AFT Wants to Keep Teachers’ Pensions in the Hand of Pro-Pension Fund Managers

One of the ironies of 21st-century financial capitalism is that one of the biggest sources of income for mega-rich fund management types is the pension funds of public sector workers. At the same time, “education reform” groups are one of the favorite causes of the hedge fund set. And reform groups generally want to replace defined benefit pensions with defined contribution schemes, as either part of an effort to reduce labor costs or else to reduce the tendency of teacher compensation plans to overweight seniority. Consequently, you have teachers investing their defined benefit pensions with people who give money to groups that lobby against defined benefit pensions.

But perhaps not for long! The American Federation of Teachers has published a kind of fund manager blacklist (PDF), urging member unions to keep their cash out of the hands of AQR, Elliott Management, KKR, ThirdPoint, and other firms whose leaders donate to Students First, the Show-Me Institute, and the Manhattan Institute.

This is an interesting strategy. Historically, American labor unions have not been very effective at mobilizing their pension clout on behalf of broad ideological goals. You could imagine a world in which union pension funds form a kind of investor’s cartel that exclusively provides capital to firms that are unionized or that agree to organizer-friendly card-check unionization processes. But in practice it doesn’t happen. The unions act as stewards of their members’ interest in getting a good investment return rather than on behalf of a broader ideology. But in the case of what AFT is doing here, they’re trying to mobilize investment money on behalf of a teacher-specific political issue and you can imagine it working. It strikes me as rather unlikely that Dan Loeb and others in this position are actually deeply invested in pushing for Michele Rhee’s vision of pension reform. If it costs them business, they’ll either find some other political cause to support or persuade reform groups to focus on some other issue.