Heads We Win, Tails You Lose Your Retirement: Private Equity, Pension Funds, and the CRE Double Down

There’s blood in the water. With region­al banks poten­tial­ly look­ing at years of trou­ble ahead and inter­est rates well above the his­toric lows, dis­tress is per­me­at­ing the US com­mer­cial real estate (CRE) mar­kets. That’s been the CRE news, with the pri­vate equi­ty now pal­pa­bly excit­ed about all the dis­tressed real estate that’s bound to come on the mar­ket. A sup­ply and demand dis­lo­ca­tion that can turn blood in water into a gold laced sil­ver lin­ing for the enti­ties with cash on the side­lines. As we’ve seen, being the ‘cash on the side­lines’ oppor­tunis­ti­cal­ly wait­ing for things to fall apart or blow is a big part of the ‘Heads we win, tails you lose’ pri­vate equi­ty busi­ness mod­el. A busi­ness mod­el also root­ed in the fact that the fund man­agers charge high fees whether they’re invest­ments pan out or not. So we should­n’t be sur­prised to learn that one of the big invest­ment oppor­tu­ni­ties pri­vate equi­ty has been steer­ing bil­lions of dol­lars of pub­lic pen­sion mon­ey into in recent years is...*drumroll*...commercial real estate! With plans on shov­el­ing bil­lions more into the sec­tor going for­ward. JP Mor­gan is now pre­dict­ing these pen­sion funds are going to cre­ate a ‘floor’ in the CRE mar­kets. Yes, pri­vate equi­ty-led pen­sion funds are going to save the CRE mar­ket from com­plete col­lapse. At least that’s the plan. A plan that’s going to pay its pri­vate equi­ty man­agers hand­some­ly no mat­ter how it pans out. It’s all part of how Amer­i­can’s grow­ing retire­ment cri­sis is trans­lat­ing into pri­vate equi­ty’s grow­ing oppor­tu­ni­ty. The kind of cri­sis-dri­ven oppor­tu­ni­ty that pays hand­some­ly whether the under­ly­ing cri­sis grows or not.