SACRAMENTO, Calif. – Private equity executives are facing increasing pressure to share their wealth with the workers at the companies they acquire, according to the investment head of Calstrs, one of the world’s largest pension funds.
Christopher Ailman, the outgoing investment chief at the $327 billion fund, believes that private equity firms have not adequately distributed their revenues. He argues that while these firms make money for investors, they also need to share their wealth with employees and the communities they invest in.
The private equity industry has come under scrutiny in recent years, as it continues to wield significant influence over the American corporate landscape. A series of scandals involving workers at businesses owned by private equity firms has also raised concerns.
In the U.S., private equity-backed companies now employ around 12 million people, according to the American Investment Council. Calstrs, which has significantly increased its fund’s investment in private equity, has faced criticism over its investments with Blackstone, a major private equity firm.
Ailman’s comments come at a time when some private equity managers are taking steps to ensure that employees at the companies they own can share in the profits. For instance, New York-based buyout group KKR says that it has shared billions of dollars in equity with over 60,000 employees at its portfolio companies since 2011.
Despite these efforts, returns for private equity investors have been declining due to lower economic growth and higher interest rates, which have increased the industry’s cost of borrowing to take companies private.
As Ailman prepares to retire and pass the baton to his successor, he has obtained board approval for a controversial $30 billion borrowing to help manage the fund’s illiquid portfolio. He indicated that the fund’s private markets allocation, which includes assets such as private equity and real estate, had peaked.
Ailman’s push for private equity firms to share their wealth with workers and communities highlights the growing scrutiny and calls for change within the industry.