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    All the Rage in Private Equity: Mortgaging the Fund

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    A little-known financial tool was the talk of the Milken Institute’s Global Conference.At the Milken Institute’s Global Conference this week, a little-known risky financial tool became the subject of a hot debate among Wall Street titans.Many private equity firms have quietly begun mortgaging their investment funds, piling leverage upon leverage. In other words, they’re taking out loans against the businesses they’ve already taken out loans to buy.At a time when dealmakers are desperate to raise new cash after the boom of the pandemic era, this mechanism — known as a net asset value loan — is allowing them to do it overnight.More P.E. firms are using the tool as they set out to raise their next funds, especially those confronting a hurdle during a slow period for dealmaking: They have yet to return cash to the limited partners they tapped for their last round.“We’re having unprecedented pressure from our L.P.s to send them cash,” Jonathan Sokoloff, the founder Leonard Green, said onstage at the Milken conference. “We’ll send you cash any way we can.”The big debate at Milken was whether private equity firms that are solving this problem with N.A.V.s are risking their future to buy some time with investors.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Deal Talks Between Paramount and Skydance Heat Up

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      David Ellison, the founder of the Skydance media company, met with Paramount’s board of directors late last month to discuss the deal.Shari Redstone is getting one step closer to selling her media empire.Paramount, home to one of Hollywood’s most storied movie studios as well as CBS and cable networks like Nickelodeon, has been discussing entering into exclusive talks with the media company Skydance for a potential deal, according to four people with knowledge of the discussions. Moving to exclusive talks would be a significant step forward in a process that has been shrouded in uncertainty for months.Whether the two sides will agree to exclusivity remains to be seen, especially with other investors still pursuing Paramount. Apollo Global Management, an investment firm with more than $500 billion under management, has submitted an $11 billion offer to acquire the Paramount movie studio. Paramount’s board of directors, though, is seeking a deal for the entire company — including its cable channels and CBS — rather than pieces.Apollo continues to evaluate what proposal might most appeal to the company’s board, two people familiar with the situation said. Byron Allen, whose Entertainment Studios owns the Weather Channel, has also expressed interest in acquiring Paramount.Ms. Redstone, the controlling shareholder of Paramount, began negotiating with Skydance to sell her stake in the company last year. She controls Paramount through National Amusements, a holding company that owns her voting stock in Paramount. Ms. Redstone has held off on a sale for years, betting that the company’s fortunes would improve as its flagship streaming service, Paramount+, gained momentum.The terms of the deal being discussed would involve Skydance’s buying National Amusements and merging with Paramount. That deal hinges on approval from Paramount’s board, which has for weeks been weighing its options with the help of advisers.Late last month, David Ellison, the tech scion who founded Skydance, met with Paramount’s board committee to discuss his vision for a deal, according to two of the people familiar with the talks. Founded in 2010, Skydance is best known for shepherding blockbusters for Paramount, including movies in the “Mission: Impossible” and “Top Gun” franchises.Representatives for Paramount and Skydance declined to comment, and the financial terms of the deal couldn’t be learned.Paramount’s stock has fallen 18 percent since the start of the year amid headwinds for the media industry. The company is trading at a steep discount to the combined value of Viacom and CBS, which merged to form Paramount in 2019. Paramount+ is still losing money, but its losses have slowed and it continues to add subscribers.The ratings agency S&P Global downgraded Paramount’s debt to junk last week, citing “accelerating declines” in its traditional television business and continued uncertainty in its push toward streaming. Some analysts said that ratings action might make Paramount easier to acquire, since it could circumnavigate a provision that would require a buyer to immediately pay the company’s debt. More

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      The U.S. Investors Caught in the Scrum Over TikTok

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      Major U.S. investment firms such as General Atlantic, Susquehanna and Sequoia Capital own stakes in ByteDance, the parent of TikTok. Their investments are increasingly under fire.For years, the U.S. investors who backed ByteDance, the Chinese internet company that owns TikTok, have wrestled with the complexities of owning a piece of a geopolitically fraught social media app.Now it’s gotten even more complicated.A bill to force ByteDance to sell TikTok is winding its way through the Senate after sailing through the House this month. Questions about whether TikTok’s Chinese ties make it a national security threat are mounting. And U.S. investors including General Atlantic, Susquehanna International Group and Sequoia Capital — which collectively poured billions into ByteDance — are facing increased pressure from state and federal lawmakers to answer for their investments in Chinese companies.Last year, a House committee began examining U.S. investments in Chinese companies. The Biden administration has curbed U.S. investments in China. In December, a Missouri pension board voted to divest from some Chinese investments, following political pressure from the state treasurer. And Florida passed legislation this month to require the state’s Board of Administration to sell off its stakes in China-owned companies.All of this comes on top of existing issues with owning a piece of ByteDance. The Beijing-based company has grown into one of the world’s most highly valued start-ups, worth $225 billion, according to CB Insights. That’s a boon, at least on paper, for U.S. investors who put money into ByteDance when it was a smaller company.Yet in reality, these investors have an illiquid investment that is hard to spin into gold. Since ByteDance is privately held, investors cannot simply sell their stakes in it. A confluence of politics and economics means ByteDance is also unlikely to go public soon, which would enable its shares to trade.Even if a sale of TikTok was easy to pull off, the Chinese government appears reluctant to relinquish control of an influential social media company. Beijing moved to stop a deal for TikTok to American buyers a few years ago and recently condemned the congressional bill that mandates ByteDance divest the app.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      ‘Huge tax breaks’: private equity prepares for a boon from Congress

