New Study Undermines Rationale for Investing in Private Equity and CalPERS Strategy in Particular, as Oregon CIO Demonstrates that Public Pension Funds Are Dumb Money

A new paper by Antoinette Schoar, the chair of the finance department at MIT’s Sloan School and one of the scholars whose studies helped provide the intellectual underpinnings justifying the inclusion of private equity in institutional portfolios, has released a new study that knocks the legs out from under some of her widely-cited earlier work on the persistence of the out-performance of top private equity funds. It also shows that private equity funds have not delivered the performance needed to justify investing in them. From Top 1000 Funds:

Persistence of returns in private equity is diminishing. Further, the returns themselves are not what they used to be. And in even further bad news, new research from a leading Massachusetts Institute of Technology academic shows that co-investment vehicles may not be a panacea for these problems…

New research by Antoinette Schoar, chair of the finance department and the Michael M Koerner Professor of Entrepreneurship at MIT Sloan School of Management, shows that persistence of returns from private-equity funds in the last decade has gone down, undoing the seminal research she co-authored with Steve Kaplan, from the University of Chicago, that showed “returns persist strongly across funds raised by individual private equity partnerships”. See Private-Equity-Performance-Returns-Persistence-and-Capital-Flows

As we’ll discuss later in this post, one supposedly well regarded Chief Investment Officer, John Skjervem, reacted by saying it he could still justify investing in private equity even if it fell well short of delivering the needed risk premium. Why? Private equity lies about its results in a way he finds useful. I kid you not. In any other realm of investing, lying about your results is a reason to run for the hills. Skjervem has apparently managed to forget that even the toothless SEC managed to rouse itself and work with the DoJ to indict public company executives in the early 2000s for accounting fraud. But despite considerable evidence to the contrary, the SEC regards the likes of public pension funds as “accredited investors,” meaning sophisticated enough to take care of themselves. That means the onus is on them to do their own policing.

The new Schoar paper also explains why CalPERS has been doing so poorly in private equity. In 2015, it decided to reduce the its number of private equity investments by 2/3. CalPERS intended to concentrate on making larger sized fund investments in order to reduce fees. Mega-funds typically have lower fees, plus medium sized and large funds often have tiered pricing, charing lower fees for larger commitments.

CalPERS was pursuing this idea in such an aggressive way that it was limiting itself to investing in large funds. It turns out that was not such a hot idea. From the Top 1000 Funds story:

There is more competition, but the concentration of [assets] in the hands of the biggest and best-performing funds is also growing more quickly than we saw in the 2000s,” Schoar explains. “You could say it is efficient that this happens, because we want capital to be with the best performers. But it also means the top funds have to expand their investment portfolios.”

The very nature of venture capital and private equity, where illiquidity is greater and opportunities are tougher to scale, means the marginal returns to capital go down, even at the top performers, when funds become larger.

“This is a very strong relationship – when the fund size increases, the marginal return on the funds goes down. Research suggests this is something that has accelerated in the last decade,” Schoar says.

But let’s return to Schoar’s main finding, that persistence has fallen, and explain why this is so devastating to the efforts to justify investing in private equity.

The Importance of the “Persistence” Myth

We’ve been writing since 2014 that private equity does not produce superior returns. That should not be a controversial idea except that so many people are deeply invested in private equity, pun intended, that the response has been to come up with more and more creative rationalizations.

Since then, more and more investors, in particular public pension funds, have reported results that fall short of their own benchmarks for the preceding ten years and shorter sub-periods. This should come as no surprise. Private equity’s share of global equity has more than doubled since 2004. More money chasing deals means lower returns.

One of the justifications that investors have relied more and more upon is the idea that they can somehow do better than the typical investor by identifying and investing in top funds, which translates into the search for the mythical top quartile fund. Never mind that 77% of funds can present themselves as top quartile or that the idea of being the Warren Buffett of private equity and somehow out-selecting other investors is folly. The basis for this hope has been that historically, private equity funds demonstrated “persistence,” in that a top quartile performer for one fund would have a much-better-than-the-odds chance of being a top quartile performer in its next offering.

