CalPERS holds private equity accountable for violating labor standards

The largest public pension fund in the United States, the $500 billion California Public Employees Retirement System (CalPERS), began implementing its policy to address subpar labor practices at some of its private equity firms’ portfolio companies. During the pension fund’s most recent meeting in June, CalPERS managing investment director Anton Orlich revealed that the pension fund had reduced – and in some cases, passed on – investments with private equity funds whose portfolio companies violated CalPERS’ labor standards. 

This move represents a promising step forward in ensuring that private equity firms don’t turn a blind eye to the mistreatment of the millions of employees working at PE-owned portfolio companies. The decision has made waves, earning media coverage in a number of outlets: 

Wall Street Journal, June 10, 2024: Calpers Trims Investments Over Labor Practices
Pensions and Investments, June 11, 2024: CalPERS slashes or eliminates private equity commitments for bad labor practices
Private Equity International, June 17, 2024: Side Letter: CalPERS’ labour concerns
The Nation, June 21, 2024: The World’s Biggest Pension Fund Is Taking a Hard Look at Labor Practices
New Private Markets, June 27, 2024: Labour principles are rising up on LPs’ ESG agendas

Unfortunately for the over 12 million Americans working at private equity-owned companies, many PE firms’ labor practices leave much to be desired: all 11 private equity firms analyzed on PESP’s November 2023 Private Equity Labor Scorecard received grades of “C” or lower, with seven earning failing grades. 

Companies owned by private equity firms have been at the center of multiple labor scandals in recent years: 

• Blackstone-owned Packers Sanitation Services was required to pay $1.5 million in penalties after the U.S. Department of Labor’s Wage and Hour Division found the company employed at least 102 children – some as young as 13 years old – in hazardous occupations, and had them working overnight shifts at 13 slaughterhouses in eight states. 
• Windmill Farms, owned by private equity firm Instar Asset Management, has faced multiple lawsuits for allegations of illegal union-busting.
• When Toys “R” Us collapsed in 2017 under the weight of the $5 billion in debt piled on by its PE owners KKR and Bain Capital, 33,000 workers lost their jobs. 

In addition to the testimonies of mistreated workers and the advocacy of unions and worker organizations, CalPERS pointed to PESP original research as a vital resource in evaluating labor conditions across PE-owned companies. For more on the increasing adoption – and enforcement – of labor standards among PE investors, PESP has compiled a labor policy comparison document.