Financing Our Own Destruction

By April, Gracias was heading up a DOGE taskforce within Homeland Security, which began labeling immigrant workers as deceased to pressure them to leave the country. That same month, according to the Wall Street Journal, Gracias raked in millions of dollars in fees for arranging the sale of private shares in Musk’s companies, including SpaceX, the valuation of which soared in anticipation of lucrative contracts from the Trump administration.

All of that is on top of Gracias’ main gig, managing more than $26 billion for institutional investors — including union pension funds. In other words, as unions scrambled this year to put out a series of fires in the form of attacks against Social Security, immigrants, and labor rights, their members’ retirement dollars were helping to enrich the same man fanning the flames.

As Rolling Stone reported, Valor Equity Partners — where Gracias serves as CEO — has received at least $1.7 billion in investment commitments from state and local pension funds, which hold the retirement savings of public workers on DOGE’s chopping block. Valor has, in turn, invested its capital into controversial companies, including SpaceX, which in August won its lawsuit alleging that the National Labor Relations Board’s structure is unconstitutional.

The irony isn’t lost on the unions whose members’ pension investments effectively put them in business with Gracias and Musk. In July, Randi Weingarten, president of the American Federation of Teachers, wrote to nine public pension funds to suggest they scrutinize their relationships with Valor. An affiliated labor organization, the American Association of University Professors (AAUP), also plans to review retirement portfolios and university endowments for links to Musk and the Trump administration, given the cuts to federal research funding.

“Whether these companies are doing financially well or not is not the only question,” says Todd Wolfson, head of the AAUP. ​“We should also ask whether they are actively working to undermine our livelihoods.”

That threat is enough to make financiers take notice. Soon after Weingarten sent her letter, a conciliatory-sounding Gracias wrote on X that he had already ceased duties at DOGE and that, while he disagreed with the union, he appreciated its efforts ​“to safeguard the pensions of teachers and other public servants across America.” In a statement to In These Times, a Valor spokesperson wrote the Weingarten letter contained multiple errors and Valor has ​“a longstanding history of contributing to our country and communities.”

But Gracias’ DOGE dealings are just one example of a painful reality for U.S. labor. Because of a patchwork, highly financialized retirement system, union pension dollars have been implicated in almost every manner of attack against the working class. Pensions are among the largest institutional investors on the globe; there are nearly $8 trillion in the funds of public and private-sector U.S. union members. In search of higher returns, the funds have increasingly cast their lot with Wall Street and Silicon Valley. Not only does that tactic boost investment in some unsavory ventures — from weapons manufacturing to new fossil fuel exploration to price-gouging corporate landlords—it also hands more power to billionaire finance and tech executives in league with President Donald Trump, DOGE and rising authoritarianism.

Some unions are trying to chart a new path. Members of the SEIU, the United Electrical Workers and the Chicago Teachers Union have staged protests outside of Valor offices in New York and Chicago, part of a campaign to stop billionaires from using workers’ capital against them.

“Get out of our pension funds,” Chicago Teachers Union Vice President Jackson Potter said to a crowd assembled outside of an apartment building owned by a Valor-backed company in August. ​“We’re not going to invest in busting our own unions.”

Public pension fund trustees are under pressure to make up for decades of systematic underfunding, and slick asset managers have worked hard to convince them that other investment approaches would be financially disastrous. But with promises of hefty private equity payouts looking increasingly dubious, a growing number of union members are calling for investment in social goods, like green energy and affordable housing.

Unions already have a track record of leveraging their pension capital through campaigns like Justice for Janitors, which targeted building owners’ financing to win historic wage increases for cleaning staff. But Stephen Lerner, an architect of Justice for Janitors, stresses the need for an even more fundamental shift. Union members’ retirement savings are ​“the engine of so much of the economy,” Lerner says. ​“Our job is to make sure that they’re invested in good things, like housing the country, not in destroying the world we live in.”

The vast majority of private-sector employers in the U.S. stopped offering pensions beginning in the 1980s. Many white-collar firms swapped pensions for 401ks, which left workers to figure out investing on their own. Today, most of us who hope to stop working one day will depend on Social Security and individual savings. 

