This is a huge issue. I once spoke to a man who was an executive at a large company about the huge pressure on them from pension funds to report profits. He said that workers pension fund managers were often the harshest critics of anything that was done to the benefit of his company’s workers. They were often in his mind short sighted. They questioned the amount of money spent on health insurance, education etc.
Maybe it's just my ego, but I always enjoy it when one of your newsletters crystallizes thoughts that I've had for a while. (And always aticulated better than I could muster.) This system makes so many of us complicit in keeping others of us down. I think that this is something that applies to many 401k plans*, too, and it's what makes me boil a bit whenever someone wants to sink Social Security money into the stock market. That's just a snake pit of an idea.
*Although I think some plans do allow ethical investment options
All of this relates to everyday consumption, as well. Those low, low prices are typically contingent on low, low wages. Another nasty cycle.
As always, thanks, Hamilton. I appreciate that you are able to write about these issues - saddening when one thinks about them - in a manner that isn't itself saddening.
1. Yay Greenwell finding a home at Slate! Hopefully it has better bosses than her last gig.
2. I would LOVE for this to inadvertently become a stepwise road to full unionization. Like, Company X unionizes, gets a pension, pension invests in Company Y which is profitable but pays workers crap. Company Y then unionizes to get a better wage, negotiates a pension, which then invests in Company Z. Then Company Z unionizes, and so on and so forth. Yes, the Private Equity which is running all this also gets to make a bunch of money, but a combination of fewer non-union companies and more active investing instructions from unions will at least point a lot of that money in a better direction.
3. HamNo you are recommending too many books I DO NOT HAVE TIME TO READ ALL THE BOOKS!
I started reading your columns because my adult children shared your newsletter with me. I subscribe and I am glad I do because it gives me an insight into their thinking. I've found they take positions similar to yours but then they grow weary of me asking to explain their thinking. So when I read your columns, I see my kids cheering you on. Thanks!
However, as much as I like reading your columns as a proxy for debate, the disadvantage is I can't easily engage in a back and forth with them. Today's column (union pension fund money and pro-labor investing) is an example where some actual conversation might be an opportunity for me and my kids to learn from each other. So this letter will have to do.
So digging in, the idea in your column seems simple. Union pension funds are a big pile of money and that money should NOT be invested in a way that disadvantages/hurts the union members and, in fact, maybe the money should be used to advantage/help union members. Great concept, but wrong tool for the job.
My argument with today's column is that directing union pension investing away from classic investment theory risks having the pension fund underperform as a financial asset to the detriment of union workers in the future. I am not concerned about very small investments, but I think you are suggesting material investment policy changes. How can that NOT end up with below market returns that result in underfunded future benefits?
My argument is that union pension funds should be managed for their financial goals and only occasionally (at a scale that does not hurt the fund materially) be used to influence a the pro-labor cause. The scale of money needed to influence social/labor issue outcomes dwarfs the money that could be peeled away from a union fund investment manager's normal investment program without material hurting the long term return.
Unions and their pension fund trustees should engage in collective and political activism with other pro-labor voices to sponsor and advocate for pro-labor policies. Because the unions are an increasingly small voice, the unions need to find common cause with the private sector working class <everyone under ($75k/yr?). That's powerful. That voting power is strong.
Economics and politics go hand in hand. The income inequality that is at the core of today's decline in America can only be remedied when power speaks to power. Fussing with union pension fund investment strategy is small potatoes. Engage where it matters.
My message to my kids is - it is all about politics. Get the right people elected. The UAW should be ashamed when Trump rolls into Michigan next week and he is not denounced. Maybe the UAW can't say it, but the AFLCIO and ACFME leadership sure can. Trump is not a friend of labor. Biden may not be great, but he is better than Trump.
