The Finance 202: Public pensions to pressure Wall Street fund managers supporting GOP objectors to Biden win

Meanwhile private equity and hedge fund executives who provide critical support to Republican candidates and groups have largely flown under the radar. But that is beginning to change. 

“We’re going to investigate and ask questions of our fund managers,” Illinois State Treasurer Michael Frerichs (D) tells me. “Are their giving patterns destabilizing our government, which would lead to the destabilization of our country? This is not about giving money to Republicans and Democrats — this is about extremists. We’re going to insist on a higher standard of disclosure when it comes to political giving, and we’re going to be asking a series of questions as part of our due diligence.”

The Illinois State Board of Investment oversees $19.8 billion in assets, of which $943 million is invested in private equity, according to the board’s most recent report, through the first half of last year. The Blackstone Group invests a chunk of the private equity portfolio most recently valued at $22.5 million — and significantly more, $282 million, through its real estate funds, plus another $9 million invested in opportunistic debt.  

Stephen Schwarzman, the firm’s CEO, has been among President Trump’s steadiest champions and advisers on Wall Street. He also proved to be the third-most generous individual donor to Republicans who backed the president in trying to subvert his November loss, according to a tally by the Center for Responsive Politics. 

The billionaire — who along with his wife contributed $45.5 million to promote Republicans over the last election cycle — acknowledged President-elect Joe Biden’s victory in late November. And he declared himself “shocked and horrified” by the mob attack on the Capitol.  

But he has declined to say whether he will reevaluate his political activity. A Blackstone spokesman said: “We are committed to transparency for our investors and Blackstone has never had a corporate PAC. All of Steve’s individual political donations are publicly disclosed through the Federal Election Commission website.”

“Steve Schwarzman once said that asking people like him in private equity to pay fair taxes was like the Nazis invading Poland,” he said, referring to Schwarzman’s infamous 2010 comment objecting to higher taxes on investment fund managers. “Now that there are actual Nazis in the Capitol, supported by people he funded, we’re interested in what he intends to do about it.”

Beyond Schwarzman, Silvers singled out fund managers who have also “been major funders of people who supported the coup. The AFL-CIO thinks they need to do something right now. We’re looking for them to do what other major actors have been doing — at a minimum, as individuals, call a halt to their activities until they can assess what’s going on.”

As we noted here earlier this week, three fund managers alone — Schwarzman, Citadel CEO Ken Griffin, and Elliott Management CEO Paul Singer — together contributed about $118 million to GOP-aligned groups over the last two years. In that same period, all corporate political action committees combined gave $205 million to support the party, according to data from the Center for Responsive Politics.  

A Griffin spokesperson declined to comment and Elliott Management did not respond to a request for comment. 

“This is something that is happening quickly,” Frerichs says, adding that Illinois officials have started “working with other institutional investors in looking at corporate giving.” 

Two California public pension funds, CalSTRS and CalPRS — the top two in the nation by assets, with roughly $723 billion between them — could follow suit. 

“It is more important than ever that asset owners and investors use their capital and influence to support a future where Americans can unite and prosper equitably,” CalSTRS CEO Jack Ehnes said in a statement, noting the fund “fervently condemns recent violence against our country’s longstanding democratic processes and supports a peaceful transition of power to the incoming administration.”

CalPERS board president Henry Jones struck a similar note. “Now more than ever, investors have an opportunity to unite America by supporting equity, equality and using capital to promote opportunities that benefit people from all walks of life,” he said in a statement. 

New York City Comptroller Scott Stringer (D) — investment adviser to the city’s five pension funds, with a combined $225 billion in assets — is sending a letter today to eight such corporations: AT&T, Boeing, Comcast, Home Depot, Lockheed Martin, Northrop Grumman, Raytheon and UPS. He identifies them as among the 20 largest contributors to the 147 Republicans who opposed certifying Biden’s election victory, and he demands the firms cut off those lawmakers.

In the missives, he notes New York City’s pension funds have “robust policies” to mitigate risks, including those from political spending. “These risks have never seemed more consequential,” he writes, italics his. 