As we indicated, there is ample reason to doubt that theory could be translated into practice. Investors commit to a new fund typically four years after a fund manager’s last launch, which is too soon to be certain of its results (and that’s before the fact that academics have ascertained that fund managers exaggerate their funds’ performance around the time they are raising new money). For instance, one fund manager had a fund that showed an over 70% IRR at the time it raised its next fund. The final result for that fund? An IRR of 11%.

But the theory of persistence is breaking down too. In 2015 in a private equity workshop at CalPERS, Harvard professor Josh Lerner discussed some of the recent studies on private equity performance persistence. In public comments, Rosemary Batt, co-author of the landmark book Private Equity at Work, linked the issue of average fund performance with the persistence data:

And so I want to talk a little more about the performance data and just expand on Professor Lerner’s excellent presentation.

The findings from that core Harris article that he mentioned are very important. He reported a 27% out-performance for private equity vintage funds in 2000s, which equals an annual excess return of about 2.4% if you assume a 10 year lifespan. To clarify, this finding is based almost entirely on estimates, if you look at the paper, so it’s not based on actual returns. The paper also reports returns on funds over three decades, and there the average annual excess drops to about about 2%, and the median is about 1.2%. So that’s in the Harris paper.

When the private equity funds are compared to the Russell 3000 and 2000, which cover the mid-sized companies that are comparable to private-equity-owned companies, private equity performance is worse, beating these indexes by between 1% and 1.5%.

So moreover, the pension funds, they generally require a premium of about 3% over the stock index in order to adjust for greater risk or illiquidity. None of the estimates in this important paper, porbably the most important paper recently, would warrant investment in private equity.

Two more points. Professor Lerner then refers to another really important paper by Robinson and Sensoy who report, they actually report performance based on real returns, so liquidated funds. And here they find that the average fund does outperform the stock market by 1 to 1.5%, depending upon the index.

The median fund, however, just matches the stock market, which means that 50% of the funds do not perform as well as the stock market. It is the top quartile funds that outperform both indexes by 3 or 4%.

So, if we put this together, then, Professor Lerner also points out this problem of persistence of performance. And the studies he refers to show that prior to 2000, the private equity firm with a top performing fund had about that 50% chance of being in the top performing funds in the follow-on fund. But since 2000, that probability has dropped to 22%, and that is less than would be expected if the distribution were random.

And so, in sum, I worry based on our review in which we’ve kind of turned the kind of technical papers into lay language, and that’s what we’ve tried to do in this book, um, you look across the studies and they really do not provide the kind of evidence to suggest that private equity beats the market in general, and especially if you take a risk-adjusted return into account. While the top quartile do beat the market, then the question is this persistence problem: it is no longer possible to use a private equity firm’s track records to predict funds that have the best chance of being top performers.

As the Top 1000 Funds article indicated, the 2003 Kaplan/Schoar paper was one of the foundations to the argument that top private equity funds showed persistent outperformance.1 With that now gone, private equity loyalists are even more on the defensive

Oregon CIO Says He Still Likes Private Equity for Its Phony Valuations

If public pension funds want to know why they are seen as dumb money, they need look no further than remarks like those of John Skjervem, Chief Investment Officer for Oregon. Keep in mind that John Skjervem is considered to be one of the better public pension fund CIOs. He spoke at the same conference where Schoar discussed her new paper.

On the one hand, Skjervem is to be given credit for reducing his allocation to private equity in light of its falling performance and persistence. From a second Top 1000 Funds story:

For Oregon’s Skjervem the structural changes have put the asset class under more scrutiny, and he is getting questioned by his board about the continued validity of private equity. Where it was formerly the star performer in the portfolio, more recently it hasn’t met its benchmark, which is the Russell 3000 plus 300 basis points, he says.

“We haven’t met our benchmark in at least five years, so we are starting to get questions about performance,” he says. “Is this a realistic benchmark? I would argue no, so then you get into the discussion about what the benchmark should be.

“I could argue Russell 3000 plus 10 basis points is worthwhile because 10 basis points on a $16 billion portfolio is real money. But plenty of people want a more significant figure over public markets to justify the illiquidity you are taking on.

“For a public plan, I could make a philosophical argument that even if we do nothing but match public market returns, there’s a place for private equity because of the appraisal-based accounting, which artificially smooths our total fund volatility, and there’s a genuine benefit to that.”