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      Some of largest and most profitable companies in the US are primed to save billions of dollars from a congressional tax deal that critics say gives “billions in tax credits to the biggest corporations while giving pennies to middle-class children and families”. And private equity funds could be among the deal’s biggest beneficiaries, a Guardian analysis suggests.The tax cuts passed the House of Representatives at the end of January as part of an agreement that pairs handouts for businesses with a moderate expansion of the child tax credit. The Senate could vote on the bill over the coming weeks, and the White House has indicated that Joe Biden would sign it into law.The deal, led by Democratic senator Ron Wyden and Republican congressman Jason Smith – the chairs of Congress’s tax-writing committees – would roll back a series of tax measures that were designed to partially offset the cost of the 2017 Trump tax cuts.Weakening these provisions would allow companies to claim bigger tax deductions for certain expenses, including buying new equipment, spending money on research and development, and paying interest on their debt, as the Guardian previously reported.Last year the American Investment Council (AIC), private equity’s main trade group, spent more than $3m lobbying the federal government, according to OpenSecrets – more than any single year since 2009. Including their subsidiaries, five of the country’s largest private equity funds – Blackstone Group, KKR & Company, Carlyle Group, Cerberus Capital Management and Apollo Global Management – together spent an additional $21m lobbying over the same period.“Increasing the interest deductions, which private equity firms have been the worst abusers of, is just another example of how the Wyden-Smith tax deal hands out billions in tax credits to the biggest corporations while giving pennies to middle-class children and families,” the Democratic congresswoman Rosa DeLauro, one of two dozen House Democrats who voted against the bill, told the Guardian.“While private equity is cheering on the huge tax breaks they will get if this deal passes the Senate, American families are living paycheck to paycheck and struggling with rising costs.”‘Debt can supercharge the returns of private equity’Tax policy experts told the Guardian that raising the cap on interest deductibility could provide an especially generous subsidy for private equity funds, which rely heavily on debt.“The model of the private equity industry is often to … buy public corporations, take them private and load them up with debt,” said Steve Wamhoff of the non-profit Institute on Taxation and Economic Policy. These heavy debt burdens help explain why companies bought by private equity funds are about 10 times more likely than other firms to go bankrupt.“The deductions that are allowed for interest expenses really make that a more viable business model,” Wamhoff said.Debt is cheaper when companies get a tax break for deducting the interest they pay on that debt, and “cheaper money, which has to be repaid by their takeover targets, is what makes private equity go,” said Carter Dougherty of Americans for Financial Reform (AFR), an advocacy coalition.“The magic of the private equity business model, and the way that it’s able to generate outsized returns, is its reliance on debt for the acquisition,” said Brendan Ballou, author of Plunder: Private Equity’s Plan to Pillage America.If you invest $20m in a business and get 10% returns, you only get $2m back,” Ballou explained. “But if, of that $20m, you actually only put up $2m yourself, you actually make 100% return. So debt, or leverage, allows you to get bigger returns than you normally would if you actually had to put up your own cash.”That’s how “debt can supercharge the returns of private equity”, Ballou said.Asked for comment, the AIC referred the Guardian to two letters previously signed by the group, one of which states that “debt financing plays an important role in supporting job-creating investments”.skip past newsletter promotionafter newsletter promotion“There’s already a strong bias in the tax code for debt, and this bill doubles down on that bias to boost private equity’s predatory practices, which will only drive more American companies into bankruptcy and decrease market competition,” said the Texas congressman Lloyd Doggett, one of three Democrats who voted against the bill in the House ways and means committee, in a statement.“There’s nothing fair about private equity companies lining their pockets while shifting the tax burden to American families already dealing with high costs.”‘A complete wasteful giveaway’The Trump tax law established new limitations on how much interest companies could deduct from their tax bills in a single year. That annual cap on interest deductions was tightened further in 2022.Higher interest rates have made debt more expensive, so private equity funds have found themselves having to invest more of their own money, rather than relying as extensively on borrowed money.That shift, in turn, has lowered potential returns, adding to the industry’s sense of urgency to loosen the cap on interest deductions, AFR’s Carter Dougherty said.Not only would the Wyden-Smith deal undo the tighter limit created by the Trump law, but it would do so retroactively, meaning corporations could amend their 2022 and 2023 tax returns to take advantage of the newly generous subsidies.Making these tax cuts retroactive “would be just a complete wasteful giveaway”, Chye-Ching Huang, the executive director of the Tax Law Center at the New York University School of Law, told the Senate finance committee last November. “You can’t change past investments or wages by giving away tax cuts.”Loosening the interest deduction threshold would cost $64bn over the next 10 years if it were made permanent, according to an estimate provided to members of the House ways and means committee by the US Congress’s non-partisan joint committee on taxation.While the Wyden-Smith deal only rolls back the provision through 2025, tax policy experts told the Guardian that corporations and their trade groups would probably work to extend it further.In a statement to the Guardian, a Wyden spokesperson said: “The provision dealing with business interest was a Republican priority in negotiations, and it’s clear that it would become law in a Republican Congress without any matching benefit for working families. With the support of finance committee Democrats, Senator Wyden set a standard for this divided Congress that any tax cuts for corporations must be matched with an investment in children and families that the Joint Committee on Taxation scores as equal, and that’s why the bill includes a child tax credit expansion that helps 16 million children from low-income families get ahead.”Smith’s office did not respond to a request for comment. More

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      The New N.F.L. Owners?