“Financial contributions by companies to these members of Congress who amplified unfounded conspiracy theories of election fraud is beyond the pale, and ultimately resulted in a violent insurrection orchestrated in part by white supremacists, domestic terrorists and neo-Nazis,” Stringer said in a statement. “It is in shareowners’ interests for portfolio companies to promote policies that align with political stability, economic growth, accountability, and justice.”

The president-elect went prime-time with his pitch: “Biden is aiming to get GOP support for the measure, although at nearly $2 trillion the price tag is likely to be too high for many Republicans to swallow. But after campaigning as a bipartisan dealmaker, Biden wants to at least give Republicans the opportunity to get behind his first legislative effort as president,” Erica Werner and Jeff Stein report.

“Biden’s proposal is divided into three major areas: $400 billion for provisions to fight the coronavirus with more vaccines and testing, while reopening schools; more than $1 trillion in direct relief to families, including through stimulus payments and increased unemployment insurance benefits; and $440 billion for aid to communities and businesses, including $350 billion in emergency funding to state, local and tribal governments.”

$1 trillion for struggling families:

• $1,400 in direct funds on top of the $600 in aid approved by lawmakers last month.
• Increase unemployment benefits to $400 per week (currently $300) and extend the program through September (currently ends in mid-March).
• $25 billion in rental assistance and an extension of eviction and foreclosure moratoriums to the end of September.
• The plan calls for raising the federal minimum wage to $15 per hour.
• A significant expansion of an existing tax credit for children in poor and middle-class households.

$400 billion for pandemic response: 

• $20 billion toward a vaccination program in partnership with states, localities, tribes and territories.
• $50 billion to expand testing, cover the purchase of rapid tests, expand lab capacity and help schools and local governments with testing protocols.

$440 billion for communities and small businesses:

• $15 billion in grants for small businesses.
• $350 billion in emergency funding for state, local and territorial governments.

• More than 23,249,000 cases have been reported; more than 387,000 have died — as the official global death toll approaches 2 million. 
• Experts warn of vaccine stumble: “The lack of coordination between the Trump administration and Biden’s transition team has alarmed public health officials and experts on presidential transitions, especially as a more contagious virus variant first identified in Britain spreads across the United States and the CDC projects as many as 477,000 covid-19 deaths by Feb. 6,” Laurie McGinley, Amy Goldstein, Lena H. Sun and Isaac Stanley-Becker report.
• New York City renters owe over $1 billion: “The debt figure is the most recent indicator that unemployment benefits and federal stimulus packages have so far been inadequate to alleviate the growing financial burden of missed rent payments across thousands of city households. Both landlord and tenant advocacy groups have lobbied heavily for more government rental assistance during the pandemic,” the Wall Street Journals’ Will Parker reports.

• Delta’s rough record year: “The airline reported a record $6.8 billion loss for 2020, excluding special items. Including those items, its net loss for the year was $12.4 billion. A year earlier, Delta had reported record revenue and operating profits … Although air travel picked up in the fourth quarter as people traveled for the holiday season, it was still only at a fraction of year-earlier levels. Delta’s revenue plunged $7.5 billion, or 65 percent, during the quarter, leaving it down $29.9 billion for the full year,” CNN Business’s Chris Isidore reports.
• Americans spent a record online over the holidays: Purchases grew “32.2 percent from 2019, totaling a record $188.2 billion as shoppers stayed home and shopped on the web during the pandemic, according to Adobe Analytics. E-commerce sales during November, which included Black Friday and Cyber Monday, reached $100 billion for the first time, said Adobe, which tracks the web transactions of 80 of the top 100 internet retailers in the U.S,” CNBC’s Lauren Thomas reports.
• Petco shares surge amid pandemic pet boom: “Shares closed Thursday at $29.40, putting the company’s market value at $6.4 billion. The stock had opened at $26, or 44 percent above its debut price …Petco’s customer base has grown during the pandemic, as more Americans adopt new dogs and cats or get other critters, like lizards and hamsters,” CNBC’s Melissa Repko reports.

Investors were anxious to see Biden’s stimulus plan: “The Dow Jones Industrial Average slipped 68.95 points, or 0.2 percent, at 30,991.52. Earlier in the day, the 30-stock average rose more than 150 points. The Nasdaq Composite dipped 0.1 percent to 13,112.64 after hitting an all-time high earlier in the session. The S&P 500 closed 0.4 percent lower at 3,795.54,” CNBC’s Fred Imbert reports.

