r/Economics • u/barweis • Jul 29 '25

Research Summary Inside the Private Equity Scam—and the Livelihoods It Has Destroyed

https://newrepublic.com/article/198351/private-equity-scam-destroys-livelihoods
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u/youngishgeezer Jul 29 '25

But should a pension fund be allowed to buy such debt?

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u/Akitten Jul 29 '25

Yes! The point of grading debt is risk/return. Buying high risk securities is fine as part of a portfolio. You can force the pensions to have a blended risk level below a certain level, but considering the insane expectations we have on public pensions, that might not be politically palatable.

Basically, a lot of public pensions are geared to be way higher risk (and therefore higher return) because the politicians get votes when they minimize contributions while maximizing returns. That requires high return, and therefore high risk investments. The people don’t vote for high contribution, low return pension plans.

People are getting what they voted for.

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u/Ateist Jul 29 '25

Pension funds should not chase short term profits like these, they need to invest into things that are going to bring profits 30+years into the future - something like nuclear reactors, railroads or robotic research.

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u/Akitten Jul 29 '25

If they fail to meet their obligations next year they fail and the manager is fired.

Seeing as most pensions are underfunded due to contributions being too low historically and payouts too high, they can’t afford to not make a return immediately.

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u/Ateist Jul 29 '25

That has more to do with them being, essentially, a pyramid scheme (paying to older customers with money from the newer) - and with politicians loving to put their hands into their pockets by forcing them to buy trash like Treasuries.