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      As team valuations skyrocket, the league is weighing whether to relax ownership rules that prohibit investment from private equity funds.The biggest upcoming football event for many of the N.F.L. owners and business executives who will populate luxury boxes at the Super Bowl this weekend is not, perhaps surprisingly, the game. It actually won’t take place until six weeks later, in Orlando, Fla., when football executives gather for the National Football League’s annual meeting — an event that has particular significance this year.At the meeting, the league is expected to address a long-simmering question: whether to allow passive investment from private equity firms, which work with money sourced everywhere from sovereign wealth funds to pension funds to wealthy individuals.Major League Baseball, the National Basketball Association and the National Hockey League have already relaxed their ownership rules. But the N.F.L. both prohibits private equity money and has some of the strictest rules for investing, requiring general partners to buy at least a 30 percent stake in the team and limiting the use of debt to $1.2 billion. Allowing institutional investors to own teams could vault already high-flying valuations higher and change the culture of team ownership.In Florida, a committee of five team owners that includes Arthur Blank, the Atlanta Falcons owner and a founder of Home Depot, and Greg Penner, the Walmart chairman and an owner of the Denver Broncos, is likely to weigh in on the issue, according to two people familiar with the process who asked not to be named to discuss private deliberations. It is unclear whether that will immediately lead to a vote or whether the league will take time to study those recommendations. The N.F.L. declined to comment.“I don’t want to predict one way or another whether we will ultimately adopt it,” Clark Hunt, the owner of the Kansas City Chiefs, who is also on the committee, said this week. “But I do think it is an avenue that can be helpful from a capital standpoint.”Industry insiders have been whispering about the meeting and have a lot of questions. Among them:Would the N.F.L. allow sovereign investors? Soon after the N.B.A. allowed pension and sovereign funds to invest in its leagues, the Qatar Investment Authority bought a 5 percent stake in three Washington, D.C., teams. Saudi Arabia’s wealth fund, which struck a splashy (though far from certain) deal with the PGA Tour last year, has also been eyeing tennis.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      American Firms Invested $1 Billion in Chinese Chips, Lawmakers Find

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      A Congressional investigation determined that U.S. funding helped fuel the growth of a sector now viewed by Washington as a security threat.A congressional investigation has determined that five American venture capital firms invested more than $1 billion in China’s semiconductor industry since 2001, fueling the growth of a sector that the United States government now regards as a national security threat.Funds supplied by the five firms — GGV Capital, GSR Ventures, Qualcomm Ventures, Sequoia Capital and Walden International — went to more than 150 Chinese companies, according to the report, which was released Thursday by both Republicans and Democrats on the House Select Committee on the Chinese Communist Party.The investments included roughly $180 million that went to Chinese firms that the committee said directly or indirectly support Beijing’s military. That includes companies that the U.S. government has said provide chips for China’s military research, equipment and weapons, such as Semiconductor Manufacturing International Corporation, or SMIC, China’s largest chipmaker.The report by the House committee focuses on investments made before the Biden administration imposed sweeping restrictions aimed at cutting off China’s access to American financing. It does not allege any illegality.Last August, the Biden administration banned U.S. venture capital and private equity firms from investing in Chinese quantum computing, artificial intelligence and advanced semiconductors. It has also imposed worldwide limits on sales of advanced chips and chip-making machines to China, arguing that these technologies could help advance the capabilities of the Chinese military and spy agencies.Since it was established a year ago, the committee has called for raising tariffs on China, targeted Ford Motor and others for doing business with Chinese companies, and spotlighted forced labor concerns involving Chinese shopping sites.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Fox-Dominion Trial Delayed: What to Know About the Company Behind the Lawsuit

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      Dominion, which is owned by a New York private equity firm, has accused the news network of spreading false narratives about its election technology.If not for the 2020 election, most people would not have heard of Dominion Voting Systems, an elections technology company that John Poulos started out of his basement in Canada more than two decades ago.But in the days and weeks after the election, former President Donald J. Trump and many of his allies accused the company of perpetrating election fraud. Dominion then filed a slew of defamation lawsuits against public figures and news networks, accusing them of spreading the false narratives and exposing its employees to harassment. The company’s case against Fox News is scheduled to go to trial this week. Judge Eric M. Davis, who is presiding over the case, said in a statement late on Sunday that he was delaying the trial by a day, until Tuesday. He did not cite a reason but said he would make an announcement Monday at 9 a.m.Here is what we know about the company, from its private equity owner in New York to its powerful perch in the nation’s elections industry.Dominion’s Early DaysDominion became one of the largest providers of election technology in the United States by selling, licensing and maintaining products such as its Democracy Suite software and ImageCast voting and tabulation machines. During the 2020 election, the company served 28 states, including many swing states, as well as Puerto Rico. Mr. Poulos, who has degrees in electrical engineering and business, incorporated Dominion in Toronto in 2003 with some friends after a stint in Silicon Valley. His sister was his first investor, followed by his parents and his friends’ parents. (Dominion declined to comment for this article.)The company is named after Canada’s 1920 Dominion Elections Act, which removed barriers to voting that had excluded women and voters of certain racial, religious or economic groups. Mr. Poulos’s business idea was to help people with disabilities, such as paralysis or blindness, cast their ballots as independently as possible while still leaving an auditable paper trail. Dominion incorporated accessible technology like audio readouts and large screens into election machines.The company scored its first American contract in 2009, providing voting technology to dozens of counties in New York. The next year, it moved its headquarters to Denver, where it now has several hundred employees.Private Equity OwnersStaple Street Capital, a private equity firm in New York, is the majority owner of Dominion. Mr. Poulos, Dominion’s chief executive, retains a roughly 