“Shares of Facebook dropped 2.4 percent. Amazon, Netflix, Microsoft and Apple all declined by more than 1 percent. Alphabet dipped 0.9 percent.” (Amazon CEO Jeff Bezos also owns The Washington Post.)

The central bank chair pointed to the job market’s long recovery ahead. The NYT’s Jeanna Smialek: “During a webcast question-and-answer session, Mr. Powell said it would take time for the economy to recover from the pain of the pandemic era. ‘When the time comes to raise interest rates, we will certainly do that,’ he said. ‘And that time, by the way, is no time soon.’

“Currently, dire short-term conditions — surging virus deaths, high unemployment, and partial state and local economic lockdowns — contrast sharply with the longer-term outlook. Economists think that the economy might come roaring back later in 2021 as vaccines allow normal life to resume and consumers spend money they saved during the pandemic.”

The world’s largest asset manager continues to grow: BlackRock was “buoyed by a rising stock market that boosted the firm’s assets under management to a record high $8.68 trillion, further widening its lead against peers,” Reuters’s Saqib Iqbal Ahmed and Ambar Warrick report. “The firm drew $127 billion of total net inflows in the fourth quarter as investors poured money into its various business, including its exchange-traded funds, as well as active funds that aim to beat the market.”

• JPMorgan gets a lift from trading results and releasing money set aside for loan losses. “JPMorgan CEO Jamie Dimon cited the two major developments that happened in late 2020 – news of effective coronavirus vaccines and another round of government stimulus – as reasons for taking down his bank’s reserves,” CNBC’s Hugh Son reports. “The firm said it released $2.9 billion from its pile of cash set aside for expected loan defaults in the quarter, resulting in a $1.9 billion boost to results after about $1 billion in charge-offs.”

Goldman Sachs closer to offering consumer checking accounts: “The Wall Street giant will work with the digital-payments upstart Marqeta on the offering, which it will debut later this year … Marqeta Chief Executive Officer Jason Gardner said Goldman plans to use the firm’s technology to issue debit cards into mobile wallets, and for offerings that provide customers with real-time access to spending data,” Bloomberg News’s Jennifer Surane reports.

“Goldman Sachs has so far been fairly tight-lipped on what the checking account might look like. In October, Visa Inc. announced it had won a deal to be the network for the digital account’s inaugural debit card.”

Wells Fargo close to deal to sell asset management business: The bank manages more than $607 billion on behalf of customers and is eyeing a sale to “a private equity consortium led by GTCR LLC and Reverence Capital Partners LP,” Reuters’s Joshua Franklin and David French report.

“The divestment would represent the U.S. bank’s biggest shake-up since former Bank of New York Mellon Chief Executive Charles Scharf joined as CEO in 2019.”

The Trump administration finally drops its push to privatize the mortgage giants. “The announcement by the Treasury Department and the companies’ federal regulator leaves it to the incoming Biden administration to decide the future of the firms, which were put under government control during the 2008-09 financial crisis through a process known as conservatorship,” WSJ’s Andrew Ackerman reports. 

“Advisers close to President-elect Joe Biden have said he would be in no hurry to privatize the companies, which guarantee roughly half of the $11 trillion U.S. mortgage market. Instead, Mr. Biden would focus on ways to use the companies to boost housing affordability and promote homeownership, the advisers said.”

The industry scourge was denied a waiver to continue on the panel. “Democrats on exclusive committees are barred by caucus rules from serving on any other committee without a waiver from the party’s steering committee, a panel of several dozen lawmakers chaired by Speaker Nancy Pelosi (D-Calif.) that determines committee assignments,” The Hill’s Sylvan Lane reports. 

“Porter, a former financial law professor known for dressing down administration officials and executives in hearings, was appointed to the Financial Services Committee and received a waiver to serve on the House Oversight and Reform Committee during her first term… Porter will hold onto her seat on the Oversight Committee and join the Natural Resources Committee this year… Both committees are non-exclusive, meaning a member can serve on several.”

• The Census Bureau releases estimates of retail and food sales for December
• JPMorgan Chase, Citigroup and Wells Fargo are among the notable companies reporting their earnings