Power and Money

Lots of Money = Scrutiny


Like so many other industries that crank out a lot of money, private equity is attracting the scrutiny of lawmakers.

Today, the House Financial Services Committee explores the issue of the impact of private equity on workers. While the Services Employees International Union says it remains neutral like Belgium on the private equity's impact, it did become clear after talking with the union that at the heart of its concern is the fact that private equity makes a lot in profits, and workers may not see the benefits.

That is, if you don't count possibly keeping their jobs, working at a financially more stable company or reaping the returns themselves, through their pension plan. I asked the SEIU whether it invested in private equity through is plan. It said it has 5 to 10% of its total funds in private equity, and that it's seen "very good" returns. I then asked whether it would be willing to forego some of its returns, a percent or so, and redistribute that sum to the workers. And the SEIU said no. That money should come out of the management fees.

Now, I am not arguing with the fact that private equity makes a lot of money. And I too am interested in the impact of this great tsunami wave of buyouts on Corporate America and the worker.

But what people, particularly investors that include unions, should remember is if you are invested in, and benefitting from, the stellar returns of private equity, you too are buying into the system you allege may have a negative impact on workers.

ON THE BLACKSTONE IPO: Ironically though, one of the biggest unions is ramping up its war against private equity. The AFL-CIO's attempt to block Blackstone's IPO is interesting. Its allegations is that the structure chosen by Blackstone to raise funds is an attempt to "evade the coverage" of the Investment Company Act of 1940. (Remember: Blackstone says in its March prospectus that its partnership would exempt it from governance requirements such as having a fiduciary duty to stock market investors.) But, this structure is legal. And as a stock market investor, if you're concerned about governance, don't buy the shares.

Programming note: Don't miss tomorrow's special Power & Money Day! I'll take a look at LBO targets, and name names.

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