Thursday, March 2, 2023

Social Security SWF is PEU Trojan Horse

Negotiations are underway to extend the life of Social Security another 75 years.   Insider reported:

 ..... a group of bipartisan lawmakers may have come up with a compromise in the form of a sovereign wealth fund (SWF) — something that the United States does not currently have at the federal level. SWFs are typically investment funds owned by the government.

Sovereign Wealth Funds invest capital with the goal of making returns.   Arabian Business reported real estate and private equity as the two largest holdings of Middle Eastern SWFs.

....favour private equity, allocating an average 21 percent of the portfolio to asset class.

 Institutional Investors reported:

State-owned investors, including sovereign wealth and public pension funds, have increased their private market allocations to an average 22 percent this year, up from 10 percent in 2008.

“The largest proportionate changes were observed for private equity, which more than tripled between 2008 and 2020” for public pension and sovereign wealth funds, the researchers said. 

 Wharton@Work has advice on SWFs investing in private equity underwriters (PEU):

Sovereign wealth fund managers must be increasingly adept when adjusting the investments in their portfolio, and particularly when considering investing in private equity. Making the right choices requires skill in analyzing whether their returns will beat the realized return (after fees) offered by venture capital and private equity (PE) firms, and whether to take a more direct role in their investments.

Their main strategies are:

  1. Direct investments, effectively competing with private equity funds
  2. Co-investments, in which the sovereign wealth fund (SWF) invests alongside a private equity partner; this offers enormous potential as an SWF does not pay the high fees generally assessed the limited partner, and the private equity firms — or general partner (GP) — have deep resources to pursue larger assets
  3. More passive and traditional investment as a limited partner
  4. Investment in the secondary market

The greed and leverage boys must be salivating over the prospect of Social Security dollars going into their various PEU fund offerings.  They're already on tap for addition to 401(k) plans.

PEUs could get retirement funds from the new Social Security SWF (top down) and from individuals through their 401(k)s (bottom up).  Sweet!

This is the result of decades of political investment by policy making billionaires.  

Politicians Red and Blue love PEU and increasingly, more are one.  It's no surprise the PEU solution is the tonic for all our nation's ills.  

Update:   Carlyle offered investors in a 2018 fund the opportunity to cash in for 81 cents on the dollar in order to use the money toward a new Carlyle fund.