12 percent stake. PennantPark Investment, a financial firm based in Miami, is another investor.Fox said in a legal filing that Staple Street paid $38.3 million in 2018 to acquire 76.2 percent of Dominion. At the time, the private equity firm valued the technology vendor at $80 million, or one-twentieth of the $1.6 billion in damages that Dominion had sought from Fox, according to Fox’s filing.Staple Street’s owners, Stephen D. Owens and Hootan Yaghoobzadeh, first worked together in 1998 on buyouts for the Carlyle Group, a private equity giant. (Their résumés also feature stints at Lehman Brothers and Cerberus Capital Management.) The firm’s board of directors includes a former chief executive of Dunkin’ Brands as well as a former chairman of the Federal Communications Commission and ambassador to the European Union.Staple Street declined to comment.On its website, Staple Street says it has $900 million of assets under management — mostly midsize companies such as a flower bulb distributor in New Jersey, an accounting and payroll reporting service popular with restaurant chains, a support organization for dental clinics and, at one point, the theme park operator Six Flags.Fox said in its filing that Mr. Yaghoobzadeh had authorized Dominion’s lawsuit against the network. The lawsuit, Fox said, is meant to generate publicity, deter negative reporting and “unjustly enrich” Staple Street.Fox cited discovery documents that it said showed Dominion “in a solid financial position, maintaining substantial cash, carrying no debt and producing a steady return on investment” to Staple Street. In 2021, Dominion paid full bonuses to its employees and executives and projected $98 million in revenue for 2022, Fox said.Last year, when asked whether he believed that Dominion was a “toxic” company after the 2020 election, Mr. Owens answered, “That’s correct.”A Business in FluxIn its complaint, which it filed in 2021, Dominion accused Fox of broadcasting lies that “deeply damaged” its “once-thriving” business, “one of the fastest-growing technology companies in North America” with a potential value of more than $1 billion.Shasta County, a rural area in Northern California that has become a hotbed for election denial, terminated its Dominion contract in January. Lawmakers in Montgomery County in Pennsylvania renewed a deal with Dominion for $518,052 in February, the same month that officials in Kern County, north of Los Angeles, narrowly approved a three-year, $672,948 contract after hours of heated debate.Dominion’s contracts with local and state governments typically last for several years and range from tens of thousands of dollars to more than $100 million, the company said in its complaint against Fox. The company estimated that misinformation about the company had cost it more than $600 million in profits.In an expert witness report submitted in the case late last year, Mark J. Hosfield, a managing director of the investment bank and advisory firm Stout, wrote that the false narratives had led Dominion to lose $88 million in profits from current and future opportunities. He also wrote that Fox’s coverage had caused the value of Dominion’s equity and debt to drop $920.8 million. Dominion’s renewal rate with clients had historically been 90 percent, he said.Fox has said the $1.6 billion that Dominion is seeking is “a staggering figure that has no factual support” and was “pulled out of thin air.” There has been no evidence of Dominion’s laying off employees, closing offices, defaulting on credit obligations or suffering canceled contracts as a result of Fox’s coverage, the network said.Fox said in other court filings last year that “Dominion’s calculations are riddled with mathematical overstatements” and losses misattributed to damaging news coverage, and that the company had beaten revenue forecasts that it set before the election.“Dominion’s lawsuit is a political crusade in search of a financial windfall, but the real cost would be cherished First Amendment rights,” Fox said in a statement.Dominion, in a statement said: “In the coming weeks, we will prove Fox spread lies causing enormous damage to Dominion. We look forward to trial.”An Important but Mysterious IndustryThe elections technology industry has few major players and offers little public information about its finances. Dominion is most likely the second-largest company of its kind operating in the United States, behind Election Systems & Software in Nebraska, according to Verified Voting, an election security nonprofit.Both companies, along with Hart InterCivic in Texas, have acquired smaller competitors over the past two decades. As of 2016, the three vendors served more than 90 percent of eligible voters in the country, according to a report from the Wharton School at the University of Pennsylvania.Wharton researchers at that point described the election technology business as having “all the aspects of an industry that new investors would want to avoid — a costly regulatory environment, constrained market size, cost-conscious customers, and concentrated and entrenched vendors.”The Brennan Center for Justice estimated last year that replacing outdated voting equipment over the next five years could cost more than $580 million. A group of Democratic lawmakers, including Senator Elizabeth Warren of Massachusetts, sent letters in 2019 to Staple Street and other private equity firms that had invested in election technology companies, voicing concern about industry consolidation and the maintenance of voting machines. In response, Staple Street wrote to Ms. Warren that it spent roughly 10 to 20 percent of its revenue on research and development.Susan C. Beachy More

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      US pension funds are on the brink of implosion – and Wall Street is ignoring it | David Sirota

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      US pension funds are on the brink of implosion – and Wall Street is ignoring itDavid SirotaPrivate equity firms managing millions of Americans’ retirement savings may be inflating their investments As public officials across America prepare to funnel even more of government workers’ savings to private equity moguls, an alarm just sounded for anyone bothering to listen. It is a warning that Wall Street executives, busy skimming fees off retirement nest eggs, want you to ignore. The longer the warning goes unheeded, however, the bigger the financial time bomb may be for workers, retirees and the governments that pay them.The world economy faces a huge stress test in 2023 | Kenneth RogoffRead moreEarlier this month, PitchBook – the go-to news outlet of the private equity industry – declared that “private equity returns are a major threat to pension plans’ ability to pay retirees in 2023”.With more than one in 10 public pension dollars invested in private equity assets – and with states continuing to keep their private equity contracts secret – PitchBook cited a new study finding that losses from the investments may be on the horizon for retirement systems that support millions of teachers, firefighters, first responders and other government employees.