There has been a great deal of media coverage about private equity – one type of private investment. Following is a simple overview of how private investments work:

• A private fund advertises that it is seeking investments. The proposed project to be funded is often only generally described; the investment decision leans on the reputation of the fund managers.
• An investor, such as a pension fund manager like the Oregon State Treasury (OST), commits millions of dollars for a period of time that is typically a decade, signing a contract that sets the terms of the commitment. 
• Since private funds lock in investments for years, illiquidity is a key feature.
• The fund is the “general partner” in the management of the fund; an investor like the OST is a “limited partner” in the deal. 
• General partners – the fund managers –  typically have sole decision-making power about how private investment funds are used (within the framework of the contract between the general and the limited partners). 
• General partners are typically protected from any losses that occur.
• The fund manager then typically borrows heavily to buy an asset such as a company and restructure it. The company itself often is saddled with the debt used to buy it.
• There is an ongoing question as to return on private investments: “Most careful academic studies find that although private-equity funds slightly outperformed the stock market on average prior to the early 2000s, they no longer do so. When you take into account their high fees, they appear to be a worse investment than a simple index fund.” “The Secretive Industry Devouring the U.S. Economy” (The Atlantic, October 2023) 
• What the OST reports about their private investments is limited. The name of the fund or fund managers (examples: “Quantum Capital Solutions II Co-Investment Fund”, “NGP Royalty Partners”) is disclosed but it is often hard to find out what the specific fund’s investments are. Our ally in that work is Private Equity Stakeholder Project.
• Most private investments are not listed on any public stock exchange so there is no way to know how much any investment fund is really worth on any given day.
• The terms of the investment are set by contract including how much is invested, management fees, length of commitment, return on investment, and secrecy about specific fund investments.
• Private investments also have protection in Oregon public records law (ORS 192.355 (14)) to keep specific investments and terms of the contract confidential.

The OST groups its investments in “asset classes”. The “Private Equity asset class” is obviously private investments. In fact, the only “asset class” that does not include private investments is the “Public Equity” asset class. About 55-60% of the PERS portfolio is in private investments. 

The OST asset class “Fixed Income” contains bonds, or debt, some of which is publicly traded. The Sunrise Project out of Australia has an introduction to bonds and their increasing financing of fossil fuels. OST use of private credit and debt is on the rise; these holdings are in the “Opportunity Portfolio” asset class. Private credit has many of the same problems as private investments since it is a largely secret and unregulated market.

• Private investment funds are growing in size, complexity and number. U.S. private investment funds have gross assets under management of $17 trillion with net assets of $11.5 trillion, as of 2021.
• Public pension funds are footing the bill. Private investment limited partners are often retirement funds of public employees – with investment profits lining Wall Street’s pockets.
• Secrecy that is in direct conflict with the transparency required in a fiduciary or trustee relationship – like that between retirement plan managers and the state employees who are beneficiaries.
• Unknown Valuation or Performance Metrics: Private equity firms say what the private investments are worth, and that is the valuation retirement fund managers convey to the public. Significant research shows that private equity returns are no better than stock market investments, given the high fees. 
• Lengthy contracts: Investor funds may be tied up for a decade or more and this illiquidity makes it hard to respond to developments like climate risks or geopolitical shifts.
• Worse working conditions and wages of company employees. This happens when private investors 1) Slash costs by firing workers, cutting worker pay and ending long-term investment in the company, 2) transfer responsibility for debt they created to buy the company – to the company they bought, and 3) transfer money to themselves by charging multiple high fees with many names such as “management” and “consulting” fees, and hiding them in various aspects of a complicated deal, issuing generous dividends and selling company assets like real estate for short-term gain. 
• Private equity behind 65% of billion dollar bankruptcies in 2024 (Private Equity Stakeholder Project, 9/10/2024)

See the federal Securities and Exchange Commission statements for an overview of key concerns about private funds (June 23, 2020 Risk Alert, January 27, 2022 Risk Alert, and November 10, 2021 letter from SEC Chair Gary Gensler). 

The Treasurer’s proposed Net Zero Plan documents that the “Real Assets” asset class, which are private investments, is the largest source of scope 1 and 2 emissions. See the Net Zero Plan Summary document for more details.

The report Private Equity Propels the Climate Crisis, by Private Equity Stakeholder Project (10/2021), describes  the risks of private investments’ massive exposure to the fossil fuel industry.

• An analysis of private equity firms shows they have invested around $1.1 trillion dollars into energy assets since 2010. That is double the market value of Exxon, Chevron, and Royal Dutch Shell combined.
• Private equity has pumped hundreds of billions of dollars into buying up offshore drilling in the Gulf of Mexico, propping up fracking operations, expanding infrastructure through pipelines and export terminals, spewing pollution from gas and coal power plants – and there are no comprehensive disclosures of their holdings, let alone of environmental and community impacts. 
• Since private investments are concealed, it is very difficult or impossible to track whether a public pension fund which holds private investments is increasing its support of the fossil fuel industry, or divesting.

Examples of private investments by Oregon Treasury: 

• Rio Grande LNG Export Terminal: Is the Oregon State Treasury Supporting Environmental Racism in the Gulf South? (Sept 2024)
•  Gavin Coal Plant: PESP sends letters to Blackstone, ECP urging Gavin coal plant retirement (September 2024)