January 22, 2025 • 11 mins
Chris exposes the troubling practices of private equity firms and their impact on pension funds managing billions for public workers. He dives into issues of transparency, inflated valuations, skyrocketing fees, and financial engineering that put retirees' savings at risk. Learn why pension fund managers often fail to scrutinize fees and valuations, and what this means for the future of alternative investments. www.watchdogonwallstreet.com
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Episode Transcript
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Speaker 1 (00:00):
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact it we'll have on everyday Americans. Author,
investment banker, consumer advocate, analyst, and trader Chris Markowski.
Speaker 2 (00:16):
Yeah, not surprising. Pension fund managers reaching new levels of dumb.
I chronicle this over the years. You know, many people
running pension funds and the people working at these pension
funds received, forgot their jobs based upon who they know.
(00:40):
Who they know, they might be somebody's politicians, cousins, brothers, uncle,
whatever it may be. That's how they end up in
these positions. It's not based more often than not, it's
not based upon any sort of merit quick story. This
is uh, this is going back probably eighteen years ago,
(01:02):
give or take. We were at think about managing money,
managing money for a state pension fund. And again we
presented our performance and our philosophy and how we went
about doing things, and we were saying, whoa, whoa, whoa whoah.
Wait a second here, wait wait a second here, listen,
(01:24):
first and foremost, you've got to hire a lobbying firm.
What yeah, yeah, you got to hire a lobbying for
You've got to pay a lobbyist, and then the lobbyist
is going to go and they're going to give money
and kiss ass to some politician to get you involved.
And I said, well, why, well, you mean to tell
(01:46):
me if we can got a better track record provide
better performance, shouldn't we be at the top of the list? Man?
Was I naive? But anyway? Not anyway, last couple of
weeks we've been talking about again in essence, something wicked
this way comes demonic musical chairs. What's going to be
(02:06):
happening with private equity? I saw this story today and
I got a kick out of it. Pension funds want
private equity to open up about fees and returns. What
do you mean open up? You didn't ask, you didn't
(02:28):
inquire to what you were being charged anyway, anyway, The
Institutional Limited Partners Association, a trade group that counts the
retirement plans of public workers in California and Wisconsin as members,
proposed this week new guidelines to standardize financial reporting by
(02:49):
private equity firms. Public pension plans, university endowments, and charitable
foundations have doubled their investments in private equity since two
thousand in eighteen doubled. These institutions are among alternative investment
firms biggest and most loyal clients. North American private equity
(03:14):
funds now manage some four trillion dollars in assets. So
they say, so they say, and I'll get into the
so they say in a minute. Pensions have turned to
private equity to plug cash shortfalls for years, tolerating a
weaker reporting on their investments compared with public funds because
(03:37):
most private funds generated higher returns. Now investors want more transparency. Okay,
this is the Wall Street Journal today. Okay, we've explained
this for some time. Okay, four trillion in assets. Okay,
how do you know it's four trillion assets? Again, this
is alternative investments. These private equity firms put whatever valuation
(04:05):
they frickin want, whatever valuation they want on the assets
that they hold, which most certainly benefits them because it said, well,
you know, wow, look at the performance, look at the
value of our portfolio. Pay us. And then on the
(04:26):
other side, the other side, you know, the people managing
the pension funds can say, wow, wow, everybody, look at
how great we're doing. Look at the value, look at
the value of all of our alternative investments. They're not liquid.
They're not liquid. You have to find another buyer. Did
(04:52):
you understand that It's not like they can simply unload
these positions. Private and firms tend to vary how much
they disclose to clients based on how much they invest.
The smaller the check, the less the information. Many small
and mid sized pensions are left out of the loop,
and even the big ones struggle to accurately compare performance
(05:14):
of fund managers. Anybody hold a gun to your head.
Pension and these pension fund managers to force them to
buy this. So you mean to tell me you're managing
the funds of government workers whatever. The pench doesn't make
(05:38):
any difference. And you don't even inquire, don't even inquire
into what the fees are, what you're being charged, especially
in investments like this, where again, how do they go
about valuing these things? Here's a quote here. I'm a
big believer that shuns sunshine and is the best disinfectant.
(06:01):
This is Scott Ramsauer, head of private equity funds at
the Teacher's Retirement System of Texas, manages two hundred billions
of savings for its members. We then have much more
detailed conversations with our private equity partners and hopefully be
putting pressure on them to be really thoughtful. Hopefully hopefully
(06:26):
you're buying their stuff. And the funny thing is they're
screwed and they know it. What are they gonna do?
Sell it to? Who? Who are you going to sell
it to? Who are you going to sell all these
ault You gotta find a buyer? Not to mention in fact,
most of these private community firms, they got all sorts
of caveats. They're saying, you can't sell. You can't sell
(06:49):
unless we tell you what you can sell. When we
tell you can tell. It's amazing to me. Yeah, they're saying,
some private equity firms support the initiative. Yeah, some the
very very few that are actually doing the right thing,
and that's few and far between. This is interesting. Private
(07:13):
equity assets managed for all types of investors have about
tripled over the past decade, but the fees collected by
these firms have risen sixfold. So the amount of money,
the amount of money being managed, has tripled, but the
(07:35):
fees have gone up six times. I gotta love this quote.