“Private equity returns get reported on a lag of up to six months, and with each update in 2022 values were coming down – which means 2022 numbers were including overstated private equity asset valuations and 2023 numbers are going to incorporate those losses,” noted the study from the Equable Institute.To comprehend this timebomb, you have to understand private equity’s business model.In general, private equity firms use pension money to buy up and restructure companies to then sell them at a higher price than they were purchased. In between buying and selling, there are no transparent metrics for valuing the purchased asset – private equity firms can manufacture an alleged value to tell pension investors (and there’s evidence they inflate valuations when seeking new investments).In a story about an investor receiving two different valuations for the same company, Institutional Investor underscored the absurdity: “Everyone Wants to Know What Private Assets Are Really Worth. The Truth: It’s Complicated.”Meanwhile, valuation and fee terms in contracts between private equity firms and public pensions are kept secret, exempt from open records laws.With that in mind, the new warnings are simple: private equity firms may have told their pension officials that their assets were worth much more than they actually are, all while the firms were skimming billions of dollars of fees off retirees’ money.If write-downs now happen, it could mean that when it’s time to sell the assets to pay promised retiree benefits, pension funds would have far less money available than private equity firms led them to believe. At that point, there are three painful choices: cut retirement benefits, slash social programs to fund the benefits, or raise taxes to recoup the losses.Signs of a doomsday scenario are already evident: some of the world’s largest private equity firms have been reporting big declines in earnings, and federal regulators are reportedly intensifying their scrutiny of the industry’s write-downs of asset valuations. Meanwhile, one investment bank reported that in its 2021 transactions, private equity assets sold for just 86% of their stated value last year.How to fight inflation? (Spoiler alert: not with interest rate rises) | Joseph StiglitzRead moreBut while pensioners may be imperiled, Wall Street executives are protected thanks to their heads-we-win-tails-you-lose business model. While reporting asset losses for investors, some of the firms managing pensioners’ money are raking in even more fees from investors and continuing to raise executives’ pay.Meanwhile, even as some sophisticated private investors rush to get out of private equity, the world’s largest private equity firm, Blackstone, recently reassured Wall Street analysts that state pension officials will continue using retirees’ savings to boost revenues for private equity firms, hedge funds, real estate funds and other so-called “alternative investments”.“The desire for alternatives remains very strong,” the president of Blackstone, Jon Gray, said in an investor call last week. “New York’s state legislature actually increased the allocation for the big three pension funds here by roughly a third.”Gray was referring to New York Democratic lawmakers passing legislation significantly increasing the amount of retiree money that pension officials can deliver to Wall Street. The bill was championed by the New York City comptroller, Brad Lander, just weeks after the Democrat won office promising he would be “reviewing the funds’ positions with risky and speculative assets including hedge funds, private equity, and private real estate funds”.The New York governor, Kathy Hochul, quietly signed the legislation on the Saturday before Christmas, just weeks after the Wall Street Journal reported that analysts have started warning pension funds of looming private equity losses. New York lawmakers simultaneously rejected separate legislation that would have allowed workers and retirees to see the contracts signed between state pension officials and Wall Street firms managing their money.The Empire State is hardly alone in continuing to use retirees’ money to enrich the planet’s wealthiest financial speculators – from California to Texas to Iowa, pension funds controlling hundreds of billions of dollars of workers’ retirement savings are planning to dump more money into private equity, while keeping the terms of the investments secret.While globetrotting to elite conferences in exotic locales, pension officials have defended the high-fee investments by parroting Wall Street executives’ claim that private equity reliably outperforms low-fee stock index funds. At the same time, those officials continue to conceal the terms of the investments, raising the question: if the investments are so great, why are the details being hidden?Perhaps because the investments aren’t as wonderful as advertised. In a landmark study entitled An Inconvenient Fact: Private Equity Returns & the Billionaire Factory, Oxford University’s Ludovic Phalippou documented that private equity funds “have returned about the same as public equity indices since at least 2006”, while extracting nearly a quarter-trillion dollars in fees from public pension systems.A 2018 Yahoo News analysis found that US pension systems had paid more than $600bn in fees for hedge fund, private equity, real estate and other alternative investments over a decade.“The big picture is that they’re getting a lot of money for what they’re doing, and they’re not delivering what they have promised or what they pretend they’re delivering,” Phalippou told the New York Times in 2021.Even some on Wall Street admit the truth: a JP Morgan study in 2021 found that private equity has barely outperformed the stock market, but it remains unclear whether that “very thin” outperformance is worth the risk of opaque and illiquid investments whose actual value is often impossible to determine – investments that could crater when the money is most needed.While the warnings have not halted the flood of pension cash to private equity, they have broken through in at least some corners of American politics.The Securities and Exchange Commission is considering new rules to require private equity firms to better disclose the fees they charge.The US should break up monopolies – not punish working Americans for rising prices | Robert ReichRead moreSimilarly, Ohio’s state auditor, Keith Faber, just issued a report sounding an alarm about state pension officials keeping private equity contracts secret – a practice replicated in states across the country.And following a pension corruption scandal in Pennsylvania – whose state government oversees nearly $100bn in pension money – there’s a potential financial earthquake: during his first week in office, Governor Josh Shapiro promised to shift pensioners’ money out of the hands of Wall Street firms.“We need to get rid of these risky investments,” Shapiro told his state’s largest newspaper. “We need to move away from relying on Wall Street money managers.”Shapiro could face opposition not only from private equity moguls and their lobbyists but also from the pension boards’ union-affiliated trustees. As the Philadelphia Inquirer reported: “Union members [on the boards] have mostly favored the old strategy of private investments, even when challenged by governors’ reps and the last couple of state treasurers.”When investment returns were somewhat better, the unholy alliance between some unions and Wall Street firms flew under the radar, even as pension funds were ravaged by fees. But with warnings of write-downs and losses getting louder, the dynamic could change.Better late than never – though the later it gets, the bigger the risk for millions of workers and retirees.
