo ago
I wonder if this creates opportunity for spinning up competitors to these PE owned companies. If they are underinvesting in their products in order to extract value eventually their offerings will not be competitive.
- throw10920 4mo ago
  I think in theory it does, but in practice the customers of PE-bought companies don't update their priors fast enough. If a company being purchased by PE meant that they lost the vast majority of their customers as soon as contractually possible, then the possible value extracted by PE would drop off a cliff. This isn't necessarily the fault of the customers - we're all dealing with a lot of information to process. And, up until recently, it was reasonable to attach reputation to brand instead of to owners. And I think that's a lot of what PE exploits - the gap between people's belief about a brand's reliability/reputation, and the fact that the actual reliability has been a function of who the actual owners of the company are for many years - but people are still attached to the old mental model. (there may also be some value for PE to extract from assets aside from customer relationships and the higher-order "brand value", but I suspect that that's secondary - if I'm wrong please correct me)
- mcphage 4mo ago
  > eventually their offerings will not be competitive. How so?
  - MobiusHorizons 4mo ago
    If you read the article it provides a good example. Fire truck businesses with a 4 year backlog and high margins. This is less competitive than the situation prior to PE consolidating it when it had much lower backlog and ~3% margins. Seems like a clear market opportunity.
    - mcphage 4mo ago
      Ah, okay. Sorry, I misread what you had said. I missed the “owned”, and thought you were saying the PE companies themselves would be uncompetitive—and wasn’t sure what you meant.
matheusmoreira 4mo ago
Interesting perspective. I had never considered that before.
deleted 4mo ago
[deleted]
halfcat 4mo ago
> we are transferring value from our current standard of living to pay for retirement checks Isn’t this just what happens when you have an inverted pyramid (older population is larger than the younger population)? > One can argue that PEs make the business more efficient I’ve never seen it (I agree with you). To improve something they’d have to understand the business and do a bunch of work. Mostly they show up at quarterly meetings and want spreadsheets that measure some number that will go up (regardless if that number means anything). > if you wanna fix or ban PE, solve pensions How does one solve pensions?
- nekusar 4mo ago
  > How does one solve pensions? I was thinking that Covid and widespread antivaxxer mentality would have. But no. This will be the latest ladder-pull by the boomers and silents to extract the last bit of wealth from all the younger generations. And this will impoverish gen-x and all younger generations even more so than we already are.
  - protonbob 4mo ago
    [flagged]
    - nekusar 4mo ago
      Exactly. IN cases of national or world-level event, governments and government related bodies (WHO) will do whatever they can as not to cause a widespread panic. And if that means lying, they will absolutely do that. And because the capitalists run the show in a lot of countries, https://ruinmyweek.com/wp-content/uploads/2020/07/live-laugh-pull-the-lever-22-trolley-problem-memes-2.jpg https://ruinmyweek.com/wp-content/uploads/2020/07/live-laugh... is a good image that explains why lots of things kept going on as usual. A world-level 6 week pause would have burned covid and a whole lot of other diseases out. But no. Poor capitalists need their 3rd yacht, 13th vacation home, etc etc etc. As for me, my SO worked in health care. And Covid is a SARS. We have decades of effects and response. The shit's airborne. WHO knew that. CDC knew that. But they lied and lied and lied. We take our healthcare in our own hands. I'll critically listen to the "experts" and deal with med doctors for prescription drugs. And Im definitely interested in my own manufacture of pharms https://fourthievesvinegar.org/ https://fourthievesvinegar.org/ . But yeah, the wider and general the message, the more propaganda it likely is. And we also have a good stock of PPE now, including a few tyvek suits. And everclear is 95% alcohol and $30 here for a handle. Best sanitizer you can easily acquire and food safe to boot. EDIT as comment to WarmWash: No. The WHO and CDC lied about Covid being an airborne infection. They refused and refused, up to then redefining what an "airborne infection" is. https://www.bmj.com/content/385/bmj.q985 https://www.bmj.com/content/385/bmj.q985 Covid is a SARS. Airborne. SARS requires BSL3 to handle properly. https://en.wikipedia.org/wiki/Biosafety_level#Biosafety_level_3 https://en.wikipedia.org/wiki/Biosafety_level#Biosafety_leve... "Biosafety level 3 is appropriate for work involving microbes which can cause serious and potentially lethal disease via the inhalation route." I dont need international experts to tell me a stream of bullshit, when I can look at the type of disease and go "wellll fuck, airborne. time to wear masks outside the home and no parties or events. and go to store when its not busy." Was Covid as bad as SARS? No. But is SARS response something that can be compared to what we should have did for Covid? Hell yeah.
fny 4mo ago
A 30-year treasury offers 5% and A-grade corporate bonds offer 6.5%. You don't need to exploit essential services for the other 50bps. [0]: https://fixedincome.fidelity.com/ftgw/fi/FIYieldTable?popupMode=Y&yldTabSelected=H https://fixedincome.fidelity.com/ftgw/fi/FIYieldTable?popupM...
- pjc50 4mo ago
  .. now. Five years ago that was more like 2%.
  - fny 4mo ago
    The S&P grew at ~15% annualized post GFC, and PE acquisitions of housing and essential services hasn't stopped.
- WarmWash 4mo ago
  Because treasury rates are rising, it now actually puts even more pressure on PE firms to burn furniture.
kome 4mo ago
I wrote about this not long ago: https://theloop.ecpr.eu/its-not-finance-its-your-pensions/ https://theloop.ecpr.eu/its-not-finance-its-your-pensions/ "It's not finance, it's your pensions" (it's a blog summary of a much longer, and rather esoteric, academic article)
FuriouslyAdrift 4mo ago
Pension funds still exist?
- pjc50 4mo ago
  There's $32trn of them: https://fred.stlouisfed.org/series/BOGZ1FL594090005Q https://fred.stlouisfed.org/series/BOGZ1FL594090005Q Who do you think is buying .. everything? They're holding substantial fractions of both the whole stockmarket and national debt.
  - FuriouslyAdrift 4mo ago
    I do not know anyone other than teachers, cops, or firemen that have pensions and all of those are grossly underfunded (see city of Chicago). Now... if you mean IRAs then yeah... that's 99% of all private "investors" EDIT: I forgot all about State and Federal pensions.
    - pjc50 4mo ago
      Private defined-contribution schemes which can only be accessed after a certain age and have tax breaks on contributions still count as pensions, yes.
- jasode 4mo ago
  The pension plans for many government employees still exist. CalPERS (California Public Employees' Retirement System), Illinois Teachers Pension, etc. (https://en.wikipedia.org/wiki/List_of_largest_pension_schemes_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_pension_scheme...) It's the corporate businesses that have gotten rid of pensions in favor of 401k plans.
- aidenn0 4mo ago
  Many government employees have pensions. Most of the ones I know are also ... skeptical of the future solvency of those funds by the time they retire.
yardie 4mo ago
One of the tools we use was bought by PE last summer. When it was time to renew our support contract had tripled in price. I use it across 10 projects so our costs went from $200k to $500k. I let our account manager know this was unacceptable but even his hands were tied. Cancelled those contracts and let them know we were retooling with a competing tool and opensource to fill those gaps. The impression I got was we weren't the only ones. Sales were getting squeezed between customers bailing and PE management wanting to stay the course. I've seen PE make businesses more efficient by reviewing all contracts and dropping or renegotiating ones that no longer align. Closing product lines that aren't profitable. But that is year 1-2. By year 3 they start the squeeze, layoffs, asset selloffs (stripping), and lowering quality, raising prices. That is where the real teeth of wolf are shown.
- cameronh90 4mo ago
  This is just the design of a PE fund. They run on a fixed cycle, so early on they heavily invest into their portfolio with the aim of resolving that risk and maximising the sale value by the end of the cycle. In principle, I don't think there's anything wrong with this. All investment expects a ROI over some time horizon. Public companies do the same thing. Anyone who founds a start-up is doing it too. The only real distinguishing feature of PE is how successful they have become at aggressively optimising for market value. The issue is that the sale value at the end of the cycle can be massively influenced by cynical financial engineering. This seems to me to be more of an issue with how every institutional investor apparently now prices companies purely on reductive metrics like EBITDA x the industry standard multiple. The cause of the rot is widespread over-confidence in dumb financialization models shaping the system. (Or, since it's HN: if your machine learning model is training well, but misaligned with real life: do you blame AdamW?)