Many unionized workers, however, are still guaranteed a steady retirement income through their pensions, which are funded through contributions from employers and investment returns. Most states established government pension plans following the 1935 passage of the Social Security Act, which excluded government workers from benefits. In the private sector, pensions have their roots in a massive strike wave following World War II, when workers in the mining, auto and steel industries fought for retirement funds financed by employers. 

Labor leaders saw this move as strategic, to spook firms into backing an expansion of Social Security (an option likely to cost them less). Instead, employers acquiesced to union demands while remaining ideologically opposed to a more generous, universal retirement system. 

But Big Business and its political allies opposed giving unions control over their new pension plans. In testimony before Congress in 1946, Sen. Harry Byrd, a powerful Virginia Democrat, warned that leaving these funds in the hands of labor would make unions ​“so powerful that no organized government would be able to deal with them.” Michael McCarthy, an associate professor of sociology at the University of California, Santa Cruz, points to this moment as a glimpse of what could have been — should labor have been able to wield the power of investment to advance workers’ interests. 

Instead, this power was steadily eroded through employer and finance-backed reforms, and labor’s capital became ​“the jet fuel for American capitalism,” according to McCarthy.

First, the 1947 Taft-Hartley Act prohibited union control of private-sector pension funds, instead requiring joint administration with employers, who may see little problem investing in companies with anti-worker policies, so long as they are profitable.

Second, beginning in the 1950s, the financial industry lobbied to relax investment regulations — and persuaded pension funds to hire professional asset managers, who moved money from government bonds into corporate securities promising higher returns. 

By the 1970s, pension funds owned about a third of the equity in American companies, prompting concerns about so-called pension fund socialism. Instead, union members’ money helped usher in a period of waning labor power. McCarthy’s research shows that asset managers frequently channeled pension money into companies building plants abroad — a rational bet on firms boosting profits by slashing labor. While those bets may have paid off short-term, they also fueled a wave of outsourcing and deindustrialization that cratered domestic union membership.

In the words of William Winpisinger, president of the Association of Machinists and Aerospace Workers, during congressional testimony on pension investments in 1979: ​“Responsible trade unionists have to conclude that they have been financing their own destruction.”

Further legal changes in the 1970s solidified the definition of ​“fiduciary duty” — the requirement to act in the sole best interest of clients — as akin to following the financial sector’s standard strategies for maximizing returns. Failing to do so opens pension trustees to legal risk.

The upshot, McCarthy says, is that pension funds ​“have to mimic Wall Street investors.”

From 1996 to 2009, Mike Musuraca served as his union’s designated trustee at the municipal pension fund known as the New York City Employees’ Retirement Scheme (NYCERS). Musuraca’s tenure saw the dot-com crash and the subsequent global financial crisis, both of which significantly impacted pension returns. The NYCERS board challenged the corporate fraud and excess fueling these crises, joining lawsuits against Enron and advocating for shareholders’ rights to weigh in on executive compensation.

But the standard interpretation of fiduciary duty still precluded pension trustees from considering an issue like rising income inequality as a risk in its own right, according to Musuraca, even as it put a drag on the economy. When the pension fund engaged companies, ​“Everything we did had to be couched in, ​‘Listen, we’re just trying to drive shareholder value,’” he explains.

And even after two successive financial bubbles burst, pension funds didn’t rethink their growing reliance on investment returns, Musuraca says. Instead, the funds managed risk by following the standard practice of diversifying assets — in this case, by moving money into private markets to balance out stock market crashes.

Between 2001 and 2021, public pension funds roughly tripled the share of their portfolios going into such ​“alternative” investments, which now make up about a third of their portfolios. Private equity firms, in particular, channeled this money into a wave of cutthroat acquisitions that have led to layoffs, bankruptcies and cost-cutting across myriad industries.

“Public pension plans helped create the private markets industry, warts and all,” Musuraca says.

Today, public pension dollars constitute as much as two-thirds of private equity’s capital, according to one study. The industry courts pensions with a lofty premise: In exchange for hefty management and performance fees, private equity fund managers will secure far better returns than public stocks can offer. 

That premise may have been more or less true in private equity’s early years, when a smaller number of private firms had their pick of companies to acquire, gut and sell for parts. But as the private equity industry grew, the pickings became slimmer and performance trended downward, says Alyssa Giachino, investor engagement director at the Private Equity Stakeholder Project, an industry watchdog. 

