Yet more on SEIU — it’s going after private equity, again

An editorial in today’s Wall Street Journal gives “Service Employees International Union President Andy Stern credit for tenacity” in pressuring private equity firms. SEIU, reports the Journal, recently filed a citizens’ initiative to the Washington state legislature to limit state pension fund investments in private equity firms, requiring state pension fund administrators to consider “social criteria” when making investment decisions.

On the SEIU political checklist are a private equity firm’s “lack of transparency, poor employment practices, environmental impacts and other indicators of irresponsible corporate behavior.” The Investment Board would also have to encourage private equity to comply with the SEIU’s vision of “corporate responsibility.” That means firms would have to release data on revenues, taxes, and executive compensation, provide “living wages and benefits,” recognize a “collective bargaining representative” at each portfolio company, and mitigate “climate risk,” which is to say be politically correct on global warming. The Investment Board itself would also have to “support changes to tax laws that eliminate unfair advantages” to private equity, and more.

In other words, Washington state pension funds would for all practical purposes be barred from investing in private equity. State Investment Board Executive Director Joe Dear concluded as much when he told a local newspaper that “No private equity firm that we want to do business with will do business with us under these terms.” He predicted this would “cost taxpayers and beneficiaries millions in higher taxes and contributions.”

And he has the data to prove it. Nearly $14 billion of Washington’s investments are in private equity, which has provided returns of 12.6% over the past decade, compared to 7.9% for pension holdings as a whole. Barring private equity would “destroy our ability to invest in our highest-returning asset class,” said Mr. Dear. The losers would be union pensioners who depend on those returns for retirement income.

Mr. Stern’s real agenda here is to coerce private equity firms into giving his union a free hand in organizing workers at their portfolio companies. Having failed to organize those workers in elections, or to negotiate unionization deals with private equity management, Mr. Stern is now seeking political retribution. His strategy is to demonize the industry in public and promote damaging legislation until the companies give in.

It would be grossly irresponsible for state pension fund managers to take the approach SEIU is pushing. Union pension funds, which have in recent years become a tool for political activism at public company shareholder meetings, are today considerably underfunded, especially when compared to comparable private pensions, as a recent study by Diana Furchtgott-Roth of the Hudson Institute shows.

For more on organized labor’s response to the rise of private equity see here.

For more on SEIU, see here, here, and here.