  - mcphage 4mo ago
    > how successful they have become at aggressively optimising for market value They use money to turn value into money, which they then use to turn more value, into more money. And in the end, they have a lot of money, and all of the value is gone.
Galanwe 4mo ago
> The irony is that PEs exist largely because of pension funds. The irony goes way deeper than that. A large part of PE clients are university endowment funds. Harvard for instance has close to $60B in its endowment fund, 40% of which is invested in PE. At this point, Harvard is more an investment fund, with a university as side business.
- wavefunction 4mo ago
  I don't believe that's ironic. Harvard and other "elite institutions" are the places with massive endowments, not state colleges or anything. Frankly the more I think about it the more it's nothing particularly interesting, just a fractal representation of the privilege of wealth as far as you want to drill down.
  - mikeyouse 4mo ago
    Not entirely... U Mich's is ~$20 billion, UVA & OSU are both around $8 billion, UCLA's is ~$5 billion, the Texas + Texas A&M system have nearly $50 billion in AUM. https://en.wikipedia.org/wiki/List_of_colleges_and_universities_in_the_United_States_by_endowment https://en.wikipedia.org/wiki/List_of_colleges_and_universit...
    - genxy 4mo ago
      I don't know why the University of Washington isn't on the list of public institutions, it should be number 6 with 9.4B in assets. https://www.uwinco.uw.edu/ https://www.uwinco.uw.edu/
    - jimbob45 4mo ago
      Lost in the commotion is the chaos that NIL is wreaking on universities and their donation funnels. The donations side of things seems to be rapidly drying up as a revenue source.
- spyckie2 4mo ago
  I think, if you were to say there is a way where you can take $10b and have that money make more ROI with less risk than $1000 can, people would look at it and scream this is broken let’s policy this out of our economy. It defies all laws of a balanced economy (not a capitalistic one, a balanced one). It’s just like monopolies and we have strong laws against that. But… if you were to say hey we need to pay our old people and we desperately need some way we can deploy massive amounts of money at higher rates of return, people will say… hmm well it’s broken but the alternative is worse so we’ll ignore it. But now imagine you have a way to deploy large amounts of money and get large returns off that money. Every large amount of money (endowments basically) will jump on it because why not? That’s literally an endowment dream scenario. So pension funds are the moral reason these other huge chunks of money to get large returns. PE firms have become a streamlined business model because they continue to improve what they are good at doing, and it’s insane that we haven’t passed laws against it yet. Except of course we can’t mess with it because it touches government workers. So yeah even if we wanted to policy it out of our society it’s practically impossible from a social point of view.
deleted 4mo ago
[deleted]
jmyeet 4mo ago
This reads as apologia, blame-shifting, "I was just following orders". People have to eat. They need water. They need a roof over their head. Nobody has to buy out all the veterinarians in an area at rates they can't say no to, have them sign non-competes and them jack up all the prices by 300% because, hey, you now own all of them. Nobody has to buy up all the trailer parks, which are normally peopple's last stop before being homeless, and then jack up the ground rent because, hey, where else are they going to go? Nobody has to buy up utilities, spend big on capex because legally you can pass on that charge and effectively double people's electricity bills. Hannah Arendt coined the term "banality of evil" [1] decades ago and, in all honesty, I think it applies to the predatory nature of PE. It also goes for working for Palantir and a bunch of other companies. "I need to pay my student loans", "I'm just doing data science", "I'm just writing AI software that identifies when somebody is home" and on it goes. PE serves no useful function in society. It's pure rent-seeking and incredibly predatory in many cases. ~15 years ago, there was a story about Goldman Sachs invented a derivative on the price of wheat and then essentially conspired to jack up the price of wheat [2]. This wasn't just manipulating a ticker on a Bloomberg terminal. It had real-world consequences. People starved and died because of this decision. Yet I'm sure there were people who argued "I'm just doing legally allowed financial engineering here". [1]: https://aeon.co/ideas/what-did-hannah-arendt-really-mean-by-the-banality-of-evil https://aeon.co/ideas/what-did-hannah-arendt-really-mean-by-... [2]: https://theecologist.org/2011/sep/13/how-goldman-sachs-started-food-speculation-frenzy https://theecologist.org/2011/sep/13/how-goldman-sachs-start...
- jonhohle 4mo ago
  Worse than vets is hospital system and medical offices. In our area there are about 6 hospitals within reasonable driving distance. 1 is a mayo and the 5 others are split between the two major mega-providers. One of those also partnered with CVS/Aetna to provide marketplace insurance, until they decided that didn’t have high enough margins so they dropped 100k (28%) subscribers.
  - jmyeet 4mo ago
    The healthcare system is just rent-seeking upon rent-seeking. PBMs are another big one where the PBM gets to decide after the fact what your rebate is. No conflict of interest there when United Healthcare owns Optum, which I think is the biggest PBM.
aaronharnly 4mo ago
I have no idea how reliable this source is, but it looks plausible - from the "American Investment Council", which appears to be some kind of private equity trade association ( https://www.investmentcouncil.org https://www.investmentcouncil.org ) https://www.psprs.com/uploads/sites/1/AIC_PublicPensionReport_v10.pdf https://www.psprs.com/uploads/sites/1/AIC_PublicPensionRepor... Some interesting details: - "Nearly 50 percent of the private equity investment dollars that make their way into American businesses come from public pension funds", which substantiates OP's thesis. - "U.S. public pension funds invest 9% of their portfolios in private equity, on a dollar-weighted basis." 46% is in public equity, so obviously the lion's share is in still in public markets.
- NoboruWataya 4mo ago
  This isn't surprising. Public companies tend to be lower risk (and therefore offer lower returns) than PE investments and pension funds want a mix of both. They want the juicy returns of PE deals, but a portfolio invested completely or mostly in PE would be unacceptably risky. Most pension fund mandates will set % limits on how much can be invested in different asset classes, with lower limits for riskier asset classes.
derf_ 4mo ago
> So if you wanna fix or ban PE, solve pensions. We solved pensions. People have defined-contribution plans now. I would expect insurance float to dwarf pensions as a source of PE funding. The real reason PE exists is because it charges high fees. The financial industry does not make products to serve customer needs, though by happy accident that sometimes happens. It makes products to charge fees. Index funds removed a big chunk of the fees that active mutual funds used to charge, so financiers went looking for a replacement. Even if you snapped your fingers and all remaining pensions (and insurance float?) disappeared, PE is aggressively going after individual retirement accounts, now. Most insidiously, trying to work their way into the "target date" funds that are the defaults for most plans. So "solving pensions" will not make PE go away.
- MichaelZuo 4mo ago
  Huh? Don’t many jobs still have gold plated pensions? Like millions upon millions? They need to be paid out somehow.
  - nemomarx 4mo ago
    Looks like about 18 percent, although I would assume there's a particular demographic where this might be higher. Do they have to be paid out in full, though? I remember cases in the past where a company went bankrupt and had to renege on some parts of pensions, so maybe you'll see that again?
    - MichaelZuo 4mo ago
      After some percentage are reneged… there would still be a strongly motivated bloc of considerable size? I don’t see how it is relevant, unless the rate is close to 100%.
  - ryukoposting 4mo ago
    > many jobs... millions upon millions ...no. It doesn't even matter what the rest of the words in the question are. Just no, lol. > They need to be paid out somehow. No they don't. Lots of pensions, especially the not-gilded ones, go bankrupt. In fact, that's precisely what happens to pensions of companies that are acquired by PE. The company gets stripped for parts, it goes bankrupt, and PBGC covers a fraction of the affected pensioners' payouts. In other words, with or without PE, bloated pensions ultimately end up being the taxpayer's burden.
