Pension Fund Capitalism or Wall Street Bonanza?

[Donnachaidh]

http://sociology.ucsc.edu/whorulesamerica/power/pension_fund_capitalism.html

"Pension fund socialism" in the 1970s. "Investor capitalism" driven by pension fund activists in the 1990s. Such are the large claims that have been made for the potential importance of public pension funds, working in tandem with union-controlled pension funds, in shaping the decision-making of corporate boards.

This document examines these claims and casts a cold eye on them by tracing the history of the "institutional investors' movement" since the 1980s. It suggests that there always has been far less to this movement than the media attention it receives. At the outset it was an effort by moderate Republicans and centrists who speak in the name of stockholders in criticizing allegedly self-serving corporate executives who supposedly do not look out for stockholder interests in a vigorous enough fashion. This emphasis on "shareholder value" led to common cause with liberal elected officials and union leaders, but the movement as a whole has had no lasting successes, just temporary and symbolic ones, as best seen by the rapacious and often illegal actions of a good number of corporate boards between 1998 and 2008 despite 25 years of effort by those who thought they could use public pension funds as a way to make corporations better for employees.

Not only did the movement fail, but many of the public pension funds themselves became money pots for the biggest risk takers on Wall Street, who carried out hostile corporate takeovers and corporate buy-outs in the 1980s with their help, then bundled mortgages -- including subprime mortgages -- into new kinds of "securities" in the late 1990s and early 2000s, which they sold to naive pension fund managers caught up in the excitement of the housing bubble. Indeed, several public pension funds ended up among the many financial organizations that received government bailouts via the billions of dollars that the Department of Treasury gave to AIG (American International Group, an insurance company) in early 2009.

Meanwhile, an April 2010 study for the New York Times, discussed more fully in the next section, showed that "private equity funds" (e.g., hedge funds, venture capital funds, real estate investment trusts) made tens of billions of dollars between 2000 and 2010 by (1) charging public pension funds a "management fee" of 2% on every dollar they managed; and (2) taking 20% of the profits they made through investing the pension funds' money. The 10 largest public pension funds alone paid $17 billion to private equity firms in that time period (Anderson, 2010).

More at the link --