According to PitchBook’s pension fund return tracker, the 50 largest pension funds in the United States — all of which include substantial private equity holdings — earned an average 7.4% return over the past decade. A portfolio of passively managed stocks and bonds handily beat those returns without large management fees, earning 8.1% over the same period. There’s also an opportunity cost to private equity funds, which typically require capital commitments of at least a decade. Now struggling to resell some $3 trillion worth of assets, private equity is keeping workers’ retirement savings locked up even longer in ​“zombie funds” languishing past their promised maturity date.

“Private equity continues to say, ​‘Don’t worry, just stick with us, keep giving us money, keep committing new capital, and it’ll all work out in the end,’” Giachino says.

For public pensions, that’s a risky bet. State and local governments have underfunded their pension systems for decades, hoping to make up shortfalls with high returns. Meanwhile, the Right has attacked pensions as an untenable drain on public coffers, attempting to claw back workers’ legally guaranteed retirement income with doomsday projections. That situation makes the financial health of public pensions a politically loaded question, in addition to an extraordinarily complex one. Understanding pensions’ future solvency requires forecasting employment trends, workers’ retirement ages and lifespans, and how much a fund will actually earn. According to one estimate by researchers at Stanford, public pensions potentially face a multi-trillion-dollar shortfall.

There’s another incredibly complicated variable that will determine the health of public and private pensions — and just about everything else — in the coming years: climate change. Without climate action, according to one study, the returns of U.S. and Canadian pension funds could drop by as much as 50% by 2040, as a warming planet roils real estate, energy, agriculture and other major asset classes.

Continuing to count on investment returns to adequately fund pensions is a dicey strategy, Musuraca argues. ​“Do we really want to take something as critical as retirement security and leave it to the markets? I would argue, no.”

As some of the world’s largest institutional investors, pension funds are especially exposed to the risks posed by climate change. They’re also uniquely positioned to address them.

Pension funds face growing calls to divest from fossil fuels to delegitimize the industry — and redirect their considerable capital toward climate solutions. 

But according to the Global Fossil Fuel Commitments Database, just 11 public pension funds — including those of Chicago teachers and city employees in Los Angeles and New York — have made binding commitments to fully divest. That can be a slow and technically complicated process, given the many ways in which funds are entangled with fossil fuel companies through private equity, stocks, mutual funds and corporate bonds. Opponents of divestment also argue that simply selling off existing holdings has little effect on a company’s behavior or bottom line. 

Jessye Waxman, an advisor for the Sierra Club’s sustainable finance campaign, points to one, more direct avenue of influence: refusing to buy the new bonds fossil fuel companies use to raise money for pipelines, refineries and infrastructure. 

While the bond market is largely opaque, Sierra Club research has uncovered billions of dollars of such holdings within pension funds. State plans in Minnesota, California, New York, Wisconsin and Florida hold at least $1 billion each in bonds issued by companies like Exxon, Duke Energy and Energy Transfer. 

Union members should pressure their funds to stop buying these bonds immediately, says Waxman: ​“If you’re cutting off the market allowing new capital to flow to fossil fuel companies, it becomes much more difficult for those companies to pursue projects that have detrimental climate impacts.” When it comes to the rest of their portfolios, Waxman says pension funds should wield their leverage as shareholders to push companies toward climate action. 

But in recent years, a manufactured backlash against ESG investing — investing that uses environmental, social and governance criteria — has made both divestment and investor engagement more difficult. In 19 states, public pension boards and state financial officers are prohibited from factoring climate change into their investment decisions. The anti-ESG movement, as well as Trump’s Securities and Exchange Commission, are now turning their focus to narrowing shareholder participation writ large.

While cloaking itself in the language of fiduciary duty, the campaign against ​“woke investing” is effectively a lifeline for the fossil fuel industry.

To stop union pensions from divesting, right-wing groups are even deploying the ​“plaintiff shopping” tactics long used to undermine collective bargaining. In 2023, NYCERS and two other New York City pension funds were sued by beneficiaries alleging the trustees breached their fiduciary duty by committing to divestment. The plaintiffs were backed by the conservative group Americans for Fair Treatment, which also supported retired Illinois state worker Mark Janus in his successful 2018 Supreme Court challenge to the union ​“fair share” fees previously mandatory for public-sector workers. New York state appeals court judges rejected the fiduciary duty lawsuit in March, but fossil fuel-backed groups are likely to try again.