triceratops 4mo ago
The S&P 500 already returns 7%. Why do pension funds need PE? And like FIRE devotees, maybe they should model a lower withdrawal rate.
- bombcar 4mo ago
  Because if you're hired as pension manager, and you just shove all the money into VTI, you're going to feel like you're doing nothing, and eventually someone will notice your job is redundant, even if you're outperforming your peers.
  - triceratops 4mo ago
    And the people who hire pension managers are too stupid to see that active pension management is redundant? They haven't read A Random Walk Down Wall Street?
  - froindt 4mo ago
    Relatively famously, the Nevada public pension investment manager relies entirely on indexed funds. He has one person he works with on the investment side, avoids the expenses of consultants and a large office, and maintains incredibly low fees. He has been in the role over a decade.
cameldrv 4mo ago
You often see them “monetizing the brand.” That’s a nice way of saying “betraying customer trust.” They buy a company that’s known for high quality and then cut the quality. They can keep charging the high prices for a while until people realize that it’s not what it once was. After a while, higher end customers realize what’s happened and stop buying. Then the brand typically becomes a mid market brand and they start selling on Amazon to a less affluent clientele who still associate the brand with quality but wasn’t in their price range before. They usually cut quality again at this stage. Effectively it’s burning all of the trust built up with consumers as firewood by tricking them into buying mediocre products at high prices.
- kridsdale1 4mo ago
  It sounds like you’re on the cusp of an entropy model of commerce.
briffle 4mo ago
My State is essentially screwed for budgeting, because for years, our public retirement system garunteed "AT LEAST 8%" to accounts. Some years was much higher. I have a parent that make more, 10 years after retirement, then they ever did working. They moved around the year 2000 to accounts that don't have the AT LEAST clause, and they earn what they earn, but due to the backlog of people still retiring that were grandfathered in, its wrecking our state. My city has a huge budget deficit, but 24% of its total payroll budget goes to the public retirement system to 'catch up' from years when it did not make 8%. Next year or two, that is supposed to jump to 28% of payroll. Problem won't start getting better until something like 2034 when the boomers start 'leaving the retirement system'
- bombcar 4mo ago
  The "advantage" for pensions is that they get to "keep the principal" (unless it's setup even more insane than normally) whereas with a 401(k) the residual gets inherited.
regularization 4mo ago
> Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. Pensions fund PE because PE can do a short term cooking of the books in order to smooth out the growth curve. So the return is usually positive each year, not raising problems. Also what does significant mean? Pensions are the main mechanism non-wealthy people are investing in PE. Being that millions are involved, you would expect pensions would have a sizable portion of the market, but family offices and high net worth offices dominate. If it offers above average returns, why would they not invest? PE is like every other asset class other than housing, the top 1% own a large chunk, the top 20% own the majority, and the bottom 50% own very little. Decisions are not driven by sone fireman, they are driven by the wealthy like everything else. And the origin and continuation of pushing for retirement to come from capital investment comes from the wealthy as well.
- subtlejellyfish 4mo ago
  Significant meaning many PE funds are overwhelmingly (like 75+%) funded by pensions and sovereign wealth funds. Its been awhile since I worked there, but CalPERS and CalSTRS were the two biggest LPs Blackstone had while I was there.
  - regularization 4mo ago
    Right, but the CalPERS is sliced into over 2 million pieces, whereas a family office or gulf sovereign wealth fund has much less divvying up. It looks big until you see it has to be divided 2 million ways, as opposed to maybe 20 ways with a family office. The distribution is unequal. But most asset classes are like that, although less so for a single family house.
hdndjsbbs 4mo ago
If the government guaranteed basic human needs are met for every person (food, shelter, healthcare) there would be less of a need for giant pools of public money (pensions, insurance) sloshing around. Mass index fund investment is basically socialism but stupid. My retirement money is going to get invested in the SpaceX IPO against my will. The market is not efficiently allocating capital, it's structured to allow elites to skim off the top while forcing middle class people to subsidize them.
- Nasrudith 4mo ago
  Where the do you think the government gets their tax money from if not the market? That is like saying we shouldn't kill animals from meat, we should just buy it from the store.
  - hdndjsbbs 4mo ago
    The government needs money to buy products from the market. If the government controlled the means of production, they wouldn't need money because they would just make things themselves. In a hybrid scenario where there is still a market, we would ... collect more taxes to pay for this stuff? It seems like you came up with a pithy response and tried to back up into a critique that doesn't make sense.
bs7280 4mo ago
I've been saying pensions should not exist, as they are contradictory to our political system. Some politician 40 years ago can promise everyone the moon, and never force the next generation to figure it out. I'm from Chicago which has a nightmare pension system that's keeping me from ever buying a home in the city I love, because my property tax increases just go to retired people who moved to Florida. I really appreciate this perspective as It helps fill in gaps in my mental model of where our economy has gone wrong the last 50 years. Unrelated but - I've read an interesting paper on how allowing private banks to create money has led to the infinite profit growth goose chase...
- jordanb 4mo ago
  I own a house in Chicago and my property taxes are much lower than my friends in the suburbs. I live in a working-class southside neighborhood. The people who are complaining about property taxes for SFUs in the city are people in neighborhoods with skyrocketing home values. Those people stand to receive a massive windfall when they sell. And while it may be annoying for them if they find themselves having to sell when they didn't want to, the they're vastly better off than all then renters in that neighborhood who got priced out much faster with no windfall.
  - braincat31415 4mo ago
    Nah. I own a property in the gold coast area, and my property values have barely changed in the last 20 years. I only see an insane increase in real estate taxes and assessments. These are the things that price renters out, plus the Chicago housing regulations that leave the landlords without any leverage under pretty much any circumstances and force the risk to be reflected in the rent. Currently net profit from rental properties in that area is close to the interest on the equivalent amount of 10y bonds, without all the headache.
    - jordanb 4mo ago
      So sell and buy 10 year bonds. ¯\_(ツ)_/¯ The Gold Cost isn't suffering a shortage of landlords.
tonyedgecombe 4mo ago
We all own the means of production. Communism crept in right under our noses.
wilkommen 4mo ago
The stuff that old people need in their retirements to live is getting more expensive due to the types of shenanigans that PE firms are doing. So their pensions appear solvent now but when those old folks actually retire, their money won't go as far? Doesn't add up. I think the people who are really benefitting here are the usual suspects - the ultra rich, and the PE guys at the top doing this transfer really are evil.
- cucumber3732842 4mo ago
  > So their pensions appear solvent now but when those old folks actually retire, their money won't go as far? The pension people aren't being scored on doing well for their clients. They're scored on money. They don't care. Ain't no different than some jerk in an insurance/regulator office cooking up a rule about PPE based on first order assessment of a bunch of crappy data. The guy who gets mashed by a forklift he couldn't hear coming doesn't hurt their KPIs. He didn't suffer occupation related hearing loss. MissionAccomplished(TM) Pretty much every industry that deals at the statistical level whether it's PE making investments or something else runs in this manner.
thrance 4mo ago
