The Service Employees International Union has become one of private equity’s sharpest critics, but nonetheless continues to invest in the asset class. It is hypocritical? Yup. Is it in the best interests of its members? Yup.
Oh, and it’s also kind of confusing. When SEIU launched its Behind the Buyouts campaign earlier this year, a reporter asked if the union invested in private equity. The answer – as I reported at the time – was that SEIU did not invest, but many of its members did via smaller unions or corporate pension funds. That statement is technically correct, in the sense that SEIU itself only invests a very small amount of cash in anything (all short-term), save for its real estate. But SEIU also oversees three major Taft-Hartley pension funds, and each of them do invest in private equity. It’s the semantic equivalent of like how Harvard University doesn’t invest in private equity, but the Harvard Management Co. does.
In fact, the largest SEIU pension fund has been investing in private equity for nearly seven years. That would be the 1199 fund, an $8 billion pool that represents healthcare workers in New York City. It has a 5% allocation to private equity. Also investing in the asset class has been the SEIU Pension Plans Master Trust, which is actually is a $1.7 billion umbrella for three smaller funds.
The last of SEIU’s three funds to invest is the Building Service 32BJ Pension Fund, a $1.6 billion pool that represents janitors and other service workers. It joined the Master Trust in committing to a new $500 million fund-of-funds being raised by Hamilton Lane Advisors. The vehicle will be solely backed by union LPs, and will be return-driven with a non-exclusive emphasis on domestic fund opportunities. It will not pay attention to SEIU or other union policy matters when making its investment decisions. Other unions investing in the fund – called Hamilton Lane Capital Opportunities Fund – include the Southern Nevada Culinary & Bartenders Pension Trust, and the Electrical Workers Pension Fund, Local 103.
I spoke a bit with John Adler, SEIU’s director of private equity. He said: “We don’t view our critique of private equity as saying that the asset class can’t generate strong returns. In fact, we suggest that unions invest in private equity, as part of a risk-adjusted strategy. However, we also speak up when a particular deal could be bad for our members.”
Adler also added that SEIU has never asked any pension funds to abstain from investing in a particular private equity fund.
The closest it came was a recent SEIUY Washington State Council request that Washington State Investment Board neither participate in the KKR IPO or alternatively buy a minority ownership stake in KKR. You can read that correspondence below: