Billionaires Want Your 401k Funds

Written By Leeja Miller

Sources:

Transcript:

You’re tuned into Why, America? I’m Leeja Miller. Today, the horrors persist just generally but we’re talking about something that’s been flying just under the radar: private equity. Wait wait don’t click away, I promise we won’t just be discussing boring wonky financial markets topics. No no, private equity, a playground for the incredibly wealthy for the last 40 plus years that has allowed them to ruin our communities and destroy our jobs while getting filthy stinking rich is now being opened up to the average joe schmo investor. That’s right, thanks to a forthcoming Trump executive order and a bill quietly passed in the house earlier this month, private equity investing is even coming to a 401k near you. And you know the industry is desperately flailing when they invite the poors to get in on it. Today we’re shedding some light on this opaque industry, why you should give a shit, and how, once again, billionaires are doing everything they can to buy up our politicians and screw us over. We have fun here!

First, the basics: what the fuck is private equity. I’m not a financial expert but I spent the day learning about private equity so you don’t have to. A private equity firm is a business that takes money from investors and uses it to buy private companies, or public companies that they then take private. The idea being that they spruce up the business they bought so that it generates more profit so then in 3-7 years they can turn around and sell that spruced up business or launch it onto the public market with an IPO, an initial public offering, meaning people can then buy stocks in the company and it can continue to grow from there. That’s how the benevolence of private equity is sold to the masses: we are just do-gooders with business knowledge who invest in otherwise failing businesses and make them better, so people keep their jobs and the public benefits from these newly thriving businesses. That is not what happens in practice, however.

Because private equity firms are exclusively motivated by providing value to their investors. Their investors, the people that give them the money they then turn around and buy companies with, are often high net worth individuals–in fact you cannot become an accredited investor in private equity unless you make $200,000 per year or are worth at least $1 million dollars, not including your primary residence. Or the money comes from “institutional investors” like pensions and endowments. Yale famously began the move of private higher ed moving their endowment funds into private equity investments, to the point where now 95% of Yale’s 41 billion dollar endowment fund is invested in”alternative assets” read: high risk assets, like private equity. But we’ll get to that.

So all this money from ultra wealthy people and institutions is being funneled into private equity firms, whose job is to buy up businesses and flip them for a profit. Sometimes this literally includes property flipping, but truly any industry under the sun is fair game for private equity. They’ll buy up property, day care centers, toy stores, newspapers, craft stores, hospitals, drug stores, and pharmacies, you name it, they’re gonna try to profit off it.

Often, the way news outlets report on a story differs depending on the bias of the publication. And it’s hard to know how YOUR own perception of bias influences your interpretation of the news. This headline from The Associated Press caught my eye “Walgreens shareholders approve $10 billion private equity buyout” so I guess get ready for the entire chain to declare bankruptcy soon, while shareholders walk away with their pockets lined. Using the Ground News browser extension, I can see that in the US the Associated Press is considered “left leaning.” To get a fuller picture of the story on all sides of the political spectrum I can click on Full Coverage, which will show me coverage of the same story from publications across the political spectrum.

My partner on today’s video, Ground News, uses 3 independent monitoring organizations to assess the bias rating for each publication. Each news monitoring organization has their own methodology - including editorial reviews, blind bias surveys, independent reviews, and third party research. These are legit INDEPENDENT organizations, but they are limited by the data available to them: their analysis is done in the context of the U.S. political system. Our overton window has shifted so far right that the Associated Press is considered “left leaning.” That tells you a lot about the context within which the media you’re consuming operates. And thanks to Ground News, I get even more context, including how factual each publication is and who owns it, giving me a well-rounded idea of the motivations, biases, and accuracy of the news I’m consuming. Wouldn’t it be great if everyone in America had that much information about the news they consume??

Because depending on where you or your family members get the news, you’re going to get very different takes on the same story.

This is where Ground News comes in - and why I've been using them for over a year. Today’s partner Ground News is an app and website that offers tools to help you critically analyze the news you read, providing context to understand the full picture. I feel better equipped to make sense of what’s happening in the world without being influenced by just one perspective. And listen I’m not the only one who loves Ground News, the Nobel Peace Center even called it "an excellent way to stay informed, avoid echo chambers, and expand your worldview.”