No, if you wanna fix or ban PE, ban PE. PE is just a really easy and safe way for financiers to make extra cash, with huge externalities that everyone else pays for. The people benefiting from this are those who already have a lot of capital, and while it is true that old people generally have more than young people, don't fall for this simplistic generational warfare narrative. PE is also going after retirement homes and elderly care services. It's just a ploy for the wealthy to extract even more wealth from the rest of us, while stripping the country for parts and dooming the actual economy for years to come. On the subject, if you have 50 minutes to waste: https://youtu.be/tyNFosOFUDM?is=hwDH5tFCAYc7soHG https://youtu.be/tyNFosOFUDM?is=hwDH5tFCAYc7soHG
bondarchuk 4mo ago
I don't get it. If pensions stopped existing, would people stop doing PE even though it's profitable? If it is possible to get outsized returns "because pensions need them" then isn't somebody gonna notice and get those returns anyway, pensions or not?
- pphysch 4mo ago
  Yeah, it's like blaming drug users primarily for the violence of the drug trade. Sorry, but the drugs came first.
- spyckie2 4mo ago
  Slavery is profitable. People only stopped doing it when it was perceived as immoral. Lots of things are profitable but immoral. People will do crazy immoral and illegal stuff for money, but we outlaw and slander the more abusive stuff, like monopolies and such. If it wasn't pensions that were funding PE, I'm sure PEs would get a lot more criticism and would not be allowed to do what they do.
  - slibhb 4mo ago
    The idea that slavery is a free lunch that is only banned on moral grounds is wrong. Slavery is bad economics. If you want your economy to grow, paying workers is not bad. Economic growth isn't zero sum.
    - somelamer567 4mo ago
      Capitalists are selfish, and have short planning horizons. For a capitalist, slavery is absolutely rational. The only reason why they don't do it today is because it's illegal.
      - slibhb 4mo ago
        Selfish capitalists want to accumulate capital and grow the economy. Slavery is a bad strategy for achieving these ends. There is ample historical evidence of this, and it also lines up with mainstream economic theory. People who argue otherwise simply cannot escape their zero-sum worldview.
Joker_vD 4mo ago
> we are transferring value from our current standard of living to pay for retirement checks for our old folks Well, yes, that's how any retirement (or any social benefit, really) system works: people who actually do work support the people who don't. Those latter include children, the elderly, pop-stars, politicians, etc. So unless you make people work until the day they die (which is possible, and have been done in the past, mind you — it just severely decreases the average life expectancy), we're going to transfer some of the created wealth to the elderly. The exact form of how this transfer is performed is a fascinating topic for discussion (make their direct descendants care for them! make a state-, or charity-funded fund to feed them hot soup once a day! make them save up for retirement themselves! lots of options, really) but it will still happen one way or another. After all, some people simply do have lots of money (and keep getting more) with doing no labour; some of them are retirees.
yieldcrv 4mo ago
These are side effects of PE fund behavior, and where many of them get investors from There are also many benefits you don’t notice because they don’t bother you
bigbadfeline 4mo ago
> But sadly it’s not some evil dudes at the top doing this transfer, the market force behind it is because we promised old people way too aggressive paychecks when they retired. You seem to be quite confused about pensions, not only "old people" have pensions. Actually the vast majority of contributions to pensions funds come from people who aren't old at all and are actively employed. > If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone would scream bloody murder. Where would they "scream"? On the internet? And who'd hear them? The answer is nobody in any PE cares about anyone screaming. PE's operations have nothing to do with screaming old people, that viewpoint simply avoids the real issues and replaces them with red herring age baiting.
- mgh95 4mo ago
  > You seem to be quite confused about pensions, not only "old people" have pensions. Actually the vast majority of contributions to pensions funds come from people who aren't old at all and are actively employed. This is exactly how pensions work: newer members to the defined benefits plan pay for older members. This isn't surprising. > Where would they "scream"? On the internet? And who'd hear them? The answer is nobody in any PE cares about anyone screaming. At the ballot box. There is a reason that public pensions are exempt from the PBGC reserve ratio requirements. People with pensions aggressively vote their interest.
  - bigbadfeline 4mo ago
    > This is exactly how pensions work: newer members to the defined benefits plan pay for older members. No, that's now how they work, if that was the case, there wouldn't be any need for PEs to buy and enshitify the assets we are talking about here. Your current description contradicts your previous comment. I'm not going to explain it to you, there's enough information about the topic. > At the ballot box. We don't vote for PEs. And who we vote for makes no difference to them, these truths are so basic, it's a shame you don't know them.
    - mgh95 4mo ago
JumpCrisscross 4mo ago
> if you wanna fix or ban PE, solve pensions PE is a bogeyman, emblematic of a problem but not the problem per se. The problem is leverage. Critical services should have a borrowing limit and prohibitions on any pay-outs to owners while any leverage is in place. Kicking out private equity and replacing them with family offices doesn’t solve anything; removing the debt does.
swivelmaster 4mo ago
This is an exceptionally high-quality comment. You on bsky or threads or somewhere I can follow you?
yfw 4mo ago
Old rich folks
ninjagoo 4mo ago
> The irony is that PEs exist largely because of pension funds. Do you have any evidence for this claim? > Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. Again, please provide some sources for this claim. The S&P 500 index has returned about 15% on average over the past 10 years, and historically returned about 10% on average. [1] > So if you wanna fix or ban PE, solve pensions. This is a misinterpretation at best. Pensions do not make operational decisions at PE - PE management does. This statement mistakes a funding source for the whole business model, which is problematic. Pensions supply capital, but PE’s behavior is from the general PE model: buy companies, use leverage, extract fees, seek exit in 5 to 10 years, and earn management fees plus carried interest. That structure exists whether the capital comes from pensions, sovereign wealth funds, insurers, endowments, family offices, or wealthy individuals. Public pensions are one major funding source, not the whole machine. This statement also implies that PE is mainly a pension-funding response, which would be a falsehood. PE did not buy nursing homes or hospitals or vet clinics or prison telecoms or ambulance companies or dental chains or infrastructure-like services merely because pensions put in capital. [1] https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
hakfoo 4mo ago
I always fancied the idea of 'dedollarizing' retirement. When you turn 65/70/whatever, your pension/IRA/401(k) isn't paid out as a monthly cheque, but instead as a lifetime lease to an apartment in a retirement complex with subsidized services, and a relatively tiny cash stipend. The quality of life remains comparable, except we've removed the ceremony of passing most of the money through the hands of the pensioners on the way to landlords, medical providers, etc. But because the goods and services can be preplanned and bulk-contracted and managed long-term, the operation can get get more value out of $1000 than an individual buyer would get out of $1400. This reduces the pressure for high returns. This also eliminates the risk of outliving your money. With a prepaid obligation to be fed/sheltered/taken care of, the risk is transferred back to the pension scheme, or society as a whole through a state-insurance-backstop fund, which is probably better resourced and capable of swallowing the risk than your typical individual 85-year-old in failing health.
- toomuchtodo 4mo ago
  Medicare, social security, and a senior housing unit?
- amluto 4mo ago
  And then PE can buy up those subsidized housing systems and make them suck? I’m sort of kidding about the PE here us particular. But institutions that aren’t run by people who personally care about services tend to be really bad at maintaining things like food quality or ventilation or furniture or any of the hard-to-measure attributes that make for a nice housing situation.
anon291 4mo ago
The only person other than me that I've ever seen point this out. The reason PE exists in America is because of pension funds, including government pension funds. This deserves to be called out, because we cannot expect an entity reliant on PE in order to not go broke (the government) to properly regulate PE. The incentives are all wrong.

