New AFT Pension Report Calls Out Private Equity Firms’ Labor Practices

HOUSTON—A new report from the AFT shines a spotlight on the troubling labor practices of 10 private equity funds that rake in billions in workers’ pension savings, while simultaneously angling to drive down labor standards at the companies in which they invest.  

“Managing Labor Risks in Private Equity: Empowering Pension Trustees to Navigate Workforce Risks and Drive Long-Term Value”, launched at the AFT’s national convention in Houston today, will act as an investment guide for AFT trustees who must navigate increasingly troubled financial waters. It exposes the dubious labor practices of 10 private equity firms that make up the rapidly expanding $14.7 trillion industry that employs more than 12 million people. The report argues these practices generate unacceptable fiduciary risk for the workers whose retirement savings comprise a significant proportion of the private equity funds’ financial base. 

“The AFT fights every day to uphold workers’ retirement security. But that future and our investments cannot be dependent upon practices that harm fellow workers in the name of profit,” says AFT President Randi Weingarten. “That is why we wrote this report and why we share the Biden-Harris administration’s concern that far too many private equity funds treat their employees as expendable, hurting them and the economy. On the other hand, if firms promote collective bargaining and uphold labor and workforce standards, everyone benefits: the firms, their portfolio companies, their workers, our pension funds and the country as a whole.”

The more than 50-member AFT Trustee Council, representing 27 public pension funds with more than $3 trillion under management, met this week to consider the report. The named firms receive the most investment capital from our AFT members’ pension funds: Advent International, Apollo Global Management, Ares Management, Blackstone Group, Brookfield Asset Management/Oaktree, Carlyle Group, CVC Capital Partners, KKR, TPG and Warburg Pincus.

The report provides a snapshot of the 10 firms’ recent labor track record as well as a discussion of existing labor principles and policies adopted by institutional investors and labor organizations, including the California Public Employees’ Retirement System and the New York State Common Retirement Fund, that encourage their private equity managers to adopt a coherent, consistent approach to labor risk. 

The private equity industry has a checkered record on workforce issues, including tolerating child or forced labor, attacking freedom of association, issuing mass layoffs, and curbing workplace health and safety, among other core issues that erode the funds’ risk-reward profile. The report argues these labor-related risks fall squarely within pension fiduciaries’ responsibilities.

The report highlights the impact on the community of private equity labor practices with an in-depth profile of Steward Health Care and Cerberus Capital Management. Cerberus acquired Steward in 2010 through a series of leveraged buyouts, then pursued financial transactions that stripped the company of most of its value and sold it off, earning a sizeable profit and creating the perilous conditions that pushed the hospital chain into bankruptcy a few short years later. Cerberus and related investors profited while the patients, workers and communities suffered the consequences.

The AFT has been pushing for years to ensure pension funds and private equity firms take the high road and consider legitimate fiduciary concerns regarding transparency, fairer fees, and a business model that grows strong businesses and creates good jobs. 

While some have acceded, far too many have not, leaving trustees to craft strategies that institutional investors could adopt to properly account for labor risk. The report reviews existing model policies and proposes a Labor Standards Platform for the close consideration of fiduciaries.

The platform zeroes in on particular issues, including freedom of association and mass layoffs as well as the perils of privatization and declining worker access to healthcare and education, that are of direct concern to AFT member beneficiaries.

This new report is the latest chapter in a long history of AFT capital strategies and pension work, including the landmark “Ranking Asset Managers” reports; investigations of pension fund investments in private prisons, Russia and hedge funds; as well as a previous probe into private equity fees. 

Download the full report here.