Whereas, in 1996 there were 7,300 publicly traded corporations in the U.S. and in 2024 there were only 4,300; and

Whereas, in 2000 there were 1,900 corporations owned by private equity firms and in 2024 there were 11,000; and

Whereas, this has resulted in private equity controlling roughly $14.7 trillion in assets, employing more than 11.7 million workers and managing more than $4 trillion of workers’ deferred wages in pension funds while charging high fees, making them an important determinant of CFT members’ pension fund risk and returns, as well as a major force shaping our national economy; and

Whereas, publicly listed companies are subject to regulatory oversight and disclosure requirements, which help ensure transparency and maintain investor confidence; and

Whereas, in many cases, the motivation to take a public company private is to avoid financial reporting requirements and government regulations, and the scrutiny of shareholders and other stakeholders; and

Whereas, investments in publicly traded companies allows shareholders to have a voice in the operations of the firm through shareholder engagement and a rapid exit by selling shares if firm behavior makes that appropriate; and

Whereas, limited partners in a private equity management firms have very limited control over the actions of that firm and their contracts are tied up for many years, which greatly increases investment risk; and

Whereas, in 2024, 15.3% of the CalSTRS portfolio and 16.1% of the CalPERS portfolio are in private equity; and

Whereas, the business model of some private equity firms has been called “vulture capitalism,” because they target asset rich firms that are generating low levels of profits, use borrowed money to buy-out the firm, use the assets of the company to take on high levels of debt, much of which is used to pay dividends to the PE fund managers, who use this to pay off the initial debt used to buyout the target firm; and

Whereas, the PE fund managers often sell the real estate assets to a real estate investment trust (often owned by the same PE firm) and have the target firm lease back the real estate, layoff part of the workforce, drive down wages, strip workers of benefits and terminate existing pension plans, and use all of this revenue to pay dividends to the private equity managers and their limited partners; and

Whereas, the private equity firm will often take the target public again, and thus have no ongoing liability for the problem they created; and

Whereas, with the increased debt load and the cost of lease payments, the target company is now in a more financially precarious position; and

Whereas, in the first half of 2024, 65 percent of all bankruptcies of firms valued at more than $1 billion were firms that had been taken over by private equity firms; and

Whereas, many of these bankruptcies have occurred in the healthcare sector, including Consulate Health Care and Steward Health Care which led to the closing of six hospitals in the US, resulting in the layoffs of at least 2,650 workers and reduced access to care for the communities they served; and

Whereas, these bankruptcies have disastrous impacts on the employees of the company, the communities in which they operated, the creditors holding the debt, and shareholders, yet the private equity firms have no liability for any of these impacts:

Whereas, the “Stop Wall Street Looting Act” increases transparency for private equity firms and curbs their worst abuses, holding private equity firms responsible by:

• Requiring private equity funds to “have skin in the game” with the firm, the firm’s general partners, and their insiders all be on the hook for the liabilities of companies under their control—including debt, legal judgments and pension-related obligations
• Requiring private equity managers to disclose fees, returns, and other information about their funds and the corporate loans they make so that investors can monitor their investments.
• Holding the private equity firm liable for all debt taken on by the target firms for a period of at least five years
• Prohibiting target firms from making a capital distribution during the four years following a buy-out
• Prohibiting target firms from making a capital distribution greater than 10% of the target firm’s debt in a given year
• Restricting plant closings, mass layoffs or outsourcing of jobs within first 24 months after a takeover
• Prohibiting interest on excessive debt obligations from being tax deductible by target companies
• Classifying severance pay owed to employees and unsecured claims for contributions to employee benefit plans as administrative expenses for purposes of priority of claims in bankruptcy,
• Closing the loophole that private equity firms have used to hide certain assets from bankruptcy courts,
• Prohibiting bankruptcy courts from approving any payments to an insider, senior executive, highly compensated employee or consultant if the company has not paid promised severance pay to employees or has reduced employee benefits within the year prior to the bankruptcy,
• In cases where there are multiple offers to purchase the property of a company in Chapter 11 bankruptcy, the offer that best preserves the company’s jobs and maintains the terms and conditions of employment for its workers shall be given priority,
• Requiring private equity fund managers to have a fiduciary duty to pension plans whose assets they manage,
• Requiring private equity firms to disclose the same types of financial information as publicly traded companies, including political spending, climate related risk disclosures, human capital practices and federal financial support the fund or its entities received in the prior year,
• Requiring arrangers of corporate loan securities to retain a share of the risk of those securities;

Therefore, be it resolved, the CFT supports legislation, such as the “Stop Wall Street Looting Act” that increases transparency for private equity firms and curbs their worst abuses, holding private equity firms responsible; and

Be it further resolved, the CFT will support efforts by CalSTRS and CalPERS to push for regular, consistent and disaggregated disclosure of fees and returns data, as required by the implementation of the SEC Private Funds Rule, to assess whether these pension funds are getting the risk-adjusted returns private equity promises; and

Be it finally resolved, that CFT calls on CalSTRS and CalPERS to not invest any new money in private equity firms that do not adhere to a comprehensive set of labor and financial reporting standards.

Submitted by the Retirement Policy Committee