Labor’s Capital: Public Pensions and Private Equity

Abstract This article describes the large and growing interdependence of public pensions and private equity – and the unusual politics that drives it. By any definition, public pension funds represent government money: they are funded through contributions of government employers and employees for the purpose of providing retirement benefits to public-sector workers. Public-sector unions play important roles at virtually every stage of public pension management, from representing the beneficiaries in state and local politics to serving in fiduciary roles on pension governing boards. In a descriptive analysis, we show that public pensions have allocated increasing amounts of capital to private equity in the last two decades, regardless of the party in control of the state legislature, and even in states with strong public-sector unions. To explain this departure from the conventional left-right structure of American politics, we offer an account of the economic incentives that underpin public pensions’ increasing reliance on private equity – and how these developments stand to have enormous consequences for the American political economy. Here, we find entities with acrimonious relationships in public, partnering on over a trillion dollars of private investments. We see signs that public employee unions attempt to influence the practices of private equity-owned companies that employ an increasing share of the American workforce. We also detail how the retirements of millions of state and local government employees and the fiscal health of thousands of American governments are increasingly commingled with the fates of the private equity industry.