A new law in Oregon is combating these tactics. In June, the state passed bipartisan legislation specifically instructing state pension plans to manage climate risks as part of their fiduciary duty. The measure was championed by an alliance of labor and environmental groups, making the state legislature the first to officially endorse a sustainable investing plan for public employee funds.

Another Oregon bill, which failed to advance this year, would have placed a five-year moratorium on new or renewed investment in private equity funds with significant fossil fuel holdings. Advocates say it’s a critical conversation to continue as the state pension system faces a funding shortfall following years of poor returns from its unusually large private equity portfolio.

Damon Motz-Storey, director of Oregon’s Sierra Club chapter, says divestment advocates will work with labor to continue making the case: ​“We’re really hoping that we can make some forward progress on both of those issues.”

In California, unions, environmental groups and housing advocates are joining forces to build a different vision for public investment, through California Common Good. That means engaging union members like Robin Pearce, whose work at the California Department of Public Health involves studying the health impacts of climate change. 

It’s an overwhelming and often dismaying task for the mother of a young child. So, two years ago, when a coworker told Pearce about an ongoing campaign to push their pension to divest from fossil fuels, she thought, ​“This is something that we could actually do in my lifetime.”

As a member of the 96,000-strong SEIU Local 1000, Pearce is one of more than 2 million beneficiaries of the California Public Employee Retirement System (CalPERS), whose $500 billion in assets makes it the largest public sector pension fund in the United States. The fund holds billions of dollars of fossil fuel investments, including stakes in ExxonMobil and Chevron. 

California Common Good has been pushing CalPERS to drop these holdings, a call that gained momentum in 2024, as state workers like Pearce began organizing for their unions to officially endorse proposed state legislation to require CalPERS, along with the California State Teachers’ Retirement System, to divest. 

The bill died amidst intense lobbying from the pension funds. But SEIU Local 1000 did join a call for CalPERS to stop buying the Exxon bonds that finance new fossil-fuel infrastructure. And members like Pearce are continuing to push CalPERS for transparency on its $100 billion climate action plan, announced by the fund as it lobbied against divestment, which appears to include continued holdings in oil and gas, according to a report by California Common Good.

In a published response, Chief Executive Officer Marcie Frost wrote that while CalPERS agrees that climate change is a systemic financial risk, divestment is a ​“symbolic act” that could constitute a breach of fiduciary duty. 

As unions struggle to regain their footing in the wake of the Janus ruling, Pearce believes that pension organizing has the potential to energize and grow membership. A training about climate and pensions Pearce helped lead brought CalPERS beneficiaries from different unions together to talk not just divestment, but their hopes for constructive reinvestment. Pearce is looking toward the next phase of base-building ​“for our particular issue, but also with an eye toward supporting the growth of the [union] local.”

Union members need to pay attention to where their pension funds invest, she says, ​“because those investments could be working against the hopes that they have for their future.” 

In some cases, pension investments are working against retirees’ hopes for stability in the present, too.

In 2023, Barbara Pinto took the CalPERS board to task for its multi-billion dollar capital commitment to Blackstone, the world’s largest private equity firm — and the largest U.S. landlord, in the wake of the 2008 financial crisis. According to a report from the Private Equity Stakeholder Project, Blackstone bought nearly 6,000 apartments in San Diego in 2021, for example, subsequently hiking rents by an average of 38% — nearly double the citywide average. 

Pinto, 77, spent a year living in one such apartment before the company raised her rent by $200, which forced her to move out. 

Perversely, the retirement income Pinto relies on is linked to the profits extracted from her displacement. After working in the San Diego public school system for 35 years, she’s now a CalPERS beneficiary living on a fixed income. ​“I am appalled that this organization would invest in this kind of a company,” she told the CalPERS board.

There’s a troubling history of public pension funds investing in speculative real estate deals. In the run-up to the foreclosure crisis, pensions put capital into private equity funds backing developers that bought tens of thousands of affordable housing units with plans to raise rents dramatically, a strategy housing activists call ​“predatory equity.” 

