McDonalds isn't lovin' EFCA

A quick plug for this SEIU campaign to encourage Maccy Ds to stop organising against the Employee Free Choice Act.

McDonald's has more than 600,000 employees in the US, many of whom earn less than $10/hour. But last year its CEO took home more than $13 million. Now McDonald's leadership is actively organizing to prevent its employees from standing up for themselves at work.

Write to McDonalds and say employees need the Employee Free Choice Act - we'll send your letters to McDonald's headquarters to make sure they get the message.

Investing in infrastructure

There's a very interesting post about infrastructure investment over on Capital Matters. The SEIU (the most active US union in terms of capital stewardship) has recently trailed the idea that the unions and/or public sector pension funds might set up their own investment vehicle to avoid getting fleeced by existing offerings with 2 & 20 fee structures (2% annual management charge plus 20% of performance). Now it seems that things might be moving forward:

Public pension funds, governors, state treasurers, comptrollers, and the Service Employees International Union (SEIU), whose members participate in pension funds with more than $1 trillion in assets, have begun preliminary discussions about how to create this type of investment vehicle.

PS. On the fees issue I've just been reading Watson Wyatt's Defining Moments report which has quite a bit of interesting stuff in it for a relatively short report. They state quite clearly that pension funds are wasting an ever greater amount of money through investment costs, and suggest that there might be a backlash over fees in the future. I'll write it up shortly.

Unite on private equity and capital stewardship

Managed to miss this last week. More evidence that UK unions are getting into capital stewardship.

Unite warns private equity: act responsibly or risk losing our pensions investments
17/07/2008

Private equity could soon see its access to pensions funds challenged by unions as concern grows that members' savings are being used to support buyouts which hit jobs and communities.

The UK's biggest trade union, Unite, representing nearly two million workers in UK and Ireland, with members participating in pension schemes worth billions of pounds, has joined forces with major US union, the SEIU, to warn that union pension schemes should no longer be relied on by the buyout industry as a source of ready money.

Concerned that private equity buyouts mean job losses and insecurity, Unite is establishing a capital stewardship programme to scrutinise how pension funds managers are investing retirement savings. The move comes on the Global Day of Action (today, Thursday, July 17th, 2008) on private equity. To mark the day, MPs have tabled a Commons motion calling for tougher statutory regulation of private equity.

According to Tony Woodley, joint general secretary of Unite: "We will be taking a long, cool look at where our members' retirement savings are going.

"We shall not prop up leveraged buyouts where workers are made redundant, factories are closed, and jobs are outsourced or off-shored. Nor will we support poor investment decisions where our members' savings take the hit for reckless, get-rich-quick schemes.

"There will be no blank cheques. If private equity wants our pension money, then they must prove that this money will not help throw workers on the scrapheap while lining the pockets of the equiteers.

"Private equity operates in the mists of secrecy, which is not a culture we want to expose our members' pensions savings to."

According to Unite, pension schemes have a duty to ensure that they are not over-exposed to investments built on debt. They will be pressing pension trustees should consider the impact of private equity investments on society at large, including the treatment of workers and whether private equity is paying its full dues to the UK taxpayer.

A typical strategy of a buyout firm is to buy a company off the stock market, load it with debt and squeeze out profits by cutting costs, including labour costs. Buyout firms also avoid paying taxes by deducting the interest on their debt, reducing their tax obligation to zero and denying the British taxpayer hundreds of millions of pounds in revenue.

Job cuts soon followed when private equity took over Bird's Eye, the AA and Burton's Foods. A preliminary review of European companies acquired by one private equity company, KKR, indicates that KKR has been responsible for the loss of nearly 10,000 jobs across the continent in the past seven years.

The Global Day of Action will see coordinated action in 25 countries to highlight the operation of the leveraged buyout industry.

Hat-tip: Michael L

Union day of action on private equity

July 17th is a day of action on private equity, principally driven by the SEIU from what I can tell. Lots more info here.

SEIU legal push on private equity funds backed by SWFs

The SEIU has introduced legislation in California that would ban Californian public employee pension funds from investing in private equity firms backed by sovereign wealth funds. Reasons include lack of transparency of the fund, risky leveraged debt used as the financial return strategy, little incentive to invest in local community infrastructure investment and the political concern for the motivation of these firms are some of the reasons for concern.

Hat-tip: Capital Matters

SEIU calls for investment in infrastructure not buyouts

Should have posted this yesterday but work got in the way of blogging. Tsk! But it's exactly the sort of debate we ought to be having in the UK. Pension funds are putting an increasing slug into infrastructure if the NAPF's stats are to be believed, but is anyone trying to leverage that investment to ensure that good jobs are being created?

US union wants pension backing for roads
By Francesco Guerrera in New York

Published: February 25 2008 02:00 | Last updated: February 25 2008 02:00

The second-largest union federation in the US is putting pressure on state pension funds to invest part of their $2,000bn-worth of assets into domestic infrastructure such as roads and airports in an effort to keep them away from private equity groups and sovereign wealth funds.

The Service Employees International Union (SEIU), which has 1.5m members and is an influential powerbroker in the Democratic party, has floated a proposal to form an investment pool with contributions from state retirement systems.

