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.

Heads We Win, Tails You Lose: The Fascist Philosophy Behind Private Equity’s Leveraged Buyout of Everything

It’s been the same head­line for months now:
* April of 2020: Amer­i­can bil­lion­aires have got­ten $280 bil­lion rich­er since the start of the COVID-19 pan­dem­ic
* May of 2020: Amer­i­can bil­lion­aires got $434 rich­er dur­ing the pan­dem­ic
* August of 2020: Amer­i­can bil­lion­aires got $637 rich­er dur­ing the pan­dem­ic
* Sep­tem­ber of 2020: U.S. bil­lion­aires got $845 bil­lion rich­er since the start of the pan­dem­ic/Wealth of US bil­lion­aires ris­es by near­ly a third dur­ing pan­dem­ic
* Octo­ber of 2020: US bil­lion­aires saw their net worth rise by almost $1 tril­lion between March and Octo­ber — Jeff Bezos remains the rich­est, a study says.

From near­ly the start of the COVID-19 pan­dem­ic it’s been clear that the pub­lic health dis­as­ter was­n’t a dis­as­ter for every­one, with the wealth­i­est indi­vid­u­als being not only large­ly insu­lat­ed from the eco­nom­ic lock­down but in many cas­es well posi­tioned to prof­it from it. The pan­dem­ic was turn­ing into a giant upward trans­fer of wealth. And as we’re going to see, giant upward trans­fers of wealth are essen­tial­ly what the pri­vate equi­ty indus­try is all about. The rise of ‘sup­ply-side’ eco­nom­ics in the 1980s coin­cid­ed with the rise of pri­vate equi­ty and that’s no coin­ci­dence. The phi­los­o­phy behind the pri­vate equi­ty move­ment is the phi­los­o­phy of sup­ply-side eco­nom­ics. An anti-New Deal phi­los­o­phy, where ruth­less­ness is a virtue, that fueled a 40 year giant fas­cist lever­aged buy­out of soci­ety.