      David Sirota is a Guardian US columnist and an award-winning investigative journalist. He is an editor at large at Jacobin, and the founder of The Lever, where this article also appeared. He served as Bernie Sanders’ presidential campaign speechwriter
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      Kushner’s and Mnuchin’s Quick Pivots to Business With the Gulf

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      Weeks before the Trump administration ended, Jared Kushner and Steven Mnuchin met with future investors on official trips to the Middle East.Shortly before the 2020 election, Trump administration officials unveiled a U.S. government-sponsored program called the Abraham Fund that they said would raise $3 billion for projects around the Middle East.Spearheaded by President Donald J. Trump’s son-in-law and adviser Jared Kushner, the fund promised to capitalize on diplomatic agreements he had championed between Israel and some Arab states — pacts known as the Abraham Accords. Steven Mnuchin, then Treasury secretary, helped inaugurate the fund on a trip to the United Arab Emirates and Israel, hailing the accords as “a tremendous foundation for economic growth.”It was little more than talk: With no accounts, employees, income or projects, the fund vanished when Mr. Trump left office. Yet after Mr. Kushner and Mr. Mnuchin crisscrossed the Middle East in the final months of the administration on trips that included trying to raise money for the project, each quickly launched a private fund that in some ways picked up where the Abraham Fund had ended.Mr. Kushner and Mr. Mnuchin brought along top aides who had helped court Gulf rulers while promoting the Abraham Fund, and soon, both were back in the same royal courts asking for investments, although for purely commercial endeavors.Within three months, Mr. Mnuchin’s new firm had circulated detailed investment plans and received $500 million commitments from the Emiratis, Kuwaitis and Qataris, according to previously unreported documents prepared by the main Saudi sovereign wealth fund, which itself soon committed $1 billion. Mr. Kushner’s new firm reached an agreement for a $2 billion investment from the Saudis six months after he left government.A New York Times report last month revealing the Saudi investments in the Kushner and Mnuchin funds raised alarms from ethics experts and Democratic lawmakers about the appearance of potential payoffs for official acts during the Trump administration.But an examination of the two men’s travels toward the end of the Trump presidency raises other questions about whether they sought to exploit official relationships with foreign leaders for private business interests.In the weeks after the election, Mr. Kushner made three trips to the Middle East, the last for a Jan. 5 summit in Saudi Arabia with leaders of the Gulf monarchies. Mr. Mnuchin that day began a tour through the region that was planned to include private meetings with the heads of the sovereign wealth funds of Saudi Arabia, the Emirates, Qatar and Kuwait — all future investors. (He cut it short after the Capitol riot, dropping the Kuwait stop and, in Saudi Arabia, meeting only with the finance minister.)Mr. Kushner and his aides have sometimes cast his private firm, Affinity Partners, as something like a continuation of the Abraham Fund. On a four-day trip to Israel in March to meet companies seeking investments, Mr. Kushner’s team portrayed the firm as a chance to invest in the peacemaking potential of the Abraham Accords, people who heard the pitch said, speaking on the condition of anonymity.Both Mr. Kushner and Mr. Mnuchin hired several aides who were deeply involved in the accords: A top executive at Affinity, retired Maj. Gen. Miguel Correa, is a former military attaché in the Emirates who later worked in the White House. Top executives at Mr. Mnuchin’s fund, Liberty Strategic Capital, include a former ambassador to Israel and a former Treasury aide who helped arrange meetings with Gulf leaders.The transition from government work for one Liberty Strategic executive was so fast that his jobs appeared to overlap. A roster of 11 top executives and advisers provided to the Saudis by April 2021 included the managing director Michael D’Ambrosio, even though he was still an assistant director at the Secret Service through the end of May. (A Secret Service spokesman said that Mr. D’Ambrosio had disclosed his new employment to the agency and spent his last weeks there on paid leave.)An organizational chart for Liberty Strategic Capital, Mr. Mnuchin’s new investment fund, that the Saudis were reviewing by April.A former Treasury aide known as a close confidant had resigned in 2019 and was waiting for Mr. Mnuchin in the private sector. That confidant, Eli Miller, had been working with Persian Gulf sovereign wealth funds at Blackstone, another investment firm, and immediately rejoined the secretary at his new firm’s founding.The path from public service to private investing is well trod by members of both parties. The two Treasury secretaries under President Barack Obama later went to Wall Street.But Mr. Kushner and Mr. Mnuchin stand out, ethics experts said, for the speed of their pivots and for the sums they raised from foreign rulers they had recently dealt with on behalf of the United States.The Saudi investment with Mr. Kushner was made despite an advisory panel’s objections about his lack of relevant experience, the absence of other big investors, a high fee and the “public relations risk” of his ties to the former president, according to the minutes of a Saudi Public Investment Fund meeting last June that were obtained by The Times. Ethics experts suggested that the payment could be seen as a bid for influence if his father-in-law returned to office.Senator Elizabeth Warren, a Massachusetts Democrat, has urged the Justice Department to “take a really hard look” at whether Mr. Kushner violated any criminal laws.Kathleen Clark, a law professor at Washington University in St. Louis who studies government ethics, said each fund raised different issues. For Mr. Kushner, she said, “the reason this smells so bad is that there is all sorts of evidence he did not receive this on the merits.”But for Mr. Mnuchin, who was a successful investor before entering government, the biggest question is whether he was burnishing relationships as Treasury secretary that he knew would be useful to him in the near future, Ms. Clark said.