So see what is going on. First, even though none of the risks of private equity have changed, Skjervem is unwilling to admit that a protracted period of central banks having negative real policy rates has resulted in investors not being paid enough for taking on risk, particularly long-term risks. But he’d rather fudge his metrics, which will lead to poor decisions, rather than keep that basic problem front and center.

Second, he openly voted for even more bad metrics by saying that he know that private equity’s valuation methods “artificially lower” fund volatility. This is in part due to the perverse fact that any investment that is marked only quarterly will show lower volatility than one that is marked intra-day or even just daily. But that “appraisal-based” accounting represents what are real negatives for private equity:

The investments are highly illiquid

The LPs have zero influence on when they get their money back

Private equity investors have been found to exaggerate their valuations in bad markets, when raising a new fund, and late in a fund’s life

In that same 2015 CalPERS private equity workshop, Idaho CIO Bob Maynard stated up front that the only reason he invested in private equity was for its dishonest reporting:

Bob Maynard, Chief Investment Officer, Public Employees Retirement System of Idaho: We’re I think more skeptical of private equity than many and actually I’ve been quite surprised at the experience we’ve had, which has been dead solid on the average. Our time-weighted returns are almost exactly yours [turning to CalPERS’ head of private equity Réal Desrochers], that 1.34 above what you could put in the public markets is exactly our experience, so we’ve actually gotten average institutional experience, so it’s worked out better than we were expecting.

We knew we were entering an area where we would not have much influence over what we could do.

Ah, in fact, ah, we recognized however that we were going to get some pressure to look at local investments in private side, we did know that our actuaries and accountants would accept the smoothing that the accounting would do. It may be phony happiness, but we just want to think we are happy and they actually do have consequences for ah, ah, actual contribution rates we are going to be able to put in place. So we’re looking for it even if it just gave public market returns, we’d be in favor of it because it has some smoothing effects on both reported and actual risks, as seen that way.

Once you get into the area, this is kind of a like a rental car return type investing. Once your front wheels are over the spikes, you can’t back up. You’ve got to keep kind of going forward. If we’re going to have a little bit, we’ve got to at least have enough to have a difference in the portfolio, which means get to at least 5 to 10%. And by the time we got to the 2000s, we had gotten to that point, so it did make an appropriate difference. So we’re there, it’s demonstrated benefits in the portfolio, we’re happy if it gives public market returns, anything extra, because of its effect having some smoothing of the risk as seen by the accountants and actuaries and, um, just don’t, you’ve got to keep going once you are there.

We were astonished when the SEC revealed in 2014 that over half the private equity firms they’d examined so far had stolen from investors or engaged in other serious abuses. Given what Maynard and Skjervem have said about clearly bogus private equity reporting which would have most investors running for the hills, we should not have been surprised. Private equity investors see its chicanery as a feature, not a bug.


1 Another wee fact not often enough discussed is that even the persistence they found back then was not overwhelming. If you managed to identify a top quartile fund correctly, it had 33% odds of being top quartile in its next fund. That means that if you performed the miraculous task of guesstimating (because the lack of final results means there is a guesstimation factor) so that 100% of your investment was in top quartile funds, you’d expect only 1/3 to wind up being top quartile performers. Is the increase from dart-throwing (25% top quartile) to 33% enough to enable a public pension fund to beat a 300 basis point benchmark?

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  1. dearieme

    If investing using a rear view mirror worked then everyone would do it until it didn’t work any more.

    The key problem with defined benefit pension funds does not seem to be the fashions that sweep the investment managers but rather the absurd over-promising to employees. The generations of employees that have been responsible for this – via their unions and the politicians in their pockets – presumably hope that the bill will be picked up by a younger generation of employees and, more especially, by tax payers. Dearie me, what a bleedin’ mess.

    It’s a small point but I must say I suspect that the investment managers get grossly overpaid for their less than astute following of fashions. Me, I’d try passive investing for the bulk of the funds.

    1. diptherio

      The generations of employees that have been responsible for this – via their unions and the politicians in their pockets – presumably hope that the bill will be picked up by a younger generation of employees and, more especially, by tax payers. Dearie me, what a bleedin’ mess.