I’m always really impressed with Ground News and genuinely think they’re a great resource. If you want to stay informed on US Politics and more Subscribe through this QR code or our link below at ground dot news slash leeja for 40% off this unlimited access Vantage Plan. It comes out to $5 a month for unlimited access to ALL the features I’ve mentioned. Thanks Ground News!

Usually, private equity firms buy up any number of random businesses, meaning they don’t have any particular expertise in the specific sector they’re buying up. They’ll just buy up whatever’s on offer and then apply a blanket set of scammy practices in order to extract as much wealth as possible from the business as quickly as possible to keep their investors happy. Again, they tend to try to flip these businesses in 3-7 years so they have no reason to care about the longevity of the businesses they’re working on, or the communities they exist in, so long as the wealth extraction is there. One way they increase wealth is of course to increase sales and income of the business itself, sure. But more often than not the wealth extraction comes from cutting corners and selling the business for parts. That can take the form of rather mundane, typical business practices like mass lay offs, removing employee benefits, and other belt-tightening measures. But they also like to get real creative with it. For example, they engage in sale-leaseback arrangements wherein they sell the land that the acquired company already owns, thereby generating a quick influx of cash for their investors through the sale of that land, and then the business is forced to pay rent on the land they previously owned, which comes out of the business’ sales, not out of the private equity fund’s coffers. They can also leverage the value of the business in order to take out debt in the business’ name. This often takes the form of a leveraged buy out. The private equity firm takes out debt in order to acquire the business, so they can acquire the business for far less in cash than it is worth. That debt is then put on the acquired businesses’ books, and the business is then stuck with paying down the debt that was used by the private equity firm to acquire them.

You know that episode in the Sopranos where Tony loans his friend some money, the friend can’t pay him back, so they forcibly take over his sporting goods store, charging him unconscionable interest rates and taking out more debt in his name to buy more product and then keep the profits for themselves? That’s kind of how a leveraged buyout works, but since it’s moving through formal financial institutions it’s legal. Honestly The Sopranos generally is a great education in how our financial system works. Much of what they do in that show would be perfectly legal if they just had the right titles and associations. Ah, America.

Anyway, the point of all of this is so that at the end of the 3-7 years the private equity firm has been holding onto the business they can turn around and sell the business at inflated prices or take it public with an IPO, pointing at all the money it has generated since they took over, thanks to the corner cutting and the selling for parts, making it seem profitable when it is really just barely limping along. Or, they can run the business into the ground and then the business can declare bankruptcy, making all that pesky debt just disappear, leaving the private equity firm unscathed. Because THEY didn’t own the bad debt, the acquired company did. They extracted all the wealth they could, now the business can just go away. That’s why every Joann Fabrics store in the country had a massive going out of business sale and is now a spirit halloween, even though prior to the private equity buyout the stores were often doing just fine. And the shareholders or owners of the businesses that private equity buys out will often sell to private equity firms because of the quick chunk of cash THEY get to profit from the private equity firm, and walk away into the sunset having first enriched themselves off the stolen wages of their workers and then off the chunk of cash the firm gave them. The people left to pick up the pieces, of course, are the individuals who relied on Joann Fabrics for a job, or the communities that now have empty and decaying strip malls that used to house Joanns, Sears, and Toys R Us stores. All across America, the empty stripmall wastelands are a monument to the ruin that private equity has brought to our communities and our jobs, of the soullessness that private equity injects into every square inch of this place.

Initially, private equity was a cash cow for the people investing in the funds as well as for the fund managers. In fact, private equity firms make upwards of 2/3rds of their profits from management fees alone. These are fees they charge to the investors who give them money. Often, the investment contracts have a 2 and 20 clause, which means the firm takes a 2 percent management fee PLUS 20% of all profits above a certain threshold. They also charge monitoring and transaction fees. Mid-level associates at private equity firms earn around $250,000 per year, with private equity firm partners easily raking in at least $1 million per year. On top of that, they are exploiting a loophole in our tax system to pay dramatically low taxes on their income, because of course. It’s called the carried interest loophole. Fund managers are paid most of their salary in the form of carried interest in the funds profits. When held for at least 3 years, that carried interest is taxed at 15% for income between 100 and 600 thousand dollars, and 20% on income over 600,000 dollars. Regular income of over 600,000 dollars is taxed at 37%. So not only are they ruining our communities and our jobs, they are also getting a major tax subsidy in the form of this carried interest loophole. Experts estimate that if the loophole was closed it would lower the national debt by 13 trillion dollars over 10 years.

