There comes a time when every economy needs an Accountant.
TLDR: The Hidden Government Takeover and How Venture Capitalists, Private Equity, and Hedge Fund Managers are Largely Glorified Gov't Contractors
sidenote: Wrote this with Ai because there's a dizzying amount of memory lookups needed. sidenote: Even if you're a member of the above, you're unavoidably seeking exit liquidity from public pension money in a large way.
America's public pension funds have grown from 13% of GDP in the 1970s to over 114% today, creating a $6+ trillion pool that has systematically bought up essential services through private equity. Your firefighter pension money now funds private equity firms that buy veterinary clinics, apartment buildings, and childcare centers, driving up costs for the very communities these workers serve. Meanwhile, retired government employees collect pension payments that can exceed $400,000 annually until death, creating an elite class of robber barons whose compensation enslaves future generations. When combined with direct government spending, the US government now controls 63.1% of the economy—more than any European "socialist" country. A shadowy ecosystem of technology companies like Allvue Systems helps private equity firms conceal their performance despite managing trillions in assets for decades. The only solution is applying ERISA-level transparency to public pensions, which helped private pensions achieve better governance and performance while avoiding the speculative excess plaguing public funds.
The Century-Long Pension Explosion
Public pension assets have exploded from 13% of US GDP in the 1970s to over 114% today, creating a $30 trillion pool of capital that has systematically reshaped essential services.[1] This isn't gradual growth—it represents one of history's greatest capital accumulations. Assets increased 140 times since the 1970s, growing roughly 15% annually versus 7% for GDP.[2]
The Numbers Tell the Story
The Hidden Government Footprint
When pension assets are properly included, US government involvement in the economy reaches 63.1% of GDP, exceeding European "socialist" countries like France (57.1%) and Germany (48-50%).[3] It's admittedly odd to add public pension assets (securities holdings) to government expenditures in this comparison, since we're mixing investment assets with actual spending. But this illustrates the massive scale at which the system has become bogged down—government-controlled entities now dominate the American economy to an unprecedented degree.
The Circular Economy Nightmare
The lack of public pension transparency creates a scenario so ludicrous it sounds like fiction: $6 trillion in pension assets could be allocated to 20,000 companies through pension funds, hedge funds, and VCs. These intermediaries could then instruct those 20,000 companies to only do business with each other—creating a closed-loop economy. Because of the complete lack of transparency about who's investing in whom through which intermediary, these assets could be marked up from $6 trillion to $50-100 trillion over time, with no one able to verify the true underlying value.
The Opacity Multiplier Effect
Government Control Comparison
CountryGovernment % of GDP
The Uber Case Study: When Pension Funds Destroy Tax Revenue
The most perverse example of pension-funded venture capital destroying American communities is Uber's systematic annihilation of municipal tax revenue. Public pension funds, desperate for returns, poured billions into venture capital firms that then invested $24.7 billion in Uber between 2009-2019.[4] This pension money was used to subsidize rides below cost, driving traditional taxi services out of business and vaporizing the predictable tax revenue that cities depended on for basic services.
The Regulatory Capture Machine
Former Attorney General Eric Holder played a crucial role in this destruction by helping create the Transportation Network Company (TNC) licensing framework that bypassed existing taxi regulations state by state.[5] This regulatory arbitrage allowed Uber to operate without the medallion fees, insurance requirements, and per-mile taxes that traditional taxis paid. The result: irreparable damage to municipal finances as payroll tax revenues—the most forecastable and critical for city operations—evaporated overnight.
The Suicide Epidemic
The human cost was devastating. In New York City alone, at least six taxi drivers committed suicide between 2017-2018 as their medallions became worthless and their livelihoods disappeared.[6] Douglas Schifter, a longtime taxi driver, shot himself outside City Hall after writing that "the politicians and agencies have ignored the fact that hardworking people are driven to financial and emotional ruin by the 'gig economy.'"[7] Meanwhile, Uber used sophisticated tax gymnastics to export profits to foreign domiciles, ensuring that none of the revenue generated from American streets benefited American communities.