The pool would be run by an outside manager and specialise in buying US infrastructure in competition with the many private equity groups and overseas buyers, such the Australian bank Macquarie, which have been investing in the fast-growing sector.

"It is a question of whether public pension could pool investments [so that] they would all own a piece of different infrastructure projects," Andy Stern, SEIU president told the Financial Times. "That way you don't have to put it in private hands, you keep it in public hands."

The plan, which was presented by Mr Stern to the Democratic Governors Association two months ago, is a further sign of the mounting US political backlash against private equity and sovereign funds.

As the US economy slows down, politicians of both sides are trying to allay the fears of an electorate worried about the effects of foreign investments and globalisation on domestic job creation.

Republican and Democratic presidential candidates including Senator Barack Obama, who has received the SEIU backing, have expressed concerns at the lack of transparency of sovereign wealth funds.

Last week, Bain Capital and its Chinese partner, Huawei Technologies, scrapped a $2.2bn takeover of 3Com, a computer networking company, saying that the Washington committee charged with vetting foreign investments would not approve it. Two years ago, lawmakers derailed a proposed takeover of five port terminals by Dubai Ports World because of alleged security concerns.

Mr Stern said that, although the plan was still in its early stages, some state governors including Jon Corzine, the former Goldman Sachs executive who is governor of New Jersey, had welcomed it in principle.

A spokesman for the state of New Jersey's Treasury department said the SEIU had been in touch about the project. "We are looking at a number of different options with regards to infrastructure, no final decision has been made," he added.

Infrastructure investments have been booming over the past few years in both emerging and developed markets. "During the past two years, the flood of money into infrastructure funds has been astonishing," wrote the management consultancy McKinsey in a report. "The world's 20 largest [funds] now have nearly $130bn under management, 77 per cent of it raised in 2006 and 2007."

SEIU calls for private equity tax changes

This is from today's FT. As the Pink 'Un notes, the SEIU has been trying to be pretty pragmatic in its approach. It's Behind The Buyouts report on the private equity industry went as far as suggesting that PE firms adopt some voluntary best practice principles, something the industry (naturally) sniffed at. But the debate has turned on its head, especially given recent market developments. The unions know (or should do) that they are in a stronger position in the debate now. And you wouldn't bet against a review of PE taxation in most developed markets.

US union hits at private equity ‘tax dodges’
By Edward Luce and Stephanie Kirchgaessner in Washington

Published: August 16 2007 03:08 | Last updated: August 16 2007 03:08

Andrew Stern, president of the Service Employees International Union, on Wednesday day called on Congress to look more broadly at the “tax dodges” of private equity groups which he said are receiving billions of dollars in public subsidies “at the expense of everyone else”.

Mr Stern’s attack is significant because SEIU – one of the US’s most centrist and pragmatic unions – had this year said it wanted to work with private equity groups to ensure employees of companies taken over in leveraged buyouts were treated as stakeholders.

But the SEIU, which has attracted criticism from other unions for working with Wal-Mart on healthcare reform, said it had failed to find one uninsured American who had received healthcare as an employee of a private equity group.

Mr Stern also warned the pension funds that invest on behalf of the SEIU’s 1m public sector members to think twice before investing in the portfolio funds of Kohlberg Kravis Roberts – one of the largest private equity firms – and to avoid buying shares in its initial public offering.

Pension funds with SEIU members’ money account for more than 30 per cent of KKR’s $16.6bn (£8.3bn) 2006 Fund, he said. Lobbyists for the private equity industry have warned in congressional ­testimony that a tax rise could lead to a reduction in pension fund returns.

“The leveraging strategies of KKR have run headfirst into the credit crunch and it raises concerns that pension fund investments in KKR could be at risk,” Mr Stern said. “I agree ... that what is good for business is good for America. But I don’t think that applies to private equity groups.”

The SEIU also criticised the Carlyle Group, a private equity group headed by David Rubenstein, for benefiting from interest payment subsidies on its recent $6.3bn takeover bid for ManorCare, a nursing home group, which the SEIU says will cost the taxpayer $600m in foregone revenues.

A trade group to which ManorCare belongs, funded advertisements attacking a bill that would expand federal coverage to uninsured children. “I find it offensive that David Rubenstein, whom I’m told is now worth $1bn, could be involved in efforts to restrict health insurance for uninsured children,” Mr Stern said.

Carlyle said: “Carlyle does not yet own ManorCare and therefore has no involvement in its trade association’s activities. So such a claim is quite a stretch.”

Mr Stern’s attack comes amid debate within the Democratic Party over whether to redefine the tax status of “carried interest” private equity revenues. Critics say it provides a large loophole for private equity and hedge fund executives to pay far lower taxes than others.

Chuck Schumer, a leading New York senator, said he was opposed to any tax rise that targeted the private equity industry because it would unfairly penalise his home state.

The Private Equity Council, a Washington-based lobbying group, said: “Portfolio companies owned by private equity firms pay corporate taxes, payroll taxes, health insurance taxes and real estate taxes, just like any other company. There is no evidence that private equity-owned firms are more apt to lay off workers than publicly traded companies. In fact, several studies suggest just the opposite.”