Yesterday’s message “Guilt Free Business” looked at three problems, low interest rates, high equity prices and big business fines that are paid for by shareholders. The two solutions viewed were a relentless search for equity value and a pinnacle career micro business.
Gallup Poll (1) showing a huge fall in public trust. Click on image to enlarge.
The masses are losing faith in big government and big business. The wisdom of the masses is correct. We cannot and should not trust big government or big business to look after our future. Recently, the CDC, health insurance system, the IRS, the Secret Service, and the Veteran’s Department to name a few government agencies have all let the public down. This is likely the tip of the iceberg.
The loss of confidence should flow into the managers of our pensions, public and private also. There are irregularities by pension managers that are being paid for by pensioners, rather than the managers.
A New York Times article “Behind Private Equity’s Curtain” by Gretchen Morgenson reveals a glimpse of how this puts pensions at risk.
The article says: From New York to California, Wisconsin to Texas, hundreds of thousands of teachers, firefighters, police officers and other public employees are relying on their pensions for financial security.
Private equity firms are relying on their pensions, too. Over the last 10 years, pension funds have piled into private equity buyout funds. But in exchange for what they hope will be hefty returns, many pension funds have signed onto a kind of omerta, or code of silence, about the terms of the funds’ investments.
Consider a recent legal battle involving the Carlyle Group.
In August, Carlyle settled a lawsuit contending that it and other large buyout firms had colluded to suppress the share prices of companies they were acquiring. The lawsuit ensnared some big names in private equity — Bain Capital, Kohlberg Kravis Roberts and TPG, as well as Carlyle — but one by one the firms settled, without admitting wrongdoing. Carlyle agreed to pay $115 million in the settlement.
But the firm didn’t shoulder those costs. Nor did Carlyle executives or shareholders.
Instead, investors in Carlyle Partners IV, a $7.8 billion buyout fund started in 2004, will bear the settlement costs that are not covered by insurance. Those investors include retired state and city employees in California, Illinois, Louisiana, Ohio, Texas and 10 other states. Five New York City and state pensions are among them.
The retirees — and people who are currently working but have accrued benefits in those pension funds — probably don’t know that they are responsible for these costs. It would be very hard for them to find out: Their legal obligations are detailed in private equity documents that are confidential and off limits to pensioners and others interested in seeing them.
But the terms of these deals — including what investors pay to participate in them — are hidden from view despite open-records laws requiring transparency from state governments, including the agencies that supervise public pensions.
This is one more problem that can affect our wealth. The solutions?
One answer is to manage your own pension. This is what I do. ENR Asset Managers can help you move your pension to Europe (3). Two other solutions are as mentioned yesterday, the relentless search for equity value and your own micro business pinnacle career. The ability to provide a valuable service or product is the ultimate form of purchasing power protection.
(1) Gallup Poll Public’s Trust in Government
(2) New York Times Behind Private Equity’s Curtain