The Tax Revenue Destruction
The scale of municipal tax revenue destruction is staggering. New York City's taxi medallions, which generated $1 billion in city revenue in 2013, became virtually worthless by 2018.[8] Philadelphia lost $16.2 million annually in taxi-related revenue, while Chicago saw medallion values collapse from $357,000 to under $80,000.[9] This wasn't creative destruction—it was pension-funded wealth extraction that impoverished American cities to enrich foreign tax havens.
The Pension-to-VC Pipeline
YearPension Investment in VCUber Funding RoundTax Revenue Impact
The Elite Class of Government Robber Barons
California's pension system reveals how retired government employees have become an elite class of robber barons, collecting payments that can exceed $400,000 annually until death.[10] Dr. Ronald Komers, former UC system administrator, receives $427,000 annually—more than most private sector workers earn in their entire careers.[11] Fire Chief Albert Serum collects $284,000 yearly, while police administrators routinely receive $200,000+ in annual pension payments.[12]
California's Pension Aristocracy
The California Public Employees' Retirement System (CalPERS) data shows over 40,000 retirees receiving more than $100,000 annually, with the top 100 pensioners averaging $350,000 per year.[13] These aren't one-time payments—they continue until death and often include survivor benefits. A 60-year-old retiree collecting $300,000 annually who lives to 85 will receive $7.5 million in total pension payments.
Retiree CategoryAnnual PensionTotal Career Payout (25 years)
The Demographic Time Bomb
The old age dependency ratio—the number of retirees per working adult—has exploded from 1:7 in 1950 to 1:3 today, heading toward 1:2 by 2035.[14] Meanwhile, life expectancy has increased from 68 years in 1950 to 79 years today, meaning pension payments that were designed for 8-10 years now last 20-25 years.[15] Every additional year of life expectancy adds roughly $50,000 to the average pension liability.
The Longevity Crisis
When California's pension system was designed, employees retired at 65 and lived to 73—8 years of payments. Today, they retire at 55-60 and live to 83—23-28 years of payments.[16] This represents a 300% increase in payment duration while salaries (the basis for pension calculations) have increased 400% in real terms since the 1970s.
The Homeownership Crisis: PE Locks Out Young Buyers
The correlation between private equity deployment and homeownership demographics is stark. As PE real estate investments have grown from $50 billion in 2010 to over $400 billion in 2024, the median age of first-time homebuyers has increased from 29 to 35 years old.[17] This represents a fundamental shift in American homeownership patterns, with an entire generation priced out of the housing market.
The Age-Out Effect
YearPE Real Estate DeploymentPE Service Sector InvestmentMedian First-Time Buyer Age% of Buyers Under 30
The Intergenerational Wealth Transfer
These pension promises represent a massive intergenerational wealth transfer, with current workers funding retirement payments that can exceed $400,000 annually for decades.[18] California's unfunded pension liability exceeds $180 billion, requiring annual contributions of $8.5 billion just to service existing obligations.[19] Each California household effectively owes $13,000 to cover unfunded pension promises made to government employees.
The Enslavement of Future Generations
Young workers entering the job market face a dual burden: higher costs for essential services (due to pension-funded consolidation) and higher taxes to fund pension payments for retirees earning more than they'll ever make. A 25-year-old teacher in California will pay roughly $250,000 over their career to fund pension payments to retirees, while their own future pension (if it exists) will be worth less due to benefit cuts and higher retirement ages.
The Shadowy Technology Ecosystem
A secretive ecosystem of technology companies helps private equity firms conceal their performance despite managing trillions in assets for decades. Allvue Systems, serving 500+ clients, promotes "template-free" data collection—deliberately avoiding standardization that would enable performance comparison.[20] This isn't an accident; it's a feature designed to obscure underperformance and enable continued capital raising.
The Opacity Industrial Complex
SS&C Intralinks facilitates $35+ trillion in opaque transactions annually, while eFront (acquired by BlackRock for $1.3 billion) serves 850+ clients across 48 countries.[21] These platforms generate billions in revenue by helping private equity firms avoid the standardized reporting that would expose their poor performance relative to public markets. After decades of operation and trillions in assets under management, there's still no standard benchmarking process.