Unfortunately that’s not gonna happen because with their huge influx of profits they also lobby the fuck out of our lawmakers. According to Open Secrets, during the 2024 election alone Private Equity & Investment Firms spent nearly $300 million dollars on influencing our elections. $300 MILLION. In 2024 alone. I literally triple checked that number because I was like surely that’s wrong. But it’s right. And it’s pretty equally split between Democrats and Republicans, actually Democrats took just a bit more, at 55% of the recipients. Kamala Harris was the largest recipient, getting over $2 million dollars for her campaign in 2024. One guess as to why they favored her over Trump, who they also gave nearly a million dollars, is likely because Trump threatened to close the carried interest loophole during his first term, and even as recently as February was pushing to close the loophole as part of the big beautiful bill, but you better bet private equity lobbied that idea away pretty quickly. I’m not sure WHY Trump has advocated for closing the loophole, I can’t imagine it’s out of the goodness of his heart, though.

Okay, so that’s all well and good, but private equity has been chugging along ruining the american dream for decades at this point, Elizabeth Warren and others have been screaming about the evils of PE for years, why is it getting headlines all of a sudden? Well, my friends, it seems the chickens have come home to roost. For years, Private Equity has benefitted from incredibly low interest rates, so taking on new debts was almost free, making it really easy to buy up businesses, turn a profit, and keep it moving. However, just like interest rates on loans for cars and mortgages have gone up in the last couple years, interest rates for their loans have also increased, cutting into their profit margins. And the returns have been lagging. In fact, last month it was announced that private equity funds underperformed compared to the S&P 500 across all measured time horizons for the first time in 25 years. In fact, the private equity index delivered a 7% return last year compared with a 25% return on the S&P 500. That’s one good year and doesn’t indicate the long term growth potential, but even the 10 year return horizon had the S&P 500 beating out private equity. This has investors quaking in their boots and reflects the fact that in the last year or two, private equity has been having a harder and harder time flipping businesses. They’re running out of investors and they’re running out of capital. This is why Harvard and Yale are attempting to offload literally billions of dollars of private equity from their endowments in order to move their money into more dependable assets.

And because the businesses that private equity firms invest in are PRIVATE, the process for how they estimate the value of their holdings is very opaque and usually speculative and outright made up. An educated guess, at best. More often, a lie used to beef up their value. Turns out much of our economy is just based on made up value exchanged between rich people back and forth forever. And one fun trick they use is called “NAV squeezing”. NAV is net asset value, that’s the value of the asset they have listed in their books. Again, it’s a guess. And now that the private equity market isn’t doing great, they’re selling their holdings on the secondary market, to other investors, at 10% less than the net asset value listed in their books. But then the buyers of that asset can turn around and put the same net asset value on THEIR books, even though they spent 10% less than that to acquire the assets, making it look like they just made an IMMEDIATE windfall on their investment. But this downward spiral means that they need more and more suckers to inject the market with new money and buy these rapidly depreciating assets. They are basically at this point running a legalized ponzi scheme, where you are no longer able to turn a profit on the money your existing investors gave you, so you need to find more investors and use THEIR money to pay off your existing investors. That is a textbook Ponzi scheme. But it’s perfectly legal in the private equity world.

And WHERE, pray tell, are these private equity firms going to find their new suckers to inject cash into their failing businesses? In you, my dear. And me. And all the poors who have been traditionally locked out of the private equity investment game until now. Now that they have rung the existing market dry, they want to palm off these crap investments onto all of US, so that when the bubble finally bursts, when the same thing inevitably happens after the latest injection of money runs dry, WE’LL be the ones left holding the bag.

