From 2012-17, the private equity industry invested $127 billion in Pennsylvania and employed more than 180,000 workers at private equity-backed companies. Despite the industry’s clear record of driving economic growth and creating jobs while strengthening pensions for public servants across Pennsylvania, it is under attack.
Pension fund portfolio managers should and often do review their investments and fees to maximize returns for retirement accounts of public workers. The managers who oversee the Pennsylvania Public School Employees’ Retirement System (PSERS) and Pennsylvania State Employees’ Retirement System (SERS) should be no different, but when looking to change investment paths, an astute manager will ask — at what cost?
The fact is, for the Pennsylvania State Employees’ Retirement System, private equity remains the highest performing asset class over 10 years. Year after year, private equity continues to prove it’s an important piece of a diversified investment portfolio. In their most recent report, SERS had a 10-year annualized return on private equity of 7.5 percent, net of fees. These strong returns result in stronger pensions for Pennsylvania teachers, firefighters and other public servants.
Private equity can deliver higher returns for pensions and other investors because it is skills-based, hands-on business building. Private equity firms, of which there are 153 based in Pennsylvania, employ large teams of some of the nation’s best business executives, and actually own and operate entire companies with the goal of making them better. After taking risks to invest in a range of businesses, the private equity industry — and the common practice of treating the shared profits from long-term investments as long-term capital gains, carried interest — is being demonized.
Private equity invests in businesses across the country, improving the lives of millions of Americans each day. In Pennsylvania, private equity invests in companies and small businesses that need capital to keep their doors open, create new jobs and grow their footprints.
Dollar General, Hilton Hotels, Dunkin Donuts and Yankee Candle are just a few of hundreds of companies in Pennsylvania that have been strengthened by private equity investment. These examples, along with hundreds of other Pennsylvania companies, grow, save jobs and increase tax revenue to the state treasury while boosting the retirement portfolio of public employee pensions.
A wise steward of the financial future of our public servants should always be prudent with pension investments. The managers who oversee PSERS and SERS have done well for state teachers and employees with their private equity investments. Any evaluation should be fact-based, with a review of all the data. We should not cherry-pick one number and wrap it with political rhetoric.
Private equity’s record is clear: The industry has invested more than $127 billion to improve businesses in Pennsylvania, supports more than 180,000 Pennsylvania jobs, and is one of the highest performing asset classes over 10 years. This is the future retirement of public workers, and the debate should rise above politics.
Colin Hanna is president of Let Freedom Ring USA Inc., a West Chester-based nonprofit public policy organization committed to promoting constitutional government, free enterprise and traditional values.