didip 4mo ago

Had pension fund just invest in VOO, PE won't need to exist.

nemomarx 4mo ago

Why don't pensions just invest in index funds generally? High required rate of returns or?

alistairSH 4mo ago
Yes, underfunded relative to future payout promises, so higher rates of return required to remain solvent.
- sieabahlpark 4mo ago
  [dead]
pjc50 4mo ago
They do (and will generally track the index themselves), but PE offers a higher risk/return profile and diversification.
mamonster 4mo ago
There are multiple reason: 1. If you assume that P.E is uncorrelated/has a low correlation to the stock market (subject of many years of diatribes), then you decrease volatility of your portfolio by adding it. 2. Because a pension fund has a lot of years until they need start to paying out, then it is natural for it to attempt to harvest the illiquidity risk premium. 3. The (edit: removed extra words) "high required rate of return problem" is really a defined benefit problem. A DC plan can (and probably should) just be in mostly straight indices unless it's so big it can negotiate a good fee with asset managers for other classes.
ninjagoo 4mo ago
> Why don't pensions just invest in index funds generally? Answering the implied statement - pensions invest in PE only to the tune of about 14%. [1] [1] https://publicplansdata.org/quick-facts/national/ https://publicplansdata.org/quick-facts/national/

thijson 4mo ago

I wonder if this creates opportunity for spinning up competitors to these PE owned companies. If they are underinvesting in their products in order to extract value eventually their offerings will not be competitive.

throw10920 4mo ago
I think in theory it does, but in practice the customers of PE-bought companies don't update their priors fast enough. If a company being purchased by PE meant that they lost the vast majority of their customers as soon as contractually possible, then the possible value extracted by PE would drop off a cliff. This isn't necessarily the fault of the customers - we're all dealing with a lot of information to process. And, up until recently, it was reasonable to attach reputation to brand instead of to owners. And I think that's a lot of what PE exploits - the gap between people's belief about a brand's reliability/reputation, and the fact that the actual reliability has been a function of who the actual owners of the company are for many years - but people are still attached to the old mental model. (there may also be some value for PE to extract from assets aside from customer relationships and the higher-order "brand value", but I suspect that that's secondary - if I'm wrong please correct me)
mcphage 4mo ago
> eventually their offerings will not be competitive. How so?
- MobiusHorizons 4mo ago
  If you read the article it provides a good example. Fire truck businesses with a 4 year backlog and high margins. This is less competitive than the situation prior to PE consolidating it when it had much lower backlog and ~3% margins. Seems like a clear market opportunity.
  - mcphage 4mo ago
    Ah, okay. Sorry, I misread what you had said. I missed the “owned”, and thought you were saying the PE companies themselves would be uncompetitive—and wasn’t sure what you meant.

matheusmoreira 4mo ago

Interesting perspective. I had never considered that before.

deleted 4mo ago

[deleted]

halfcat 4mo ago

> we are transferring value from our current standard of living to pay for retirement checks Isn’t this just what happens when you have an inverted pyramid (older population is larger than the younger population)? > One can argue that PEs make the business more efficient I’ve never seen it (I agree with you). To improve something they’d have to understand the business and do a bunch of work. Mostly they show up at quarterly meetings and want spreadsheets that measure some number that will go up (regardless if that number means anything). > if you wanna fix or ban PE, solve pensions How does one solve pensions?

nekusar 4mo ago
> How does one solve pensions? I was thinking that Covid and widespread antivaxxer mentality would have. But no. This will be the latest ladder-pull by the boomers and silents to extract the last bit of wealth from all the younger generations. And this will impoverish gen-x and all younger generations even more so than we already are.
- protonbob 4mo ago
  [flagged]
  - nekusar 4mo ago
    Exactly. IN cases of national or world-level event, governments and government related bodies (WHO) will do whatever they can as not to cause a widespread panic. And if that means lying, they will absolutely do that. And because the capitalists run the show in a lot of countries, https://ruinmyweek.com/wp-content/uploads/2020/07/live-laugh-pull-the-lever-22-trolley-problem-memes-2.jpg https://ruinmyweek.com/wp-content/uploads/2020/07/live-laugh... is a good image that explains why lots of things kept going on as usual. A world-level 6 week pause would have burned covid and a whole lot of other diseases out. But no. Poor capitalists need their 3rd yacht, 13th vacation home, etc etc etc. As for me, my SO worked in health care. And Covid is a SARS. We have decades of effects and response. The shit's airborne. WHO knew that. CDC knew that. But they lied and lied and lied. We take our healthcare in our own hands. I'll critically listen to the "experts" and deal with med doctors for prescription drugs. And Im definitely interested in my own manufacture of pharms https://fourthievesvinegar.org/ https://fourthievesvinegar.org/ . But yeah, the wider and general the message, the more propaganda it likely is. And we also have a good stock of PPE now, including a few tyvek suits. And everclear is 95% alcohol and $30 here for a handle. Best sanitizer you can easily acquire and food safe to boot. EDIT as comment to WarmWash: No. The WHO and CDC lied about Covid being an airborne infection. They refused and refused, up to then redefining what an "airborne infection" is. https://www.bmj.com/content/385/bmj.q985 https://www.bmj.com/content/385/bmj.q985 Covid is a SARS. Airborne. SARS requires BSL3 to handle properly. https://en.wikipedia.org/wiki/Biosafety_level#Biosafety_level_3 https://en.wikipedia.org/wiki/Biosafety_level#Biosafety_leve... "Biosafety level 3 is appropriate for work involving microbes which can cause serious and potentially lethal disease via the inhalation route." I dont need international experts to tell me a stream of bullshit, when I can look at the type of disease and go "wellll fuck, airborne. time to wear masks outside the home and no parties or events. and go to store when its not busy." Was Covid as bad as SARS? No. But is SARS response something that can be compared to what we should have did for Covid? Hell yeah.

fny 4mo ago

A 30-year treasury offers 5% and A-grade corporate bonds offer 6.5%. You don't need to exploit essential services for the other 50bps. [0]: https://fixedincome.fidelity.com/ftgw/fi/FIYieldTable?popupMode=Y&yldTabSelected=H https://fixedincome.fidelity.com/ftgw/fi/FIYieldTable?popupM...

pjc50 4mo ago
.. now. Five years ago that was more like 2%.
- fny 4mo ago
  The S&P grew at ~15% annualized post GFC, and PE acquisitions of housing and essential services hasn't stopped.
WarmWash 4mo ago
Because treasury rates are rising, it now actually puts even more pressure on PE firms to burn furniture.

kome 4mo ago

I wrote about this not long ago: https://theloop.ecpr.eu/its-not-finance-its-your-pensions/ https://theloop.ecpr.eu/its-not-finance-its-your-pensions/ "It's not finance, it's your pensions" (it's a blog summary of a much longer, and rather esoteric, academic article)

FuriouslyAdrift 4mo ago

Pension funds still exist?

pjc50 4mo ago
There's $32trn of them: https://fred.stlouisfed.org/series/BOGZ1FL594090005Q https://fred.stlouisfed.org/series/BOGZ1FL594090005Q Who do you think is buying .. everything? They're holding substantial fractions of both the whole stockmarket and national debt.
- FuriouslyAdrift 4mo ago
  I do not know anyone other than teachers, cops, or firemen that have pensions and all of those are grossly underfunded (see city of Chicago). Now... if you mean IRAs then yeah... that's 99% of all private "investors" EDIT: I forgot all about State and Federal pensions.
  - pjc50 4mo ago
    Private defined-contribution schemes which can only be accessed after a certain age and have tax breaks on contributions still count as pensions, yes.
jasode 4mo ago
The pension plans for many government employees still exist. CalPERS (California Public Employees' Retirement System), Illinois Teachers Pension, etc. (https://en.wikipedia.org/wiki/List_of_largest_pension_schemes_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_pension_scheme...) It's the corporate businesses that have gotten rid of pensions in favor of 401k plans.
aidenn0 4mo ago
Many government employees have pensions. Most of the ones I know are also ... skeptical of the future solvency of those funds by the time they retire.