Thank you for your reply Tim. Indeed you are voicing what is the de facto standard position now: These funds should be managed only with returns in mind, and fiduciary duty applies only to returns. A couple of points in response-- one, I do not believe there is a very settled and widely accepted conclusion on the question of whether ESG style investing (or any investing that incorporates some element of social good) automatically lowers returns. Two, even if there some minor lowering of returns in the short term, it is well worth it in the long term, for the same basic reason that it is not wise to invest in fossil fuels for the sake of short term returns while they cause a long term environmental disaster. In the case of labor, the long term disaster is the erosion of labor's power relative to corporations and capital. And since these funds are *from labor itself,* it is completely coherent to do whatever is possible to avoid that long term disaster (the disaster we are living through now, at least relative to union power in the mid 20th century). Pensions are the ultimate long term investors and are not obligated to sacrifice the future for the present.
Also, it's incorrect to assume that funds that are invested ethically won't be profitable. When I was much younger, I insisted that some RRSP funds that I came into when I moved from one province to a territory was invested in ways that were both ethical and environmentally friendly, I made enough money to make a downpayment on a house.
I was lucky to have found a very good investor who both respected my wishes and knew how to invest, but since I've also seen statistics that confirm my experience.
So don't assume that investing pension funds into ethical and environmentally friendly companies will lose you money. It will probably do the opposite.
This is what I came here to ask. Why are private equity firms even a part of this process? Index funds are simple and effective. Are the returns that PI offers /that/ much better?
"If you are a 1) union member who is a 2) socialist and 3) has infinite patience, I highly recommend that you look into becoming a pension trustee at your own union."
Hahaha, I sent this to our union's pension trustee. VERY ACCURATE.
(I'm a health care trustee for the union health care fund. Less math, more ACA compliance nerdballing. Whee!)
For how little compensation will an executive function well ? Shareholders rarely ask . If All workers have collective bargaining shareholders will rarely ask about worker price competition . This is the situation in some countries . These workers know they are not leisure class stock owners .
This is a huge issue. I once spoke to a man who was an executive at a large company about the huge pressure on them from pension funds to report profits. He said that workers pension fund managers were often the harshest critics of anything that was done to the benefit of his company’s workers. They were often in his mind short sighted. They questioned the amount of money spent on health insurance, education etc.
Maybe it's just my ego, but I always enjoy it when one of your newsletters crystallizes thoughts that I've had for a while. (And always aticulated better than I could muster.) This system makes so many of us complicit in keeping others of us down. I think that this is something that applies to many 401k plans*, too, and it's what makes me boil a bit whenever someone wants to sink Social Security money into the stock market. That's just a snake pit of an idea.
*Although I think some plans do allow ethical investment options
All of this relates to everyday consumption, as well. Those low, low prices are typically contingent on low, low wages. Another nasty cycle.
As always, thanks, Hamilton. I appreciate that you are able to write about these issues - saddening when one thinks about them - in a manner that isn't itself saddening.
Some responses:
1. Yay Greenwell finding a home at Slate! Hopefully it has better bosses than her last gig.
2. I would LOVE for this to inadvertently become a stepwise road to full unionization. Like, Company X unionizes, gets a pension, pension invests in Company Y which is profitable but pays workers crap. Company Y then unionizes to get a better wage, negotiates a pension, which then invests in Company Z. Then Company Z unionizes, and so on and so forth. Yes, the Private Equity which is running all this also gets to make a bunch of money, but a combination of fewer non-union companies and more active investing instructions from unions will at least point a lot of that money in a better direction.
3. HamNo you are recommending too many books I DO NOT HAVE TIME TO READ ALL THE BOOKS!
I started reading your columns because my adult children shared your newsletter with me. I subscribe and I am glad I do because it gives me an insight into their thinking. I've found they take positions similar to yours but then they grow weary of me asking to explain their thinking. So when I read your columns, I see my kids cheering you on. Thanks!