The Wall Street Journal reported last week that Trump is planning to announce a new Executive Order that would allow your employers to begin investing into private equity as part of your 401k plan. So now in your target year fund, you know if you plan to retire in 2065 your 401k dollars are invested in that fund, well it might now include private equity as part of the investment. WHY would he do this? Well it will be sold to us as a liberalization and democratization of our markets, now every day schmucks will have access to investment assets that for the last 40 plus years have been exclusively the domain of the wealthy, again up until now you could only invest in private equity if you made $200,000 per year or had a million dollar net worth, not including your primary residence. But thanks to the benevolence of Donald J. Trump, you can now benefit from the promise of riches in the private equity markets. Indeed, private equity firms have been lobbying for just such a change, injecting millions of dollars into influencing our politicians to open up private equity to our retirement accounts. Once again, this is not out of the kindness of their hearts. It is because the employer-controlled retirement account market is worth over 12 trillion dollars. By opening up our 401ks and similar accounts to be invested into private equity, they are unlocking 12 trillion dollars to continue to fund their ponzi scheme, until that stops working but by then our retirement savings will be wrapped up in these shit investments and we’ll be the ones who suffer while the fund managers will have run off with a huge percent of our money charged in fund management fees and the billionaires who benefitted from the heyday of private equity will get to ride off into the sunset. This has already happened with pension funds, which have been investing in private equity for years. According to an article in Financial Advisor Magazine from last year, “In the last decade, public pension funds have been especially keen on private markets, with private equity now accounting for about 15% of their portfolios. It is remarkable that despite one the best bull markets in recent memory, the funding status of many pension funds worsened. That’s largely because their optimistic assumptions about investment returns (enabled by their private investments) did not pan out.” And a report just released by Americans for Financial Reform reported that “one study found that Florida pensions would have earned a billion dollars more between 1988 and 2011 if they had not invested in private equity.” and that “private equity profitability has been in year-over-year decline for the past 20 years.” That’s the market Trump will benevolently open up to everyday investors if he goes forward with the reported executive order.

But it’s not just Trump that those private equity lobbyists have gotten to. Last week, the House passed the Equal Opportunity for All Investors Act in a unanimous, bipartisan vote. The bill was introduced by Nebraska Republican Mike Flood and co-sponsored by Republican Mike Lawler of New York as well as Democrats Cleo Fields, Shri Thanedar, and Sarah McBride. The bill instructs the SEC to come up with an investment accreditation exam that would allow anyone who can pass the exam be able to invest in private equity and other asset classes typically restricted based on income or wealth level. The idea, again, is that it is democratizing the investment industry, allowing anyone who can prove sufficient knowledge to become an accredited investor, which is required in order to invest in private equity. According to reporting from sludge, Rep Sarah McBride called the bill ““a commonsense, bipartisan step” to expand opportunities for “women, veterans, and communities of color.” The bill has been endorsed by the Securities Industry and Financial Markets Association (SIFMA), a major trade group representing broker-dealers, investment banks, and asset managers that stand to benefit from an expanded pool of eligible investors.” Once again, it’s being sold as simply a “common sense” move to compromise with the securities industry that definitely also thinks it will be good for “women, veterans, and communities of color.”

Sludge goes on to report, quote “Opponents like Americans for Financial Reform argue that private markets are fundamentally tilted in favor of wealthy, well-connected insiders. In their view, these markets lack transparency, carry high risks, and allow issuers to selectively share information. Elite investors get better terms, pricing, and access, while ordinary investors are left exposed and uninformed. They warn that this kind of deregulation has a long history of benefiting insiders while leaving retail investors to bear the fallout.”

More proof that this is a wolf in sheep's clothing, the CEO of BLACKROCK is chomping at the bit to offer private equity investment to the masses. According to reporting from Financial Advisor Magazine back in May, BlackRock CEO Larry Fink “argued in his latest annual letter to shareholders that ordinary investors would be better diversified with private assets. He also complained that excluding them from private investments thus far has widened wealth inequality as rich investors became even richer buying fast-growing, tech-driven private businesses.”