yardie 4mo ago

One of the tools we use was bought by PE last summer. When it was time to renew our support contract had tripled in price. I use it across 10 projects so our costs went from $200k to $500k. I let our account manager know this was unacceptable but even his hands were tied. Cancelled those contracts and let them know we were retooling with a competing tool and opensource to fill those gaps. The impression I got was we weren't the only ones. Sales were getting squeezed between customers bailing and PE management wanting to stay the course. I've seen PE make businesses more efficient by reviewing all contracts and dropping or renegotiating ones that no longer align. Closing product lines that aren't profitable. But that is year 1-2. By year 3 they start the squeeze, layoffs, asset selloffs (stripping), and lowering quality, raising prices. That is where the real teeth of wolf are shown.

cameronh90 4mo ago
This is just the design of a PE fund. They run on a fixed cycle, so early on they heavily invest into their portfolio with the aim of resolving that risk and maximising the sale value by the end of the cycle. In principle, I don't think there's anything wrong with this. All investment expects a ROI over some time horizon. Public companies do the same thing. Anyone who founds a start-up is doing it too. The only real distinguishing feature of PE is how successful they have become at aggressively optimising for market value. The issue is that the sale value at the end of the cycle can be massively influenced by cynical financial engineering. This seems to me to be more of an issue with how every institutional investor apparently now prices companies purely on reductive metrics like EBITDA x the industry standard multiple. The cause of the rot is widespread over-confidence in dumb financialization models shaping the system. (Or, since it's HN: if your machine learning model is training well, but misaligned with real life: do you blame AdamW?)
- mcphage 4mo ago
  > how successful they have become at aggressively optimising for market value They use money to turn value into money, which they then use to turn more value, into more money. And in the end, they have a lot of money, and all of the value is gone.

Galanwe 4mo ago

> The irony is that PEs exist largely because of pension funds. The irony goes way deeper than that. A large part of PE clients are university endowment funds. Harvard for instance has close to $60B in its endowment fund, 40% of which is invested in PE. At this point, Harvard is more an investment fund, with a university as side business.

wavefunction 4mo ago
I don't believe that's ironic. Harvard and other "elite institutions" are the places with massive endowments, not state colleges or anything. Frankly the more I think about it the more it's nothing particularly interesting, just a fractal representation of the privilege of wealth as far as you want to drill down.
- mikeyouse 4mo ago
  Not entirely... U Mich's is ~$20 billion, UVA & OSU are both around $8 billion, UCLA's is ~$5 billion, the Texas + Texas A&M system have nearly $50 billion in AUM. https://en.wikipedia.org/wiki/List_of_colleges_and_universities_in_the_United_States_by_endowment https://en.wikipedia.org/wiki/List_of_colleges_and_universit...
  - genxy 4mo ago
    I don't know why the University of Washington isn't on the list of public institutions, it should be number 6 with 9.4B in assets. https://www.uwinco.uw.edu/ https://www.uwinco.uw.edu/
  - jimbob45 4mo ago
    Lost in the commotion is the chaos that NIL is wreaking on universities and their donation funnels. The donations side of things seems to be rapidly drying up as a revenue source.
spyckie2 4mo ago
I think, if you were to say there is a way where you can take $10b and have that money make more ROI with less risk than $1000 can, people would look at it and scream this is broken let’s policy this out of our economy. It defies all laws of a balanced economy (not a capitalistic one, a balanced one). It’s just like monopolies and we have strong laws against that. But… if you were to say hey we need to pay our old people and we desperately need some way we can deploy massive amounts of money at higher rates of return, people will say… hmm well it’s broken but the alternative is worse so we’ll ignore it. But now imagine you have a way to deploy large amounts of money and get large returns off that money. Every large amount of money (endowments basically) will jump on it because why not? That’s literally an endowment dream scenario. So pension funds are the moral reason these other huge chunks of money to get large returns. PE firms have become a streamlined business model because they continue to improve what they are good at doing, and it’s insane that we haven’t passed laws against it yet. Except of course we can’t mess with it because it touches government workers. So yeah even if we wanted to policy it out of our society it’s practically impossible from a social point of view.

deleted 4mo ago

[deleted]

jmyeet 4mo ago

This reads as apologia, blame-shifting, "I was just following orders". People have to eat. They need water. They need a roof over their head. Nobody has to buy out all the veterinarians in an area at rates they can't say no to, have them sign non-competes and them jack up all the prices by 300% because, hey, you now own all of them. Nobody has to buy up all the trailer parks, which are normally peopple's last stop before being homeless, and then jack up the ground rent because, hey, where else are they going to go? Nobody has to buy up utilities, spend big on capex because legally you can pass on that charge and effectively double people's electricity bills. Hannah Arendt coined the term "banality of evil" [1] decades ago and, in all honesty, I think it applies to the predatory nature of PE. It also goes for working for Palantir and a bunch of other companies. "I need to pay my student loans", "I'm just doing data science", "I'm just writing AI software that identifies when somebody is home" and on it goes. PE serves no useful function in society. It's pure rent-seeking and incredibly predatory in many cases. ~15 years ago, there was a story about Goldman Sachs invented a derivative on the price of wheat and then essentially conspired to jack up the price of wheat [2]. This wasn't just manipulating a ticker on a Bloomberg terminal. It had real-world consequences. People starved and died because of this decision. Yet I'm sure there were people who argued "I'm just doing legally allowed financial engineering here". [1]: https://aeon.co/ideas/what-did-hannah-arendt-really-mean-by-the-banality-of-evil https://aeon.co/ideas/what-did-hannah-arendt-really-mean-by-... [2]: https://theecologist.org/2011/sep/13/how-goldman-sachs-started-food-speculation-frenzy https://theecologist.org/2011/sep/13/how-goldman-sachs-start...

jonhohle 4mo ago
Worse than vets is hospital system and medical offices. In our area there are about 6 hospitals within reasonable driving distance. 1 is a mayo and the 5 others are split between the two major mega-providers. One of those also partnered with CVS/Aetna to provide marketplace insurance, until they decided that didn’t have high enough margins so they dropped 100k (28%) subscribers.
- jmyeet 4mo ago
  The healthcare system is just rent-seeking upon rent-seeking. PBMs are another big one where the PBM gets to decide after the fact what your rebate is. No conflict of interest there when United Healthcare owns Optum, which I think is the biggest PBM.

aaronharnly 4mo ago

I have no idea how reliable this source is, but it looks plausible - from the "American Investment Council", which appears to be some kind of private equity trade association ( https://www.investmentcouncil.org https://www.investmentcouncil.org ) https://www.psprs.com/uploads/sites/1/AIC_PublicPensionReport_v10.pdf https://www.psprs.com/uploads/sites/1/AIC_PublicPensionRepor... Some interesting details: - "Nearly 50 percent of the private equity investment dollars that make their way into American businesses come from public pension funds", which substantiates OP's thesis. - "U.S. public pension funds invest 9% of their portfolios in private equity, on a dollar-weighted basis." 46% is in public equity, so obviously the lion's share is in still in public markets.

NoboruWataya 4mo ago
This isn't surprising. Public companies tend to be lower risk (and therefore offer lower returns) than PE investments and pension funds want a mix of both. They want the juicy returns of PE deals, but a portfolio invested completely or mostly in PE would be unacceptably risky. Most pension fund mandates will set % limits on how much can be invested in different asset classes, with lower limits for riskier asset classes.

derf_ 4mo ago

> So if you wanna fix or ban PE, solve pensions. We solved pensions. People have defined-contribution plans now. I would expect insurance float to dwarf pensions as a source of PE funding. The real reason PE exists is because it charges high fees. The financial industry does not make products to serve customer needs, though by happy accident that sometimes happens. It makes products to charge fees. Index funds removed a big chunk of the fees that active mutual funds used to charge, so financiers went looking for a replacement. Even if you snapped your fingers and all remaining pensions (and insurance float?) disappeared, PE is aggressively going after individual retirement accounts, now. Most insidiously, trying to work their way into the "target date" funds that are the defaults for most plans. So "solving pensions" will not make PE go away.