This is from Drew Mahoney, chief executive of the American
Investment Accouncil. This is again lobbyist group. They call it
a trade group, lobbyist group for private equity firms. Private
equity firms work every day to ensure investors have the
information they need to make the best investment decisions. For
(07:57):
retirees across America, it's a food gazy ah. Fee growth
has outstripped the overall markets expansion in part because fund
managers employed financial engineering again see I told you so
(08:18):
to boost their reported returns. What's financial engineering? Borrowing, leveraging
the so called assets that they have. Let me let
me explain this kind of like the NFL. Okay, they
(08:41):
talk about the value of these various different franchises in
the NFL. For let's let's look at an NFL franchise
that's worth, you know, billions of dollars. They talk about this.
Why is it worth billions? I don't know. Do we
ever take a look at what the numbers are for
these these NFL franchises. I know it's an asset that
(09:03):
people want. We've got the contracts, we know that there's
money flowing in, but we don't really know, do we
The thing about these the NFL franchises. Is once you
have one of these things, and again the valuations just
keep going up, you can borrow against that. It's an
asset you can borrow against. Now, again, we're not talking
(09:23):
about NFL franchises. We're talking about private equity companies that
are buying up small family businesses around the country at
ridiculous valuations, moronic valuations. Many of these companies. I've taken
a look at a lot of them. These are companies
that haven't made a dime. May haven't made a dime.
There's speculative stuff, but again, they put ridiculous valuations on
(09:48):
these things because they say so. Let me put it
to another way of trying to explain this. Again, I'm
trying to be clear here. I'm going to use my
baseball card collection as an example. I've got I've got
quite the baseball card collection, man, not quite. I have
the better ones. But again I collected when I was younger,
(10:11):
and as I'm getting older. Again, you take a look,
you can go online. You know, I always give the example,
and you know, the late great Ricky Henderson. I've got
around eight or nine of his rookie first year cards,
and I even look to see what they're worth, because
it's it's meaningless to me. I mean, they're they're you know,
(10:32):
stored away, they're in a box. My kid's gonna do
with them what they want, you know, whatever it may be.
But they'll say, well, it's worth this amount. No, it's
worth what somebody is willing to pay for it. And
quite frankly, in many cases, my baseball cards are a
hell of a lot more liquid than what these private
equity companies are doing. They can say whatever they want.
(10:54):
That doesn't make it necessarily the case. This is this
is where we're at right now. People. You know, I've
talked about problems in the commercial real estate arena. This
private equity arena is a a whole whole, another world, whole,
(11:17):
other steaming pile bull excrement that's taken place out there.
Don't say I didn't warn you. Watchdog on Wall Street
dot com
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact it we'll have on everyday Americans. Author,
investment banker, consumer advocate, analyst, and trader Chris Markowski.
Speaker 2 (00:16):
Yeah, not surprising. Pension fund managers reaching new levels of dumb.
I chronicle this over the years. You know, many people
running pension funds and the people working at these pension
funds received, forgot their jobs based upon who they know.
(00:40):
Who they know, they might be somebody's politicians, cousins, brothers, uncle,
whatever it may be. That's how they end up in
these positions. It's not based more often than not, it's
not based upon any sort of merit quick story. This
is uh, this is going back probably eighteen years ago,
(01:02):
give or take. We were at think about managing money,
managing money for a state pension fund. And again we
presented our performance and our philosophy and how we went
about doing things, and we were saying, whoa, whoa, whoa whoah.
Wait a second here, wait wait a second here, listen,
(01:24):
first and foremost, you've got to hire a lobbying firm.
What yeah, yeah, you got to hire a lobbying for
You've got to pay a lobbyist, and then the lobbyist
is going to go and they're going to give money
and kiss ass to some politician to get you involved.
And I said, well, why, well, you mean to tell
(01:46):
me if we can got a better track record provide
better performance, shouldn't we be at the top of the list? Man?
Was I naive? But anyway? Not anyway, last couple of
weeks we've been talking about again in essence, something wicked
this way comes demonic musical chairs. What's going to be
(02:06):
happening with private equity? I saw this story today and
I got a kick out of it. Pension funds want
private equity to open up about fees and returns. What
do you mean open up? You didn't ask, you didn't
(02:28):
inquire to what you were being charged anyway, anyway, The
Institutional Limited Partners Association, a trade group that counts the
retirement plans of public workers in California and Wisconsin as members,
proposed this week new guidelines to standardize financial reporting by
(02:49):
private equity firms. Public pension plans, university endowments, and charitable
foundations have doubled their investments in private equity since two
thousand in eighteen doubled. These institutions are among alternative investment
firms biggest and most loyal clients. North American private equity
(03:14):
funds now manage some four trillion dollars in assets. So
they say, so they say, and I'll get into the
so they say in a minute. Pensions have turned to
private equity to plug cash shortfalls for years, tolerating a
weaker reporting on their investments compared with public funds because
(03:37):
most private funds generated higher returns. Now investors want more transparency. Okay,
this is the Wall Street Journal today. Okay, we've explained
this for some time. Okay, four trillion in assets. Okay,
how do you know it's four trillion assets? Again, this
is alternative investments. These private equity firms put whatever valuation
(04:05):
they frickin want, whatever valuation they want on the assets
that they hold, which most certainly benefits them because it said, well,
you know, wow, look at the performance, look at the
value of our portfolio. Pay us. And then on the
(04:26):
other side, the other side, you know, the people managing
the pension funds can say, wow, wow, everybody, look at
how great we're doing. Look at the value, look at
the value of all of our alternative investments. They're not liquid.