      Uh, no. It was supposed to come out of the capitalist’s and rentier’s profits. I have to say, it’s pretty upsetting to me when people accuse blue-collar workers of being greedy for getting, or wanting to get, a middle-class salary and not living in destitution during their retirement. The nerve! Don’t they know their place?

      The problem is not, and has never been, that people doing the actual work of our economy are getting too much for their labor. The problem is that the people who do nothing essential, or even value-generating, often get paid salaries that are orders of magnitude more than any worker will make in their lifetime. But sure, go ahead and blame the victims. Tell today’s workers that the reason they’re getting paid so little isn’t because of the executives’ exclusive focus on their own salaries and bonuses, not because of the scruple-less out-sourcing of so many jobs, not because of decades of economic policy that have been explicitly designed to repress wages in this country. Nope, tell them the real problem is that their granddad and their father were just too darned greedy…dearie me, indeed.

      1. tegnost

        The problem is that the people who do nothing essential, or even value-generating, often get paid salaries that are orders of magnitude more than any worker will make in their lifetime
        These are also the ones who complain most bitterly about those who have managed to escape sleeping in the walmart parking lot in their old age. On the bright side, trump is the first swipe the lower orders have taken at the upper crust, I’m sure we’ll do more if they continue in their recalcitrance. Politicians are in the unions pockets? If so, they haven’t earned their keep.

        1. Enquiring Mind

          Once upon a time, some investment managers were content with the slow and steady returns available by picking up dimes in front of a bulldozer, keeping watch on said dozer’s progress. Nowadays they insist that their returns come from rescuing unicorns from that path. Hey, if you dangle enough dumb money, somebody is likely to notice and then help you, ahem, invest it.

      2. dearieme

        “Uh, no. It was supposed to come out of the capitalist’s and rentier’s profits.” How could that happen for people in, say, teacher or police pension funds unless via tax? And how could it come out of a capitalist’s profits if one of its effects is to encourage him to shrink his business, automate it more, or move it elsewhere?

        Tossing around the accusation of “blame the victim” is usually just a refusal to think.

        1. FluffytheObeseCat

          Repeatedly sneering at teachers and public servants is likewise, indicative of refusal to think. Diptherio expects they can and should have dignified, materially safe retirements. His understanding is based on historical normative practices. The most important of which were: 1) modestly taxing private sector taxpayers who are themselves paid living wages with benefits, and 2) keeping fee-skimming out of the pension management business. By enforcing laws, contract obligations and fiduciary standards, and by increasing oversight on management.

          Rank and file public employees are bound by numerous remarkably strict rules of conduct during their working years. Those who are paid to act on their behalf need to be constrained by similar strictures. And they need even more oversight, given the gross cultural defects of the contemporary financial management community.

          Public sector retirees are not over-compensated in most of the U.S. The grifting few are restricted to regions like downstate New York, and coastal California, (and even there, it’s ex-management who have excessive pensions, not the rank and file). They are numerically insignificant, and public whining about their excessive pensions is bogus misdirection.

      3. mike largent

        “The problem is not, and has never been, that people doing the actual work of our economy are getting too much for their labor. The problem is that the people who do nothing essential, or even value-generating, often get paid salaries that are orders of magnitude more than any worker will make in their lifetime.”
        SPOT ON I’D SAY.

    2. Steven Jennings

      “…The generations of employees that have been responsible for this – via their unions and the politicians in their pockets – presumably hope that the bill will be picked up by a younger generation of employees and, more especially, by tax payers…”

      Wow, that is tough.
      Those damn greedy employees again, if only they would just retire and die (except for the CEO’s of course, as they are a totally different “class” of employee – they clearly deserve their multi-million pension funds).

      1. dearieme

        Are they human? Then, yes, some of the time they’ll be greedy.

        I note that there has been a knee-jerk assumption here that I somehow approve of CEOs and the like looting companies. If you chaps tried thinking more and stereotyping less you might find the world less puzzling and disappointing.

        1. FluffytheObeseCat

          When you begin to make a practice of criticizing CEOs in this forum, we will, of course, begin to take you seriously on this score.

          1. dearieme

            If you weren’t so blind you might have seen the drift of this: “I suspect that the investment managers get grossly overpaid for their less than astute following of fashions”.