However, as much as I like reading your columns as a proxy for debate, the disadvantage is I can't easily engage in a back and forth with them. Today's column (union pension fund money and pro-labor investing) is an example where some actual conversation might be an opportunity for me and my kids to learn from each other. So this letter will have to do.
So digging in, the idea in your column seems simple. Union pension funds are a big pile of money and that money should NOT be invested in a way that disadvantages/hurts the union members and, in fact, maybe the money should be used to advantage/help union members. Great concept, but wrong tool for the job.
My argument with today's column is that directing union pension investing away from classic investment theory risks having the pension fund underperform as a financial asset to the detriment of union workers in the future. I am not concerned about very small investments, but I think you are suggesting material investment policy changes. How can that NOT end up with below market returns that result in underfunded future benefits?
My argument is that union pension funds should be managed for their financial goals and only occasionally (at a scale that does not hurt the fund materially) be used to influence a the pro-labor cause. The scale of money needed to influence social/labor issue outcomes dwarfs the money that could be peeled away from a union fund investment manager's normal investment program without material hurting the long term return.
Unions and their pension fund trustees should engage in collective and political activism with other pro-labor voices to sponsor and advocate for pro-labor policies. Because the unions are an increasingly small voice, the unions need to find common cause with the private sector working class <everyone under ($75k/yr?). That's powerful. That voting power is strong.
Economics and politics go hand in hand. The income inequality that is at the core of today's decline in America can only be remedied when power speaks to power. Fussing with union pension fund investment strategy is small potatoes. Engage where it matters.
My message to my kids is - it is all about politics. Get the right people elected. The UAW should be ashamed when Trump rolls into Michigan next week and he is not denounced. Maybe the UAW can't say it, but the AFLCIO and ACFME leadership sure can. Trump is not a friend of labor. Biden may not be great, but he is better than Trump.
Thank you for your reply Tim. Indeed you are voicing what is the de facto standard position now: These funds should be managed only with returns in mind, and fiduciary duty applies only to returns. A couple of points in response-- one, I do not believe there is a very settled and widely accepted conclusion on the question of whether ESG style investing (or any investing that incorporates some element of social good) automatically lowers returns. Two, even if there some minor lowering of returns in the short term, it is well worth it in the long term, for the same basic reason that it is not wise to invest in fossil fuels for the sake of short term returns while they cause a long term environmental disaster. In the case of labor, the long term disaster is the erosion of labor's power relative to corporations and capital. And since these funds are *from labor itself,* it is completely coherent to do whatever is possible to avoid that long term disaster (the disaster we are living through now, at least relative to union power in the mid 20th century). Pensions are the ultimate long term investors and are not obligated to sacrifice the future for the present.
I love this idea!
Also, it's incorrect to assume that funds that are invested ethically won't be profitable. When I was much younger, I insisted that some RRSP funds that I came into when I moved from one province to a territory was invested in ways that were both ethical and environmentally friendly, I made enough money to make a downpayment on a house.
I was lucky to have found a very good investor who both respected my wishes and knew how to invest, but since I've also seen statistics that confirm my experience.
So don't assume that investing pension funds into ethical and environmentally friendly companies will lose you money. It will probably do the opposite.
Yes-- I have never heard a convincing argument for why pensions don't just put it all in index funds, IE https://awealthofcommonsense.com/2016/02/bogle-vs-golitath/
This is what I came here to ask. Why are private equity firms even a part of this process? Index funds are simple and effective. Are the returns that PI offers /that/ much better?
"If you are a 1) union member who is a 2) socialist and 3) has infinite patience, I highly recommend that you look into becoming a pension trustee at your own union."
Hahaha, I sent this to our union's pension trustee. VERY ACCURATE.
(I'm a health care trustee for the union health care fund. Less math, more ACA compliance nerdballing. Whee!)
For how little compensation will an executive function well ? Shareholders rarely ask . If All workers have collective bargaining shareholders will rarely ask about worker price competition . This is the situation in some countries . These workers know they are not leisure class stock owners .