MichaelZuo 4mo ago
Huh? Don’t many jobs still have gold plated pensions? Like millions upon millions? They need to be paid out somehow.
- nemomarx 4mo ago
  Looks like about 18 percent, although I would assume there's a particular demographic where this might be higher. Do they have to be paid out in full, though? I remember cases in the past where a company went bankrupt and had to renege on some parts of pensions, so maybe you'll see that again?
  - MichaelZuo 4mo ago
    After some percentage are reneged… there would still be a strongly motivated bloc of considerable size? I don’t see how it is relevant, unless the rate is close to 100%.
- ryukoposting 4mo ago
  > many jobs... millions upon millions ...no. It doesn't even matter what the rest of the words in the question are. Just no, lol. > They need to be paid out somehow. No they don't. Lots of pensions, especially the not-gilded ones, go bankrupt. In fact, that's precisely what happens to pensions of companies that are acquired by PE. The company gets stripped for parts, it goes bankrupt, and PBGC covers a fraction of the affected pensioners' payouts. In other words, with or without PE, bloated pensions ultimately end up being the taxpayer's burden.

triceratops 4mo ago

The S&P 500 already returns 7%. Why do pension funds need PE? And like FIRE devotees, maybe they should model a lower withdrawal rate.

bombcar 4mo ago
Because if you're hired as pension manager, and you just shove all the money into VTI, you're going to feel like you're doing nothing, and eventually someone will notice your job is redundant, even if you're outperforming your peers.
- triceratops 4mo ago
  And the people who hire pension managers are too stupid to see that active pension management is redundant? They haven't read A Random Walk Down Wall Street?
- froindt 4mo ago
  Relatively famously, the Nevada public pension investment manager relies entirely on indexed funds. He has one person he works with on the investment side, avoids the expenses of consultants and a large office, and maintains incredibly low fees. He has been in the role over a decade.

cameldrv 4mo ago

You often see them “monetizing the brand.” That’s a nice way of saying “betraying customer trust.” They buy a company that’s known for high quality and then cut the quality. They can keep charging the high prices for a while until people realize that it’s not what it once was. After a while, higher end customers realize what’s happened and stop buying. Then the brand typically becomes a mid market brand and they start selling on Amazon to a less affluent clientele who still associate the brand with quality but wasn’t in their price range before. They usually cut quality again at this stage. Effectively it’s burning all of the trust built up with consumers as firewood by tricking them into buying mediocre products at high prices.

kridsdale1 4mo ago
It sounds like you’re on the cusp of an entropy model of commerce.

briffle 4mo ago

My State is essentially screwed for budgeting, because for years, our public retirement system garunteed "AT LEAST 8%" to accounts. Some years was much higher. I have a parent that make more, 10 years after retirement, then they ever did working. They moved around the year 2000 to accounts that don't have the AT LEAST clause, and they earn what they earn, but due to the backlog of people still retiring that were grandfathered in, its wrecking our state. My city has a huge budget deficit, but 24% of its total payroll budget goes to the public retirement system to 'catch up' from years when it did not make 8%. Next year or two, that is supposed to jump to 28% of payroll. Problem won't start getting better until something like 2034 when the boomers start 'leaving the retirement system'

bombcar 4mo ago
The "advantage" for pensions is that they get to "keep the principal" (unless it's setup even more insane than normally) whereas with a 401(k) the residual gets inherited.

regularization 4mo ago

> Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. Pensions fund PE because PE can do a short term cooking of the books in order to smooth out the growth curve. So the return is usually positive each year, not raising problems. Also what does significant mean? Pensions are the main mechanism non-wealthy people are investing in PE. Being that millions are involved, you would expect pensions would have a sizable portion of the market, but family offices and high net worth offices dominate. If it offers above average returns, why would they not invest? PE is like every other asset class other than housing, the top 1% own a large chunk, the top 20% own the majority, and the bottom 50% own very little. Decisions are not driven by sone fireman, they are driven by the wealthy like everything else. And the origin and continuation of pushing for retirement to come from capital investment comes from the wealthy as well.

subtlejellyfish 4mo ago
Significant meaning many PE funds are overwhelmingly (like 75+%) funded by pensions and sovereign wealth funds. Its been awhile since I worked there, but CalPERS and CalSTRS were the two biggest LPs Blackstone had while I was there.
- regularization 4mo ago
  Right, but the CalPERS is sliced into over 2 million pieces, whereas a family office or gulf sovereign wealth fund has much less divvying up. It looks big until you see it has to be divided 2 million ways, as opposed to maybe 20 ways with a family office. The distribution is unequal. But most asset classes are like that, although less so for a single family house.

hdndjsbbs 4mo ago

If the government guaranteed basic human needs are met for every person (food, shelter, healthcare) there would be less of a need for giant pools of public money (pensions, insurance) sloshing around. Mass index fund investment is basically socialism but stupid. My retirement money is going to get invested in the SpaceX IPO against my will. The market is not efficiently allocating capital, it's structured to allow elites to skim off the top while forcing middle class people to subsidize them.

Nasrudith 4mo ago
Where the do you think the government gets their tax money from if not the market? That is like saying we shouldn't kill animals from meat, we should just buy it from the store.
- hdndjsbbs 4mo ago
  The government needs money to buy products from the market. If the government controlled the means of production, they wouldn't need money because they would just make things themselves. In a hybrid scenario where there is still a market, we would ... collect more taxes to pay for this stuff? It seems like you came up with a pithy response and tried to back up into a critique that doesn't make sense.

bs7280 4mo ago

I've been saying pensions should not exist, as they are contradictory to our political system. Some politician 40 years ago can promise everyone the moon, and never force the next generation to figure it out. I'm from Chicago which has a nightmare pension system that's keeping me from ever buying a home in the city I love, because my property tax increases just go to retired people who moved to Florida. I really appreciate this perspective as It helps fill in gaps in my mental model of where our economy has gone wrong the last 50 years. Unrelated but - I've read an interesting paper on how allowing private banks to create money has led to the infinite profit growth goose chase...

jordanb 4mo ago
I own a house in Chicago and my property taxes are much lower than my friends in the suburbs. I live in a working-class southside neighborhood. The people who are complaining about property taxes for SFUs in the city are people in neighborhoods with skyrocketing home values. Those people stand to receive a massive windfall when they sell. And while it may be annoying for them if they find themselves having to sell when they didn't want to, the they're vastly better off than all then renters in that neighborhood who got priced out much faster with no windfall.
- braincat31415 4mo ago
  Nah. I own a property in the gold coast area, and my property values have barely changed in the last 20 years. I only see an insane increase in real estate taxes and assessments. These are the things that price renters out, plus the Chicago housing regulations that leave the landlords without any leverage under pretty much any circumstances and force the risk to be reflected in the rent. Currently net profit from rental properties in that area is close to the interest on the equivalent amount of 10y bonds, without all the headache.
  - jordanb 4mo ago
    So sell and buy 10 year bonds. ¯\_(ツ)_/¯ The Gold Cost isn't suffering a shortage of landlords.

tonyedgecombe 4mo ago

We all own the means of production. Communism crept in right under our noses.

wilkommen 4mo ago

The stuff that old people need in their retirements to live is getting more expensive due to the types of shenanigans that PE firms are doing. So their pensions appear solvent now but when those old folks actually retire, their money won't go as far? Doesn't add up. I think the people who are really benefitting here are the usual suspects - the ultra rich, and the PE guys at the top doing this transfer really are evil.

cucumber3732842 4mo ago
> So their pensions appear solvent now but when those old folks actually retire, their money won't go as far? The pension people aren't being scored on doing well for their clients. They're scored on money. They don't care. Ain't no different than some jerk in an insurance/regulator office cooking up a rule about PPE based on first order assessment of a bunch of crappy data. The guy who gets mashed by a forklift he couldn't hear coming doesn't hurt their KPIs. He didn't suffer occupation related hearing loss. MissionAccomplished(TM) Pretty much every industry that deals at the statistical level whether it's PE making investments or something else runs in this manner.