            See it – just a little up the screen.

    3. flora

      In general, for public employees, defined benefit retirement plans are a deferred compensation in exchange for accepting employment paying below private market pay rates for like work; sometimes much below market rates for prolonged periods. When everything was booming, public employees were seen as low paid and foolish to stay in public jobs when they could instead ‘be out there making a fortune.’

      When the stock market was booming, many govt hiring entities began skipping their required matching contributions because, they thought, the stock market would do their funding for them, so they could redirect the monies that should have been invested with the pension plan. (Politicians fiddling the monies… who’d of thought? ) In my state’s plan, there would be no shortfall if the state employers had made it’s required matchs for the past 15 years. It didn’t make those matches, the stock markets stopped booming, and here we are.

      In the case of defined benefits pensions for public employees, the problems are: prolonged zero interest rates, driving managers to riskier investments; failure of the state or local public entity to make its contractually required dollar inputs; and the near elimination of defined benefit plans in the private sector in favor of 401K plans (thanks to ERISA) – which leaves people jealous of the few remaining defined benefits plans, and hostel towards workers making what was once considered low pay. ( In 1998 about half of all private sector employers offered new hires defined-benefit retirement plans. By 2015, that number had dropped to 5%. The CEOs benefited handsomely. Richard Smith, the newly retired CEO of Equifax, retired with a pension of $18-million dollars.* )


      1. flora

        And when I write “politicians redirected monies”, I mean tax cuts for the high income groups and the very wealthy. It’s the very wealthy who have the politicians in their pockets. Think bank bailouts.

    4. Yves Smith Post author

      No, there are two problems: that politicians have regularly chosen to cut taxes, among those the ones needed to fund public pension funds (New Jersey is a particularly egregious case) and the devastating effect that a protracted period of central-bank engineered super low interest rates have had on all long term investors, including retirement investors and life insurers. If you think funds like CalPERS have it bad, individuals have it worse by virtue of paying much higher fees (particularly in 401 (k)s).

  2. rrennel

    It is truly frightening that so much of the Dumb Money comes from those entrusted with our public savings.

  3. Dave W

    You’ve let your biases cloud your vision. Maynard’s statement isn’t some admission of fraud as you suggest. Nor are the absolute returns the sole reason to invest in PE. So at least do your readers the courtesy of covering the issue without bias and with a view towards being insightful.

    With that said, persistence is not assured as you rightly point out. And that does suggest that reducing the number of managers (keeping primarily mega fund managers) and all but eliminating emerging manager allocations is ultimately detrimental to returns.

    1. Yves Smith Post author

      With all due respect, if anyone’s biases are showing, it’s yours. Maynard admits that he knows the valuations are misleading. He uses the words “phony” and “artificially” and refers twice to “smoothing” which is also an admission that he knows the valuation is not in fact what the company could be sold for at the time of the valuation, when the reported value is supposed to be current market value. Independent experts in private equity agree with my reading of Maynard’s remarks.

      And it is also clear the private equity firms knowingly give overly high valuations around fundraising time and when equity markets are down. There were even complaints from some parties during the crisis, that the PE valuations were clearly implausible given how far stocks had declined. The fact that the study showing that private equity firms exaggerated their valuations around fundraising time found that they backed out the the overvaluation after the fundraising.

      The study finding above, plus the fact that it is obvious that private equity, as levered equity, should have that leverage amplify gains and losses (meaning show bigger valuation declines in bear markets that public equities) means the misvaluation is deliberate. Intent is required in most legal theories for there to be fraud. Tell me this isn’t intentional. Unless you can prove that, the fraud label is accurate. And Maynard is saying that he knows this is a standard industry practice, so his depiction is consistent with using the word “fraud”.

      If it walks like a duck….You just don’t like plain English words being properly applied to private equity.

  4. laura

    The key problem with defined benefit pension funds does not seem to be the fashions that sweep the investment managers but rather the absurd over-promising to employees.

    I’ll not comment on your gross hostility to public sector workers -though it is both gross and hostile.
    There is NO problem with db plans unless and until assumptions based upon variable conditions cause actions in reliance on those variables. CalPERS has been in superfunded status and that led to bad decisions that applied retroactively to a benefit increase and for your information here’s an actual, real example, though from an Act 37 plan.

