Wall Street’s Most Lucrative Secrets May Become Public Information
(Angus Mordant / Bloomberg via Getty Images)
A new bill sponsored by New York assemblyman Ron Kim would require officials to disclose how private equity firms and hedge funds manage workers’ pension money.
Newly proposed legislation in New York would require financial firms to show what they are doing with hundreds of billions of dollars of Americans’ retirement savings — currently a huge source of dark money for Wall Street.
Wall Street’s most closely guarded and lucrative secrets may finally become public, if New York Democratic lawmakers pass a new bill requiring financial firms to show what they are doing with hundreds of billions of dollars of Americans’ retirement savings.
The groundbreaking legislation, sponsored by New York assemblyman Ron Kim, would require state officials to disclose the contracts governing how private equity firms, real estate companies, and hedge funds manage money from New York’s pension system.
In the two decades since public pension systems began funneling workers’ money into those high-risk, high-fee investments, states and cities have concealed the contracts governing the investments of the retirement savings of millions of teachers, firefighters, first responders, and other government workers. If the New York legislature’s Democratic supermajority passes Kim’s bill, for the first time it would open up those contracts to public scrutiny.
“Portfolio managers charge our state exorbitant management fees while underperforming the market,” Kim said about his bill. “To add insult to injury, these investments are accelerating the climate crisis and destroying the American health care system. The pension holders have a right to see what their hard-earned money is being invested in, and legislators have a right to review whether these funds are pushing us further into climate catastrophe and destroying public goods.”
The battle over transparency threatens one of Wall Street’s most essential streams of cash. In all, more than $1.4 trillion has been funneled from public pension funds into “alternative investments” like private equity, hedge funds, and real estate. Assuming the industry standard fee model, this payout generates at least $40 billion annually in fees for an industry that is already comprised of some of the wealthiest people on the planet. That group includes people like major Donald Trump ally Stephen Schwarzman, who once compared Obama’s tepid effort to modestly increase taxes on private equity firms to the Nazi German invasion of Poland.
Kim’s initiative comes on the heels of news that one of Wall Street’s most famous private equity firms used New York pensioners’ savings to finance a buyout of a major group home company where bottom line–driven management led to deaths and countless injuries among vulnerable people with disabilities.
That revelation followed unfolding scandals at multibillion-dollar pension systems in Washington, DC, and Pennsylvania, whose pension investments in high-fee Wall Street firms are now being scrutinized by law enforcement agencies. In the latter case, Pennsylvania state senator Katie Muth, also a Democrat, has been forced to sue to gain access to contracts and other alternative investment documents, even though she is a board member of the Pennsylvania teachers’ retirement system.
A Cone of Secrecy
New York’s pension fund, which covers 1.1 million members, retirees and beneficiaries, and workers, has become a huge source of dark money for Wall Street. The fund shifted from investing 14 percent of its portfolio in alternative investments in 2004 to 25 percent today, resulting in $69 billion in pension-fund resources allocated to alternative investment firms.