The article goes on to say “Fink isn’t wrong, but he neglects to mention that much of the wealth from private equity was made when the industry was small and the opportunities were plentiful, beginning in the 1980s through the 2000s. Now it’s just the opposite. He also leaves out that the top quartile of private equity investors took home most of the profits in that period, leaving other PE investors no better off than they would have been in stocks, and many of them worse off. … ordinary investors are decades late to the private-asset party. The investor-friendly move would have been to give everyone access to private markets from the start.” Instead, they are attempting to jump ship and pass the shitty investments on to us, selling it to us as democratization of access so that we invest our 401k money into private equity or take an accreditation test to put our pocket change into private equity. ““I would argue that a lot of investors shouldn’t go anywhere near this,” certified financial planner Catherine Valega, told CNBC. “Probably 95% of the country doesn’t even have an emergency savings fund, and now you’re going to tell them, if they’re smart enough, I can invest in private securities. That does not make sense to me.” And Ben Shiffrin, director of securities policy at nonprofit Better Markets told the Wall Street Journal that opening up 401(k)s won’t necessarily level the playing field. “One of my biggest worries is, you’re still going to have the institutional investors get the best offerings…and your retail investor is going to be left with the leftovers.” He said. It genuinely doesn’t make sense, at a time when pensions are suffering, we have zero faith in the existence of social security to support us in our retirement, that everyday Americans should be investing their retirement savings in under-regulated, opaque, often risky investments. Especially considering the entire private equity industry is chomping at the bit for us to do so. They do not have our best interests at heart. They do not care whether any of us lives or dies. They just want cash to inject into their failing businesses and the tax breaks we’re giving them, the ruin to our communities and our jobs, is not enough. They are trying to take us for everything we’re worth, and under Trump and this useless Congress that they have bought out over years they are being given every opportunity to do so.

Okay how to fight back. I think the fact that Trump has shown support for closing the carried interest loophole in the past is an interesting “in” to demand from our lawmakers, whether they’re democrat or republican, to hold him to that promise. That would again reduce the deficit by 13 trillion dollars over 10 years. The Equal Opportunity for All Investors Act is going to the Senate for a vote next, so call your senators to tell them you do not support the act and it will hurt everyday Americans and only benefit the people who have already made their riches in the private equity sector. And if Trump moves forward with his 401k executive order, it doesn’t mean overnight your entire 401k will be moved over to private equity. Because your employer is the administrator of your retirement fund. As such, they have a fiduciary duty under ERISA, the Employee Retirement Income Security Act of 1974, to make sure your retirement fund is invested prudently and they must act in your best interests. They are going to be looking into the potential liability of moving your 401k funds over to private equity before making any moves. And there are plaintiffs lawyers across the country gearing up to file lawsuits if employers move one red cent over to private equity or other risky investment assets. Because as I’ve already said those private equity funds come with truly unconscionable management fees. So the index funds you normally invest in might have a miniscule fee, .2 percent, .03 percent, private equity funds take a 2% fee plus 20% of all earnings. That may be fine for high net worth investors, but that is not a prudent way to invest their employees retirement funds, and plaintiffs lawyers are ready to file lawsuits saying just that. Paul Secunda, former chairman of the ERISA Advisory Council under President Obama and one of the most active class-action ERISA attorneys in the country told the capital forum back in 2023 “I will tell you this, as soon as I see a platform that has private equity or a hedge fund or Bitcoin or any of that type of alternative asset, I will sue in a second.”

So keep an eye on your 401k, start a conversation with your employer–probably HR or payroll or whoever actually manages your 401k stuff, you might need to do some digging and send some emails, because they will be doubly careful if they know you know and you’re watching. If your employer matches your 401k contributions, you should still be putting money away to get the most out of that match, otherwise you’re leaving free money on the table. If you have extra cash to put away for retirement, consider putting it into a Roth IRA, you can contribute up to $7000 per year to your Roth IRA, 8000 if you’re 50 or over, and you have complete control over how that’s invested. I know talking about retirement savings sounds fucking asenine given the current horrors but historical trends do indicate that putting money in the stock market long term if you can, even when things feel incredibly volatile, is the best way to grow wealth. And we can critique capitalism and imagine and push for a better or different system while also existing in the present system where the reality is that not saving for retirement will only work to harm you in the long run. If you are able to put yourself in the best position possible to survive this system while also fighting against it, it is actually better for the fight for you to feel stable and secure than to refuse to engage and just suffer because of it. That’s my opinion. Feel free to tell me to fuck off in the comments cuz it helps the algorithm.

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Thank you to my multi-platinum patrons Marc, Sarah Shelby, Art, David, R_H, L’etranger (Lukus), Thomas Johnson, and Tay. Your generosity makes this channel what it is, so thank you!

And if you liked this episode, you’ll like the one from Wednesday about how the Trump regime is eroding the media.

Leeja Miller
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