thrance 4mo ago

No, if you wanna fix or ban PE, ban PE. PE is just a really easy and safe way for financiers to make extra cash, with huge externalities that everyone else pays for. The people benefiting from this are those who already have a lot of capital, and while it is true that old people generally have more than young people, don't fall for this simplistic generational warfare narrative. PE is also going after retirement homes and elderly care services. It's just a ploy for the wealthy to extract even more wealth from the rest of us, while stripping the country for parts and dooming the actual economy for years to come. On the subject, if you have 50 minutes to waste: https://youtu.be/tyNFosOFUDM?is=hwDH5tFCAYc7soHG https://youtu.be/tyNFosOFUDM?is=hwDH5tFCAYc7soHG

bondarchuk 4mo ago

I don't get it. If pensions stopped existing, would people stop doing PE even though it's profitable? If it is possible to get outsized returns "because pensions need them" then isn't somebody gonna notice and get those returns anyway, pensions or not?

pphysch 4mo ago
Yeah, it's like blaming drug users primarily for the violence of the drug trade. Sorry, but the drugs came first.
spyckie2 4mo ago
Slavery is profitable. People only stopped doing it when it was perceived as immoral. Lots of things are profitable but immoral. People will do crazy immoral and illegal stuff for money, but we outlaw and slander the more abusive stuff, like monopolies and such. If it wasn't pensions that were funding PE, I'm sure PEs would get a lot more criticism and would not be allowed to do what they do.
- slibhb 4mo ago
  The idea that slavery is a free lunch that is only banned on moral grounds is wrong. Slavery is bad economics. If you want your economy to grow, paying workers is not bad. Economic growth isn't zero sum.
  - somelamer567 4mo ago
    Capitalists are selfish, and have short planning horizons. For a capitalist, slavery is absolutely rational. The only reason why they don't do it today is because it's illegal.
    - slibhb 4mo ago
      Selfish capitalists want to accumulate capital and grow the economy. Slavery is a bad strategy for achieving these ends. There is ample historical evidence of this, and it also lines up with mainstream economic theory. People who argue otherwise simply cannot escape their zero-sum worldview.

Joker_vD 4mo ago

> we are transferring value from our current standard of living to pay for retirement checks for our old folks Well, yes, that's how any retirement (or any social benefit, really) system works: people who actually do work support the people who don't. Those latter include children, the elderly, pop-stars, politicians, etc. So unless you make people work until the day they die (which is possible, and have been done in the past, mind you — it just severely decreases the average life expectancy), we're going to transfer some of the created wealth to the elderly. The exact form of how this transfer is performed is a fascinating topic for discussion (make their direct descendants care for them! make a state-, or charity-funded fund to feed them hot soup once a day! make them save up for retirement themselves! lots of options, really) but it will still happen one way or another. After all, some people simply do have lots of money (and keep getting more) with doing no labour; some of them are retirees.

yieldcrv 4mo ago

These are side effects of PE fund behavior, and where many of them get investors from There are also many benefits you don’t notice because they don’t bother you

bigbadfeline 4mo ago

> But sadly it’s not some evil dudes at the top doing this transfer, the market force behind it is because we promised old people way too aggressive paychecks when they retired. You seem to be quite confused about pensions, not only "old people" have pensions. Actually the vast majority of contributions to pensions funds come from people who aren't old at all and are actively employed. > If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone would scream bloody murder. Where would they "scream"? On the internet? And who'd hear them? The answer is nobody in any PE cares about anyone screaming. PE's operations have nothing to do with screaming old people, that viewpoint simply avoids the real issues and replaces them with red herring age baiting.

mgh95 4mo ago
> You seem to be quite confused about pensions, not only "old people" have pensions. Actually the vast majority of contributions to pensions funds come from people who aren't old at all and are actively employed. This is exactly how pensions work: newer members to the defined benefits plan pay for older members. This isn't surprising. > Where would they "scream"? On the internet? And who'd hear them? The answer is nobody in any PE cares about anyone screaming. At the ballot box. There is a reason that public pensions are exempt from the PBGC reserve ratio requirements. People with pensions aggressively vote their interest.
- bigbadfeline 4mo ago
  > This is exactly how pensions work: newer members to the defined benefits plan pay for older members. No, that's now how they work, if that was the case, there wouldn't be any need for PEs to buy and enshitify the assets we are talking about here. Your current description contradicts your previous comment. I'm not going to explain it to you, there's enough information about the topic. > At the ballot box. We don't vote for PEs. And who we vote for makes no difference to them, these truths are so basic, it's a shame you don't know them.
  - mgh95 4mo ago

JumpCrisscross 4mo ago

> if you wanna fix or ban PE, solve pensions PE is a bogeyman, emblematic of a problem but not the problem per se. The problem is leverage. Critical services should have a borrowing limit and prohibitions on any pay-outs to owners while any leverage is in place. Kicking out private equity and replacing them with family offices doesn’t solve anything; removing the debt does.

swivelmaster 4mo ago

This is an exceptionally high-quality comment. You on bsky or threads or somewhere I can follow you?

yfw 4mo ago

Old rich folks

ninjagoo 4mo ago

> The irony is that PEs exist largely because of pension funds. Do you have any evidence for this claim? > Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. Again, please provide some sources for this claim. The S&P 500 index has returned about 15% on average over the past 10 years, and historically returned about 10% on average. [1] > So if you wanna fix or ban PE, solve pensions. This is a misinterpretation at best. Pensions do not make operational decisions at PE - PE management does. This statement mistakes a funding source for the whole business model, which is problematic. Pensions supply capital, but PE’s behavior is from the general PE model: buy companies, use leverage, extract fees, seek exit in 5 to 10 years, and earn management fees plus carried interest. That structure exists whether the capital comes from pensions, sovereign wealth funds, insurers, endowments, family offices, or wealthy individuals. Public pensions are one major funding source, not the whole machine. This statement also implies that PE is mainly a pension-funding response, which would be a falsehood. PE did not buy nursing homes or hospitals or vet clinics or prison telecoms or ambulance companies or dental chains or infrastructure-like services merely because pensions put in capital. [1] https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/

hakfoo 4mo ago

I always fancied the idea of 'dedollarizing' retirement. When you turn 65/70/whatever, your pension/IRA/401(k) isn't paid out as a monthly cheque, but instead as a lifetime lease to an apartment in a retirement complex with subsidized services, and a relatively tiny cash stipend. The quality of life remains comparable, except we've removed the ceremony of passing most of the money through the hands of the pensioners on the way to landlords, medical providers, etc. But because the goods and services can be preplanned and bulk-contracted and managed long-term, the operation can get get more value out of $1000 than an individual buyer would get out of $1400. This reduces the pressure for high returns. This also eliminates the risk of outliving your money. With a prepaid obligation to be fed/sheltered/taken care of, the risk is transferred back to the pension scheme, or society as a whole through a state-insurance-backstop fund, which is probably better resourced and capable of swallowing the risk than your typical individual 85-year-old in failing health.

toomuchtodo 4mo ago
Medicare, social security, and a senior housing unit?
amluto 4mo ago
And then PE can buy up those subsidized housing systems and make them suck? I’m sort of kidding about the PE here us particular. But institutions that aren’t run by people who personally care about services tend to be really bad at maintaining things like food quality or ventilation or furniture or any of the hard-to-measure attributes that make for a nice housing situation.

anon291 4mo ago

The only person other than me that I've ever seen point this out. The reason PE exists in America is because of pension funds, including government pension funds. This deserves to be called out, because we cannot expect an entity reliant on PE in order to not go broke (the government) to properly regulate PE. The incentives are all wrong.