    The Sonoma County employees retirement system found itself superfunded at the end of the 20th century. The County Adminstrator, not the social worker, not the equipment mechanic, not the waste water treatment plant operator, not the animal control officer, devised a retroactive increase of 3% and went the Board of Supervisors and made the case that the plan was sufficiently funded to apply the giant increase and not destabilize the plan or leave the public on the hook. The Board approved the plan and then the same administrators had to go to the employee unions and sell them on it -it required all in or none in. Many of the Unions and their Members believed it was a bad idea and initially voted the plan down. Administration was only able to get the unions on board by offering a wage increase of 1%.

    Those Administrators immediately took the money and ran. Quite the bag job. Now, this who were reluctant because they could see that the gains were not a guaranteed constant are left picking up increasing portions of the ARC normal costs. And they get the added benefit of a nonstop campaign to demean them in their jobs, to presume a life of ease on easy street, to add no value to the communities in which they serve.

    1. Sluggeaux

      Same story in Santa Clara County in 2007. Two of the Board of Supervisors termed-out, and the County Exec and County Counsel knew that their days were numbered under the incoming Supes. They came to the unions with a substantial CalPERS benefit increase, with the 20-year amortized cost to borne by the employees through increased contributions. SEIU took it, with caveat that all other bargaining units had to buy in. The officials wound up offering our unit an 11th-hour immediate additional 4 percent raise to get us to bite, because we thought that it was such a bad deal. They barely got in under the deadline, but the 4 top officials skipped out the door with the benefit increase at no cost to themselves.

      I was at the CalPERS presentation where Professor Batt spoke in rebuttal to Josh Lerner. I came away with two distinct impressions of why pension managers love private equity — neither of them good. The first is that they do like the fraud element — that the early goosed returns can let them “smooth” contributions in the near term, ignoring the long-term reality that looted companies are worthless in the end (IBG/YBG). The second is that they’ve convinced themselves that they can bribe fund managers into letting them in on what Lerner called “the Secret Sauce” of top decile performance. The whole kitten kaboodle is based on corrupt practices.

  5. Jim Haygood

    Appraisal-based accounting artificially smooths our total fund volatility.

    Lying to yourself is never a good idea.

    Several asset allocation models of mine use monthly (last day of month) data, which is more available and easier to work with than daily data. For each month in which equity declines above the high water mark, a drawdown is calculated. But unless the monthly low occurred on the final day of the month, the intramonth daily drawdown will be worse than the monthly drawdown, and the intraday drawdown worse still.

    You’d better believe your broker bases margin calls on that worst intraday figure, not your nice theoretical value derived from lower frequency data. That’s why it don’t pay to deceive yourself.

    Private equity partnerships typically report only quarterly, using appraised values. Estimates of volatility drawn from too-sparse quarterly data are near useless. It’s not difficult to roughly estimate volatility and drawdown at monthly or daily frequency, simply by using the PE portfolio’s beta to a market index. But this never happens. Neither the general nor the limited partners want to know the ugly truth.

    Much as public pension funds are still engaged in a gigantic denial of reality in assuming unrealistic returns, self-blinded managers like Skjervem, with opaque moiré stickers pasted over their rose-colored glasses, can’t handle the truth about their actual drawdowns. Ignore volatility, and maybe it will go away.

    1. Kris Alman

      Oh boy! As an Oregonian, I am incensed by this post. As I understand it, the rationale now for investing in private equity is to get away with dishonest reporting. And Oregon’s respected Chief Investment Officer, John Skjervem, thinks this is good?

      I occasionally read the posts of Bill Parish, a financial advisor who has been a watchdog of the Oregon Investment Council in blogs he writes. His most recent post centered on PERS adoption of age weighted IAP accounts. IAP accounts are a defined contribution retirement program for younger Oregon Public Service Retirement Plan members. Parish writes, the “French insurance conglomerate AXA’s subsidiary Alliance Bernstein, what some call the AIG of France, would be awarded the contract to manage more than $8.2 billion in participants IAP accounts.”

      According to Treasury’s chief investment officer, John Skjervem, the cleanest way to acccomplish that typically would be to hire a low-cost provider of such funds – such as Vanguard – give them the entire $8.2 billion currently in the individual accounts, and have them administer the program.

