Sacramento, CA – On Wednesday, April 22, the California Senate Labor Committee passed The Private Equity Sunshine Act (SB 1319) with bipartisan support 4-0. SB 1319 will improve transparency in alternative investments by requiring public pension funds to disclose the performance of such investments.
“Private equity firms must not be allowed to hide behind complicated performance metrics and shell companies,” said Senator Maria Elena Durazo (D-Los Angeles). “With SB 1319, California pension funds will lead the way by providing clear data illuminating how the industry stacks up to public markets, and which businesses and workers are under its control.”
The American Investment Council estimated in 2022 that the State of California was home to 2,601 private equity-backed companies employing 1.5 million workers. In California, 80 public investment funds collectively manage over $1.4 trillion in retirement assets. The State’s two largest pension funds, CalPERS and CalSTRS, collectively have over $318 billion invested with private equity and other alternative investment firms.
“California’s public pension funds pay billions in fees to private equity firms every year,” said Senator Dave Cortese (D-San Jose). “My constituents and all Californians deserve to know what they are getting in return. Sunlight is the best disinfectant, and SB 1319 will shine a light on bad actors who now operate in the shadows.”
However, public sector workers who are in public pension plans lack clear information about how these companies are performing versus public market investments, and private sector workers don’t know their employers’ true owners.
Maria del Rocio Diaz Ortiz, a worker from LSG Sky Chefs in Phoenix, Arizona, testified before the committee, sharing, “I’ve worked incredibly hard after coming to this country. The job at Sky Chefs enabled me to keep a roof over my head. But then, from one day to the next I was laid off when my employer lost a contract and Sky Cafe/GAT wouldn’t hire me. Eventually because I have a union, I fought and got my job back at Sky Chefs, but I went through my savings and into debt in the process.”
The Private Equity Sunshine Act (SB 1319) would require all public investment funds in California to disclose the performance of each private equity, real asset, private debt and hedge fund versus the performance the public investment fund would have experienced from investing in a public market index, and that public investment funds disclose the identity and geographic locations of each asset owned by an alternative investment vehicle and the number and classifications of employees at each location.
“I work at Mother’s Market in Costa Mesa, which is owned by a private equity company, Mill Road Capital,” said Omar Gallo, a refrigeration clerk. “We experience low pay, chronic understaffing, and erratic scheduling, and I believe public workers whose pensions are invested in private equity companies have a right to know where their money is invested. I’m glad the California Legislature is doing something to ensure there is transparency around private equity investments.”
Private equity firms invest outside of the publicly traded stock market and are not subject to the detailed federal reporting requirements and other regulations that protect investors in publicly traded securities.
“As someone who spends a lot of time analyzing and collecting data, I think it is important to have strong disclosure from private equity firms about our retirement investments”, said Justin Garcia, Vice President of CAPS UAW Local 1115, part of UAW Region 6. “Private equity managers can’t be the only ones who evaluate potential risks, given their interest in protecting their own fees. Disclosure is a way to keep everyone doing their best for us, so I support SB 1319.”
An analysis by Ludovic Phalippou of the University of Oxford’s Said Business School reported in 2020 that, since 2006, private equity funds had generated about the same level of returns as the stock market.
Private equity firms Apollo Management, Atlantic Street Capital, Sterling Group and Capitol Meridian Partners, which all receive investment from California pension funds, exemplify the high cost of alternative investment for investors and workers. Apollo-owned Cardenas Markets faces allegations of sexual harassment and anti-union activity. Similarly, hundreds of workers at Phoenix Sky Harbor were fired when GAT/SkyCafe took over inflight catering for American Airlines, and GAT/SkyCafe failed to rehire many of the workers and now faces wage theft allegations from six workers. Public sector workers’ pensions are at risk as a consequence.
In 2016, California passed Assembly Bill 2833 (AB 2833) that required public investment funds to disclose fees, expenses, and carried interest for each alternative investment vehicle in which they are invested. Since AB 2833’s disclosure rules went into effect, California’s largest pensions have grown their commitments to private equity, private credit and real estate funds significantly. Those disclosure provisions didn’t restrain their investment choices.
The Private Equity Sunshine Act expands on AB 2833 to further improve transparency and require disclosure of performance versus similar public market investments.
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The United Food and Commercial Workers Western States Council is the regional coordinating body of 11 UFCW local unions representing over 200,000 workers in California, Arizona and Nevada. The Council is a part of the 1.2 million-member strong UFCW International Union. UFCW members are standing together to improve the lives of workers, families, and communities.
UNITE HERE Local 11 is more than 32,000 hospitality workers in Southern California and Arizona who work in hotels, restaurants, universities, convention centers, and airports