The deals were also risky. In 2010, for example, over-leveraged developers were unable to hike rents quickly enough to cover their new mortgages, and a number of buildings went into foreclosure. CalPERS lost hundreds of millions of dollars on the investment. 

Then, beginning in 2012—with the backing of billions of dollars from state and local pension funds, including from CalPERS — Blackstone scooped up tens of thousands of foreclosed homes. It soon expanded into apartment rentals across North America and Europe. In 2019, when Danish Prime Minister Mette Frederiksen asked in a speech, ​“An American private equity fund is purchasing our houses — does greed know no boundaries?” she was referring to purchases made by a Blackstone real estate fund in which California’s two largest public pension funds were among the key investors.

Blackstone and other private equity firms now own about 10% of the entire U.S. apartment stock, according to an analysis of property data from the Private Equity Stakeholder Project, giving Blackstone outsize power over the housing market. In 2022, a bombshell report in ProPublica revealed that large landlords were employing RealPage, an algorithmic software program that relied on nonpublic information, to set rents — a practice the Department of Justice alleges is illegal price-fixing. Nearly 20 public pension funds committed some $5.5 billion in capital to the private equity fund that acquired RealPage in 2021, according to research by Americans for Financial Reform. 

When the real estate lobby defeated an expansion of rent control in California in 2024, much of the $124 million raised for the ​“No” campaign came from Blackstone and corporate landlords with public pension backing, with Blackstone’s donations coming directly from the fund that holds savings for retirees.

“Housing has become this thing that people can make a ton of money on, regardless of the needs of the people that happen to live in these things called ​‘apartments’ or ​‘houses,’” says Vonda Brunsting, director of the Global Workers’ Capital Project at Harvard Law School. 

Brunsting has been examining how union pension funds could help solve the housing crisis, instead of exacerbating it. Union support was once central to a cooperative housing boom in cities like New York and San Francisco, and a November 2024 report, co-authored by Brunsting, overviews available options for pension funds to boost their affordable housing investments without sacrificing conventional returns. Those options include buying taxable, affordable housing bonds issued by municipalities that offer attractive interest rates, as well as working with the AFL-CIO Housing Investment Trust, which relies on pensions to finance union-built affordable housing. 

Brunsting is also looking at potential larger-scale solutions, such as the Housing Australia Future Fund, a new government program that incentivizes Australia’s pension vehicles to invest in social housing for low-income tenants. Institutional investors will lend money to community housing organizations for the construction of at least 30,000 new units; the housing groups will then repay the debt using tenants’ rents and government subsidies. 

“If the private equity firms can come up with a whole new model of extracting and blowing up a real estate portfolio, we can do the opposite,” Brunsting says.

In the United States, there may already be an opportunity for pension funds to support the build-out of green social housing in cities like Chicago. In 2024, Chicago created a revolving loan fund to be financed by more than $100 million in taxable municipal bonds. Loans from that revolving fund will cover the bulk of construction for approved projects, but most projects will also require a second lender. The high interest rates for this type of financing often drive up project costs, but identifying investors interested in producing steady returns on a longer repayment timeline could change that calculus.

If pension funds are willing to play the role of ​“patient capital,” then ​“it could make a big difference in the financial feasibility of green social housing,” says Daniel Hertz, housing director at Impact for Equity, a nonprofit that worked with the city of Chicago to develop the new program.

Pension funds already invest in social housing across much of Europe. In the U.K., local housing associations turned to capital markets to raise funding for social housing in the wake of sweeping cuts under Prime Minister Margaret Thatcher. So-called housing authority bonds are now a key financing source, with pension funds among the chief purchasers.

There are some potential risks to this model, says Thomas Wainwright, a professor of international business at the Royal Holloway University of London. Being reliant on bond ratings for continued financing means housing authorities may be ​“boxed in” to particular strategies that keep capital costs down. But compared with private equity, which is geared toward short-term returns, the investment timelines of pension funds are a much better match. A focus on longer-term returns can support projects like green retrofits, which save tenants money and lead to long-term value.

“If you’re private equity, you’re going to build something new and shiny and you want to sell it off in three years,” Wainwright says. ​“If you’re a housing association, you’re going to build this asset and try and keep it for as long as you possibly can.”

Relying on debt financing, rather than government appropriations, still has inherent drawbacks.

