Compliancex

Where are public-employee pension plans investing their money these days? The Wall Street Journal says much of it is going into private equity funds, thus increasing connections between government employees and funds that have gotten a lot of scrutiny as of late, most notably with Republican presidential candidate Mitt Romney’s Bain Capital.

The Journal says that the public pension funds have around $220 million, or 11%, invested in these funds, the most ever, according to a report by Wilshire Trust Universe Comparison Service. That’s a $50 million increase from last year. Ten years ago, the amount was only 3%.

So what is a private equity fund, and what does it do? They’re a little bit like house-flippers, in a way. They buy a company, make some changes, and then try to resell it at a profit. Romney has faced criticism from a variety of sources for letting go of workers during these times. And the criticism came not just from Newt Gingrich, Romney’s political appointment, but from unions, who complained about the job losses. Just this month, the Service Employees International Union claimed that Bain had “”a long and troubling track record of putting profits above workers.”

Yet the SEIU have money invested in private-equity funds. So do the American Federation of State, County and Municipal Employees, who have also criticized Romney and Bain Capital and run an ad against him.  When the Journal asked a spokesman for AFSCME about this apparent conflict, the spokesman called the question  “ridiculous” and said that “the purpose of the ad was to shine light on Mitt Romney’s dubious record in the private sector,” noting that “AFSCME members have savings in banks that engaged in questionable behavior, too. They still know that this kind of behavior needs to be reined in.”

The Romney campaign lashed out at the two labor unions, saying that “the last thing President Obama and his cronies want is Mitt Romney as an opponent because they know he is the only candidate that can beat President Obama and put an end to the big labor’s power.”

The Journal says that the pensions are looking to achieve an annual return of 8%, and that according to a study by Cambridge Associates LLC, private equity funds have had double the rate of return as the S&P 500 and the Dow Jones over both the last five years, and the last ten years.

So, it sounds like the pension funds are trying to make money for its “investors,” just the way Romney and Bain Capital did. It’s unclear what the difference is.

Lisa Swan is a Feature Writer for the Compliance Exchange. She is also a columnist for The Faster Times and a blogger for Subway Squawkers. Her work has also appeared in the New York Daily News, Yahoo Sports, Huffington Post and the books Graphical Player 2011 and Graphical Player 2010.