They're not liquid. You have to find another buyer. Did
(04:52):
you understand that It's not like they can simply unload
these positions. Private and firms tend to vary how much
they disclose to clients based on how much they invest.
The smaller the check, the less the information. Many small
and mid sized pensions are left out of the loop,
and even the big ones struggle to accurately compare performance
(05:14):
of fund managers. Anybody hold a gun to your head.
Pension and these pension fund managers to force them to
buy this. So you mean to tell me you're managing
the funds of government workers whatever. The pench doesn't make
(05:38):
any difference. And you don't even inquire, don't even inquire
into what the fees are, what you're being charged, especially
in investments like this, where again, how do they go
about valuing these things? Here's a quote here. I'm a
big believer that shuns sunshine and is the best disinfectant.
(06:01):
This is Scott Ramsauer, head of private equity funds at
the Teacher's Retirement System of Texas, manages two hundred billions
of savings for its members. We then have much more
detailed conversations with our private equity partners and hopefully be
putting pressure on them to be really thoughtful. Hopefully hopefully
(06:26):
you're buying their stuff. And the funny thing is they're
screwed and they know it. What are they gonna do?
Sell it to? Who? Who are you going to sell
it to? Who are you going to sell all these
ault You gotta find a buyer? Not to mention in fact,
most of these private community firms, they got all sorts
of caveats. They're saying, you can't sell. You can't sell
(06:49):
unless we tell you what you can sell. When we
tell you can tell. It's amazing to me. Yeah, they're saying,
some private equity firms support the initiative. Yeah, some the
very very few that are actually doing the right thing,
and that's few and far between. This is interesting. Private
(07:13):
equity assets managed for all types of investors have about
tripled over the past decade, but the fees collected by
these firms have risen sixfold. So the amount of money,
the amount of money being managed, has tripled, but the
(07:35):
fees have gone up six times. I gotta love this quote.
This is from Drew Mahoney, chief executive of the American
Investment Accouncil. This is again lobbyist group. They call it
a trade group, lobbyist group for private equity firms. Private
equity firms work every day to ensure investors have the
information they need to make the best investment decisions. For
(07:57):
retirees across America, it's a food gazy ah. Fee growth
has outstripped the overall markets expansion in part because fund
managers employed financial engineering again see I told you so
(08:18):
to boost their reported returns. What's financial engineering? Borrowing, leveraging
the so called assets that they have. Let me let
me explain this kind of like the NFL. Okay, they
(08:41):
talk about the value of these various different franchises in
the NFL. For let's let's look at an NFL franchise
that's worth, you know, billions of dollars. They talk about this.
Why is it worth billions? I don't know. Do we
ever take a look at what the numbers are for
these these NFL franchises. I know it's an asset that
(09:03):
people want. We've got the contracts, we know that there's
money flowing in, but we don't really know, do we
The thing about these the NFL franchises. Is once you
have one of these things, and again the valuations just
keep going up, you can borrow against that. It's an
asset you can borrow against. Now, again, we're not talking
(09:23):
about NFL franchises. We're talking about private equity companies that
are buying up small family businesses around the country at
ridiculous valuations, moronic valuations. Many of these companies. I've taken
a look at a lot of them. These are companies
that haven't made a dime. May haven't made a dime.
There's speculative stuff, but again, they put ridiculous valuations on
(09:48):
these things because they say so. Let me put it
to another way of trying to explain this. Again, I'm
trying to be clear here. I'm going to use my
baseball card collection as an example. I've got I've got
quite the baseball card collection, man, not quite. I have
the better ones. But again I collected when I was younger,
(10:11):
and as I'm getting older. Again, you take a look,
you can go online. You know, I always give the example,
and you know, the late great Ricky Henderson. I've got
around eight or nine of his rookie first year cards,
and I even look to see what they're worth, because
it's it's meaningless to me. I mean, they're they're you know,
(10:32):
stored away, they're in a box. My kid's gonna do
with them what they want, you know, whatever it may be.
But they'll say, well, it's worth this amount. No, it's
worth what somebody is willing to pay for it. And
quite frankly, in many cases, my baseball cards are a
hell of a lot more liquid than what these private
equity companies are doing. They can say whatever they want.
(10:54):
That doesn't make it necessarily the case. This is this
is where we're at right now. People. You know, I've
talked about problems in the commercial real estate arena. This
private equity arena is a a whole whole, another world, whole,
(11:17):
other steaming pile bull excrement that's taken place out there.
Don't say I didn't warn you. Watchdog on Wall Street
dot com
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