“If he was, that is an abuse of his office,” she said. “I don’t know if it is criminal, but it is certainly corrupt.”Through a spokesman, Mr. Kushner declined to comment.In a statement, a spokesman for Mr. Mnuchin denied that he had sought investments while in office and said without providing specifics that some of the details in the Saudi documents were inaccurate. The former secretary was returning to a decades-long career as a professional investor, the spokesman added, and the firm has diverse backers, “including U.S. insurance companies, sovereign wealth funds, family offices and other institutional investors.”The Adviser and the SecretaryBefore vying for Persian Gulf investments, Mr. Kushner and Mr. Mnuchin sometimes competed for influence in the White House. During the transition to the Trump administration, Mr. Kushner sought to install his own candidates as Treasury secretary, until Mr. Mnuchin caught wind of it and launched a countercampaign, recalled several people familiar with the efforts.The two men had come from very different business backgrounds. Mr. Kushner had previously run his family’s real estate empire and owned a weekly newspaper, both with mixed results; Mr. Mnuchin had followed his father into a career at Goldman Sachs and made a fortune investing in Hollywood films and a California bank. They kept a cordial distance in the administration. But both took strong and sometimes overlapping interests in the Persian Gulf.President Donald J. Trump with Jared Kushner, his son-in-law, and Mr. Mnuchin at a diplomatic meeting involving Israel and the United Arab Emirates.Doug Mills/The New York TimesMr. Mnuchin had few business dealings in the region before the Trump administration. Yet he spent far more time there as Treasury secretary — and met far more often with the heads of sovereign wealth funds — than his immediate predecessors: He made at least 18 visits over four years to the Persian Gulf monarchies, compared with a total of eight made by his three predecessors over the previous decade.Former Treasury officials who worked with Mr. Mnuchin said that his time there reflected the priorities of the White House, including Iran sanctions, combating terrorist financing and the Abraham Accords. They noted that fund chiefs could be useful conduits to the rulers of the region.“He was a business guy who really knew how to do personal diplomacy, and they liked him,” said Michael Greenwald, a former Treasury attaché in Kuwait and Qatar who served in the Obama and Trump administrations. “So that was an effective tool.”Many of Mr. Mnuchin’s contacts appear to have been informal. One of his first meetings with Yasir al-Rumayyan, chief of the Saudi fund, was a September 2017 breakfast at the home of Stephen A. Schwarzman, Blackstone’s chief executive and Mr. Mnuchin’s neighbor. Mr. Miller, the secretary’s chief of staff at the time and now a senior managing director at Liberty Strategic, also attended.Mr. Mnuchin met with Mr. al-Rumayyan at least nine more times during the Trump presidency, including in Bahrain, Switzerland and a Treasury conference room, according to department emails that the group Citizens for Responsibility and Ethics in Washington obtained through the Freedom of Information Act and shared with The Times.In addition to multiple meetings with the Qatari emir and other officials, Mr. Mnuchin met at least 10 times with the head of the Qatar Investment Authority.“I will just do one-on-one with Mansoor,” he emailed an aide in 2019, referring to Mansoor bin Ibrahim al-Mahmoud, the fund’s chief executive. “We have communicated direct.”Mr. Mnuchin also met five times with the heads of the two main Emirati funds, once at a Washington dinner hosted by the co-founder of the Carlyle investment group.And he met repeatedly with the rulers of the Emirates and Saudi Arabia. That included a private meeting with the Saudi crown prince in Riyadh in 2018 shortly after the kingdom’s agents killed Jamal Khashoggi, a dissident and columnist for The Washington Post. And the documents suggest Mr. Mnuchin built a rapport with Sheikh Mohammed bin Zayed, known by the initials M.B.Z., who recently became the Emirates’ president.Sheikh Mohammed bin Zayed, president of the United Arab Emirates.Frank Augstein/Associated Press“I am available anytime to see you and His royal highness M.B.Z.,” Mr. Mnuchin wrote to an unidentified recipient in February 2020, planning a visit. “If possible it would be great for us to have a bike ride and dinner as we had discussed.”Suggesting a blurring of the lines between government and business, he wrote to a top Treasury aide in December 2020, apparently about a meeting with Saudi Arabia’s Public Investment Fund scheduled to take place after he stepped down.