“I think social housing should just be built by governments, without necessarily involving pension funds,” says economist Lenore Palladino, at the University of Massachusetts at Amherst. ​“But we’re not in some neutral situation right now where pension funds have no role. So we should think about not only ending the negative role, but actually using them for positive, community and worker-oriented investments.”

In a conference room over three days, nearly 50 workers of various ages discussed how their pension fund could support social housing, a livable planet and workers’ rights. 

Chosen at random — meant to create a reflection of the fund’s more than 1 million beneficiaries — the group was not selected for special expertise. After an overview from staff and outside speakers on pension finance and responsible investing — including the possible trade-offs involved — group members worked together to develop and vote on a set of recommendations for the pension board. Because of the conference, the board plans to divest from serious human rights violators and tighten its ​“exclusion policy” to prohibit certain investments. 

That’s a scene from the Netherlands, where Pensioenfonds Detailhandel, the private-sector retirement fund for Dutch retail businesses, has sought to democratize its investment decisions. In the latest member dialogue, which took place in 2024, participants emphasized the cost of housing as a key concern, prompting the pension fund to look for more ways to invest in affordable housing, according to Henk Groot, head of investment. 

This outcome suggests that, given the option, workers might choose to fund urgent social needs rather than chase the highest returns. Where no such choice exists, says the University of California’s McCarthy, unions that hope to change how pensions are invested should fight for more control for members. According to McCarthy, the financial system is a ​“space that’s begging for democracy, much like the workplace was in the 1930s.”

McCarthy also suggests that labor throw its weight behind larger projects to democratize finance, such as public banks, which return profits to the public purse and can be subject to community governance. Should unions back a broad push for public banking, their pension funds could provide a key source of capital for new institutions, which legal scholars have argued could help funds circumvent restrictive fiduciary standards and anti-ESG laws while providing solid, long-term returns. The largest public-sector union in Southern California, SEIU Local 721, is already part of a coalition pushing for the establishment of a Los Angeles public bank that could provide lower-cost financing for affordable housing, clean energy and small businesses. In Washington, a union-backed campaign is exploring how a public bank could accelerate the progress of a new social housing developer. 

Palladino proposes another option to free workers’ capital from its current confines: public asset managers. Thanks, in part, to the complexity and legal risks involved, more than two-thirds of public pensions outsource asset management to a third party. But there’s nothing stopping state governments from standing up their own institutions to invest the holdings of public pension funds — with a fiduciary duty defined explicitly to include the shared interests of beneficiaries, including the health of their communities and the environment. 

In addition to avoiding the high fees and extractive investments currently on offer from private asset managers, a public manager could the investments urgently needed to help communities adapt to climate change, Palladino says. That’s especially important given that the Trump administration has effectively repealed many of the funding sources for clean energy included in the 2022 Inflation Reduction Act. Pension dollars could help provide some of the $9 trillion in climate finance that’s needed annually to limit global temperature in line with the Paris Agreement, according to a Climate Policy Initiative estimate. 

Ultimately, Palladino says, ​“We need to not have our retirement security completely bound up in financial markets.” That could involve some combination of increasing existing Social Security benefits and expanding defined-benefit pensions to include more workers. Legislation introduced by Vermont Sen. Bernie Sanders, in July — with support from a coterie of unions — would require employers to either offer pensions directly or pay into the Federal Employees Retirement System, so their employees can access the same benefits provided to members of Congress.

Yet another urgent reason to develop alternatives for pension investments, according to Palladino, is that unregulated private credit funds and cryptocurrencies have become the next asset class to lure pension funds with the promise of astronomical returns. 

At least 15 state pension funds lost tens of millions of dollars when the crypto trading platform FTX collapsed in 2022, mostly through their stakes in venture capital or private equity firms. Since then, state legislation pushed by industry lobbyists has made it easier for pension funds to invest directly in digital assets. 

Not only could that move devastate retirees’ savings, it could hand even more power to extreme, anti-worker forces. That casts the long-running debate about pension investing in a different, more urgent light. 

“These aren’t academic debates — they are life and death questions,” Lerner says. ​“Are we going to fund the Silicon Valley techno-fascists, who openly say they want a CEO monarchy? It should not be a heavy fiduciary lift to argue that nothing endangers workers’ futures more than fundamentally reorganizing society according to this vision.”