"IMG_1849" by Ken Marshall is licensed under CC BY 2.0

The Pennsylvania House of Representatives is considering unnecessary legislation that mandates the public disclosure of confidential information of private equity firms and their pension fund investors. House Bill 1671, sponsored by Rep. Brett Miller, is a government assault on private equity funds and their investors.

The bill has been framed as a way to increase transparency and reform Pennsylvania pension funds, such as the Public School Employees’ Retirement System (PSERS) and the State Employees’ Retirement System (SERS), which invest in private equity funds. However, this bill will do nothing to shed light on fiscal irresponsibility or shareholder activism. In fact, if enacted, it will require private fund advisers and pension funds to disclose proprietary information embedded in privately negotiated contracts. Public disclosure of this confidential information will allow competitors to view differing investing strategies, undercut competition, and reduce returns for investors. 

This is government intervention at its worst. There is no justification for why the government should force its way into negotiated contracts between private parties. 

Although principles-based disclosure of material information is essential to functioning markets, the provisions of the bill are overly prescriptive. Examples of confidential information that the bill requires to be publicly available on the Internet are the identity of the fund manager; the name and address of the fund; the dollar amount of the cash distributions to investors; performance metrics; gross and net internal rate of return; fees and expenses paid; and carried interest. 

Disclosure of this information provides no material benefit to investors since they have already conducted due diligence and voluntarily signed agreements with private fund advisers. Not to mention, this bill could violate attorney-client privilege and insider trading laws. 

The provisions of HB 1671 follow the lead of Democrats in Washington. For example, Sen. Elizabeth Warren (D-Mass.) has introduced a bill, which would force disclosure of proprietary information and reduce pension fund returns. Additionally, the Biden administration is pursuing a rulemaking, which would impose unprecedented regulation on private funds. The Wall Street Journal reported that the Securities and Exchange Commission’s (SEC) “costly new regulations” would  “impose fee, expense and performance disclosure requirements on private fund advisers.” 

HB 1671 is nearly identical to the policies proposed by D.C. Democrats. Yet, the bill has several Republican cosponsors and just a few Democrats from the Philadelphia area. 

Private equity has proven to be one of the best performing investments for retirement fund returns—enactment of HB 1671 would only reduce these returns. There are numerous studies that have highlighted the benefits of private equity. According to Chicago Booth Review, “leveraged buyouts increase productivity at target companies.” Private equity investments also benefit county-level employment. One study shows “a positive association between private equity investment and employment growth. Results indicate that for each $1 million in additional private equity investment, a little more than 1.3 new jobs are created.” 

Private industry in Pennsylvania has received significant investment from private equity. In 2020, private equity investment in Pennsylvania amounted to approximately $18.4 billion, supporting 343 Pennsylvania companies. The investment covers various industries such as healthcare, energy, manufacturing, agriculture, education, restaurants, and technology. 

Historically, private equity has outperformed all other asset classes for Pennsylvania pension funds. One article shows how even though SERS was struggling in the fourth quarter of 2018, “Private equity was the top-performing asset class in the portfolio during the year returning 11.4%.” It was also the only asset class, aside from cash, to “earn positive gains.” 

There is no reason why Pennsylvania legislators should support a bill that will harm the highest returns for state workers’ retirement money. 

Pennsylvania legislators should focus on true pension fund reform by scrutinizing their investments managed by BlackRock. According to a report by Consumers’ Research, BlackRock has strong ties to the Chinese Communist Party, and is using state pension fund money to invest in “companies closely linked to the Chinese military.” BlackRock has also invested in two companies that the U.S. government “has blacklisted for human rights abuses against Uyghurs.” BlackRock manages $3.5 billion of Pennsylvania pension fund investments—ranking number eight among the top ten states with the most pension money invested with BlackRock. 

Pennsylvania police, firefighters, and teachers deserve to know why BlackRock is investing their retirement money in China’s military and economy. Unfortunately, HB 1671 will do nothing to solve this problem. 

Pennsylvania legislators should prioritize maximizing returns for state workers’ pensions above all else. Legislators should oppose HB 1671 to ensure that retirees continue to receive high returns and to show they stand against excessive government regulation.