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Illustration: Lazaro Gamio/Axios

Private equity's loudest political antagonists were back at it over the weekend, wrongly arguing that Taylor Swift's contract dispute is illustrative of the industry's rapaciousness.

What happened: While Sen. Elizabeth Warren and Rep. Alexandia Ocasio-Cortez each tweeted that private equity must be "reined in," they'll need to publicly wrestle at some point with how private equity is fueled by public pension systems that they otherwise support.

How it works: U.S. public pensions are the single largest investor in U.S. private equity funds, according to the most recently-available data, having hundreds of billions of dollars of exposure.

  • They've also increased their participation in direct private equity deals, often via co-investments with portfolio managers, with PitchBook reporting that 2018 saw a record number of domestic PE deals with public pension participation.

Why it matters: Any new regulation on U.S. private equity could have downstream impact on U.S. public pensions, many of which already have long-term challenges in meeting their member obligations.

  • Some changes, such as around the tax treatment of carried interest, would have a relatively small impact, if any.
  • Some changes, like Warren's plan to make PE funds liable for leveraged financing, would significantly impact public pension returns and allocation plans.

Yes, but: A popular progressive argument is that public pensions shouldn't invest in fee-heavy private equity at all, instead putting that money into public equity index funds.

  • There is some data to back this up, but it tends to ignore the value of diversification for public pensions with ongoing obligations, and imply that the past decade's bull run for public equities is normal.

The bottom line: Private equity and public pensions are tightly interconnected. To see the change they want, Warren and AOC may ultimately need to focus less on Taylor and Twitter, and more on the public pension leaders who represent part of their base.

Go deeper:

Go deeper

Senate confirms retired Gen. Lloyd Austin as defense secretary

Photo: Greg Nash-Pool/Getty Images

The Senate voted 93-2 on Friday to confirm retired Gen. Lloyd Austin as secretary of defense. Sens. Mike Lee (R-Utah) and Josh Hawley (R-Mo.) were the sole "no" votes.

Why it matters: Austin is the first Black American to lead the Pentagon and President Biden's second Cabinet nominee to be confirmed.

House will transmit article of impeachment to Senate on Monday, Schumer says

Photo: Drew Angerer/Getty Images

Senate Majority Leader Chuck Schumer (D-N.Y.) announced that the House will deliver the article of impeachment against former President Trump for "incitement of insurrection" on Monday.

Why it matters: The Senate is required to begin the impeachment trial at 1pm the day after the article is transmitted.

Dan Primack, author of Pro Rata
2 hours ago - Politics & Policy

Private equity bets on delayed tax reform in Biden administration

Illustration: Brendan Lynch/Axios

In normal times, private equity would be nervous about Democratic Party control of both the White House and Congress. But in pandemic-consumed 2021, the industry seems sanguine.

Driving the news: Industry executives and lobbyists paid very close attention to Treasury Secretary nominee Janet Yellen's confirmation hearings this week, and came away convinced that tax reform isn't on the near-term agenda.

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