      In this case, he said, that’s not feasible. Liquidating the current investment pool would incur substantial transaction costs, and a large chunk of it is tied up in illiquid private equity and real estate funds.

      Parish criticizes the OIC for not choosing a domestic vendor for this important public contract, noting that all sitting members of the Oregon Investment Council were appointed by Democratic Governors and that the Unions aren’t complaining. Parish says that if the OIC wants to make this IAP change it should require that the annual audit reports for each of these funds be posted on its website, especially given concerns regarding these firms ability to self value their investments.

      Parish also notes that “State Treasurer Tobias Read worked for Larry Summer and Cheryl Sandburg at the US Treasury, both of course are proteges of the godfather of hedge funds, Robert Rubin.” He says this is a bad decision–“a gravy train for AXA.” Parish goes on to say, “While many enjoy talking about the stellar returns of private equity in the past, little attention is paid to what investments are actually now in these funds. Think long term is the mantra and don’t be concerned about liquidity. Don’t worry about knowing your actual fees, these are internal transactions to the partnership.”

      In the meantime, Governor Kate Brown has created a task force to address the $25 billion deficit in Oregon’s public pension fund.

      The task force was chaired by Donald Blair, who retired as chief financial officer at Nike in 2015. Of note, he sold 33,000 Nike shares for $2.6 million in 2013. One of the reasons Nike’s executives’ shares are worth more is because Nike has been buying back their stock for years.

      As we know, the “just do it” company has been heavily criticized for their Paradise Papers infamy. Investors like the AFL-CIO and Domini Impact Investments, which own about $30 million in Nike shares, are unhappy with their tax avoidance schemes.

      This task force is considering ways to address the deficit, which includes selling common school fund land assets (which backfired on Treasurer Read, who advocated privatizing Eliot State this past session.) It is considering diverting windfall revenues from capital gains taxes, estate taxes, or legal settlements. It also considers raiding the state government’s two big reserve funds — the Rainy Day and Education Stability funds — that currently contain more than a combined $1 billion.

      Would this task force ever recommend increasing revenue from higher taxes on multi-national publicly traded corporations like Nike?

      Oh, I forgot to mention that Treasurer Tobias Read, who ran unopposed in the primary, worked for Nike for years! (His wife still works at Nike, currently as Innovation Accelerator Director.) Good grooming for the Treasurer of Oregon! Oregon AFL-CIO was one of his key endorsers.

      To bring this full circle, The Guardian quoted Bill Parish in this November 7th article, Offshore cash helped fund Steve Bannon’s attacks on Hillary Clinton digging deeply into how Robert Mercer, whose spending assisted Donald Trump’s election win, avoided US taxes with a Bermuda tax haven.

      Deadlock in DC is bipartisan because concentrated wealth and power corrupt.

      1. Laughingsong

        The task force’s suggested fixes seem designed to incense the public, methinks. Every one will be unpopular, and that Sickinger fellow that the Oregonian will help them. Sigh.

  6. Sinecure in Sac

    There is no dumb money, just ostrich-like, incompetent dults who have no clue what they’re doing. How can these “cio” fools collect nearly seven figure paydays as their systems careen into insolvency? Apparently a creepy grin and some flop sweat is all thats needed for a cushy sinecure.

    Yves, I suggest you investigate the Yucaipa/Calpers link, specifically if they’ll be divesting from the sexual predator Burkles funds. I wonder how many meetings Ted E has had with Ron…….

  7. Larry

    And amazingly we get a new credentialed class metaphor that relates to travel: rental car spikes. So we have headwinds, tailwinds, and rental car spikes. I travel for work and thus these flat metaphors weakly resonate with me. I think the next challenge is how we can turn trying to make a tight connecting flight into a financial markets/investing metaphor.

    1. Tyronius


      The malfeasance just continues to grow until the next crash- the costs of which are always borne by those who ‘entrusted’ the perpetrators with the responsible stewardship of their retirements.

      Until the quaint concept of accountability comes back into fashion, I fear we’ll just see more and more of this in business, government, the law and nonprofits until the entire system crashes.

      Party like it’s 1929! (Apologies, Prince; RIP)

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