“Do we have any more info on PIF late January?” he wrote to the aide, Zachary McEntee, who accompanied him on Gulf trips that involved the Abraham Fund and later joined Mr. Mnuchin’s firm. A spokesman said Mr. Mnuchin was asking about a conference sponsored by the Saudi fund that he attended as a private citizen.Two weeks before he left office, Mr. Mnuchin flew to the region for official meetings with leaders across the Persian Gulf, with the stated purpose of discussing sanctions, terrorist financing and other national security matters. The visit included a private lunch on Jan. 8 at the National Museum of Qatar with the head of the country’s main investment fund.As for Mr. Kushner, he had made his highest goal in the White House the brokering of a Middle East peace plan centered on funding from Saudi Arabia and its neighbors. The core of the plan was to solicit investments from the Gulf that might persuade Palestinians to relinquish some of their demands for a future state. As the culmination of those efforts, he and Mr. Mnuchin organized a “Peace to Prosperity” conference in Bahrain that no Palestinian officials attended.To court Gulf rulers, Mr. Kushner helped persuade Mr. Trump to make the first foreign trip of his administration a 2017 visit to Saudi Arabia. Shortly after a meeting there with Mr. Kushner, the rulers of Saudi Arabia and the United Arab Emirates led a blockade of Qatar, accusing it of supporting extremism. Qatar hosts a major American military base, and the secretaries of defense and state pushed for an end to the blockade, but Mr. Trump initially backed it.Mr. Kushner returned repeatedly to the Persian Gulf — making at least 10 trips during the Trump administration, often to visit multiple countries — and formed a close alliance with Saudi Crown Prince Mohammed bin Salman. After American intelligence agencies concluded that the Saudi leader had approved the brutal murder of Mr. Khashoggi, Mr. Kushner defended the prince in the White House.Mr. Kushner at a meeting in September 2020 with Saudi Crown Prince Mohammed bin Salman.SPA handout/AFP, via Getty ImagesIn December 2020, Mr. Kushner visited Saudi Arabia and Qatar on a trip billed as an effort to end their three-year feud, returning to the kingdom on Jan. 5 for a Gulf summit where they formally reopened relations.“Jared led the diplomatic effort to heal the Gulf rift,” Mr. Kushner’s firm declared in a recent investor presentation.Allies of Mr. Mnuchin, though, said he also played a leading role, in part by working closely with Qatar to police terrorist financing and improve relations with Mr. Trump.In reality, diplomats said, the resolution was driven by the Saudis’ desire to end the rift before the start of a new American administration. But credit for ending the blockade may be valuable in courting investments.Exit StrategiesMr. Mnuchin wasted no time getting back to business. Three weeks after the Trump administration ended, he said in an interview that he had a plan but wasn’t ready to discuss it.By April 2021, his firm was showing potential investors a detailed list of target industries, according to documents obtained from the Saudi fund. The firm had arranged a legal structure that enabled foreign sovereign wealth funds to invest in strategically sensitive American industries, the documents show, and had already hired several former Treasury and State Department officials as top executives.Mr. Kushner got off to a slower start. Even by the time he reached his $2 billion agreement with the Saudi fund last July, he had not hired any executives with relevant investing experience.From left: Maj. Gen. Miguel Correa, Rabbi Aryeh Lightstone and Avi Berkowitz, whom Mr. Kushner hired for his fund.From Left: Bob Collet/Alamy Stock Photo; Steve Mack/Alamy Stock Photo; Mark Lennihan/Associated PressHe brought on his closest aide, Avi Berkowitz, and General Correa, the former military attaché. The general had left the U.S. embassy in the Emirates after clashing with senior diplomats who believed he had held unauthorized private meetings with the country’s leaders about arms sales and other matters. He had nonetheless been elevated to the White House, where he worked closely with Mr. Kushner. Career diplomats said that by the end of the administration, General Correa and Mr. Berkowitz were sometimes the only Americans accompanying Mr. Kushner to meet with Persian Gulf officials.Mr. Kushner also hired Rabbi Aryeh Lightstone, a former diplomat in Jerusalem who had worked on the Abraham Accords and been named a director of the Abraham Fund.A December 2021 presentation Mr. Kushner’s firm shared with potential investors, reported last month by The Intercept, suggests his firm’s focus may be blurring. As investment targets, the presentation listed a grab bag of high-growth industries including media, technology, health care, finance, consumer services and sustainable energy.But the presentation also touted Mr. Kushner’s “geopolitical experience” and role in Middle Eastern diplomacy.Mr. Kushner has continued to link his private firm to the Abraham Accords. “If we can get Israelis and Muslims in the region to do business together it will focus people on shared interests and shared values,” he recently told The Wall Street Journal, apparently referring to Muslims in neighboring countries (though about 20 percent of Israeli citizens are Muslim). The fund has so far invested in two Israeli companies.Adam Boehler, a finance official and Mr. Kushner’s college roommate, oversaw the Abraham Fund.Ali Haider/EPA, via ShutterstockThe Abraham Fund was overseen by Adam Boehler, at the time the head of a newly formed development finance agency and a college roommate of Mr. Kushner’s. Mr. Boehler joined Mr. Mnuchin on his Gulf visit in October and accompanied Mr. Kushner to Qatar and Saudi Arabia in December.Officials said the fund would invest in poorer countries that joined the accords, and its first projects were said to include upgrading checkpoints into Israel from the Palestinian territories and building a gas pipeline between the Red Sea and the Mediterranean.Neither project went anywhere. Nor did the efforts to enlist Gulf money.In January last year, Mr. Boehler announced the only publicly disclosed investment in the Abraham Fund: a “commitment of up to $50 million” from Uzbekistan, a relatively low-income country. Uzbek officials said at the time that they sought to reduce poverty and foster regional cooperation. Long criticized for human rights abuses, Uzbekistan had begun a lobbying push in Washington to improve its image after a leadership change; its new president also gave Mr. Trump a $2,950 silver replica of a historic building and his wife a $4,200 bed cover.But no money for the short-lived Abraham Fund was ever delivered.Ben Hubbard More