Illustration: Eniola Odetunde/Axios

Police unions are under a political microscope, with reformers arguing that they too often help keep bad cops on the streets.

Why it matters: This controversy could soon move beyond elected officials to venture capital and private equity firms that count police unions among their limited partners.

Public employees unions have long invested in alternative investment funds, from mega-groups like CalPERS and CalSTRS down to small town firefighter pensions.

  • The NYC Police Pension Fund, for example, had around $2.5 billion worth of private equity investments as of last June, representing around 5% of its investment assets.
  • The L.A. Fire & Police Pensions had nearly $2.7 billion worth of private equity investments as of the end of March, representing 12.5% of its investment assets.
  • In both cases, venture capital funds are included under the "private equity" umbrella.

VC and PE firms are partial to public pensions because most of them are still defined benefit plans, and are particularly partial to public safety unions because it makes them feel like noble benefactors.

  • I recall a conversation from years ago with a VC (now retired) who took great pride in how his hometown’s fire department was among his firm’s limited partners. It was tiny compared to most of the other LPs, but it was the one he wanted to talk about.

Yes, but: Now police unions are beginning to get looked at as an exception to the rule.

  • In politics, for example, House Democrats are shelving a bill they introduced last year to enable more police to unionize, with its co-sponsor telling Axios that it could “contribute to acts of police brutality."
  • One major Bay Area venture firm tells me, on background, that it doesn’t have any police pensions as direct LPs, but is looking to see if it has any indirect police pension investors via funds-of-funds.
  • A spokesperson for Vista Equity, which counts both NYC and LA police pensions among its LPs, declined to respond to a request for comment — which is anything but a vote of confidence. Another PE exec, whose firm is currently fundraising, said “there’s no way in hell I want to be part of that story.”

To be clear, there isn't an active divestiture movement. And there won’t be, because it’s virtually impossible to force out an existing LP, so long as it keeps meeting its capital calls.

  • Plus, there is a very delicate balance between supporting the pensions of individual police officers and possibly opposing the organizations that oversee those pensions.

But don't be surprised if certain firms take this moment to reassess future fundraising, particularly in light of renewed (or new) emphasis on helping to improve racial equity. In addition to hiring, investment and philanthropy, it's an area where VC and PE firms can wield influence.

Go deeper

Dan Primack, author of Pro Rata
Aug 26, 2020 - Economy & Business

Venture capital firms to include "diversity riders" in term sheets

Illustration: Aïda Amer/Axios

Ten venture capital firms on Wednesday will announce that they're now including "diversity riders" in term sheets submitted to startups, requiring that best efforts are made to bring underrepresented investors into the deals.

Why it matters: This is a tangible effort to diversify cap tables and, in so doing, expand access to investors who have historically been excluded.

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Climate change goes mainstream in presidential debate

Photo illustration: Aïda Amer/Axios. Photo: Olivier Douliery-Pool/Getty

The most notable part of Thursday’s presidential debate on climate change was the fact it was included as a topic and assumed as a fact.

The big picture: This is the first time in U.S. presidential history that climate change was a featured issue at a debate. It signals how the problem has become part of the fabric of our society. More extreme weather, like the wildfires ravaging Colorado, is pushing the topic to the front-burner.

Finally, a real debate

Photo: Morry Gash/AP

A more disciplined President Trump held back from the rowdy interruptions at tonight's debate in Nashville, while making some assertions so outlandish that Joe Biden chuckled and even closed his eyes. A Trump campaign adviser told Axios: "He finally listened." 

The result: A real debate.