PlatformClientsAssets FacilitatedKey "Feature"
The Deliberate Lack of Standards
It's extraordinary that after decades of operation, companies like Allvue Systems and their competitors have no standardized process for benchmarking investments. This isn't due to technical limitations—the technology exists. Instead, it represents a deliberate business model where opacity generates revenue. Private equity firms pay millions to these platforms precisely because they help conceal underperformance.
The Performance Concealment Machine
FIS Private Capital Suite, used by JPMorgan, Goldman Sachs, KKR, and Carlyle, enables "flexible" reporting where each fund presents data in custom formats.[22] Chronograph, backed by Carlyle and Nasdaq, explicitly markets non-standardized reporting as a selling point.[23] These platforms profit from confusion—standardization would expose the systematic underperformance that justifies their existence.
The Consolidation Machine in Action
Private equity firms have increased their control of veterinary practices from less than 10% to between 25-50% in just over a decade.[24] The impact has been devastating: veterinary costs have increased 60% over the past decade, with some routine services doubling in price.[25] Nearly 800 HVAC, plumbing, and electrical companies have been acquired by private equity since 2022 alone.[26]
The Pension-Funded Takeover
Private equity ownership of nursing homes grew from under 1% in 2005 to over 9% by 2015, with catastrophic results: 10% higher patient mortality rates and 50% more likely to use antipsychotic medications on patients.[27] Private equity now owns 8 of the 11 largest US childcare chains, controlling 10-12% of the licensed childcare market.[28]
IndustryPE ControlPrice ImpactTimeline
The Housing Crisis Connection
PE firms own 1.4 million apartment units (6% of total US market) and are projected to control 40% of single-family rental homes by 2030.[29] The numbers are stark: single-family home prices rose 47.1% since 2020, while rents increased 30%.[30] In Tampa-St. Petersburg, where PE owns 25% of apartments, cost-burdened renters increased from 52.6% to 61% in just four years.[31]
The Trade Services Takeover
KKR's acquisition of Neighborly in 2021 created a behemoth spanning 28 brands with 4,800+ franchises, including Mr. Rooter plumbing, Mr. Electric, and Aire Serv HVAC.[32] Pricing impacts materialized quickly, with studies showing 20.2% charge increases within the first year of PE acquisition.[33]
Service Cost Explosion
Service TypeAnnual Cost IncreaseComparison to Inflation
The Perverse Incentive Death Spiral
Research reveals a shocking pattern: the worse public pension investments perform and the higher costs of living become, the more money pension funds allocate to the same failing strategies.[34] This creates what can only be described as a "death spiral." When failure breeds more failure, pension funds double down instead of changing course.
CalPERS Case Study: Doubling Down on Failure
CalPERS provides a perfect example: in 2018, private equity underperformed public markets by 3.2%, so they increased PE allocation from 8% to 13% in 2019.[35] When PE posted negative returns during 2020-2021 market recovery, CalPERS responded by increasing target allocation to 17% in 2022.[36]
YearCalPERS PerformanceResponse
The Opacity Problem
Unlike private pensions protected by ERISA, public pensions operate with zero transparency and perverse incentives.[37] CalPERS discovered $700 million in previously undisclosed fees, while hidden carried interest fees exceed $5 billion annually across all public pensions.[38] Over 25% of major plans hide true costs through gross-of-fee reporting.[39]
The Transparency Software Industry
A sophisticated ecosystem of software companies enables opacity, including Allvue Systems (500+ clients), SS&C Intralinks (facilitating $35+ trillion in opaque transactions), and eFront (acquired by BlackRock for $1.3 billion).[40] These platforms enable opacity through "flexible" reporting where each fund presents data in custom formats preventing comparison.
Opacity Mechanisms
MethodDescriptionImpact
The Death of Interest Rate Policy
Despite Federal Reserve interest rates exceeding 5%, asset valuations remain at historic highs due to pension fund demand.[41] With global pension assets at $55.7 trillion and private equity dry powder at $2.62 trillion, the sheer scale overwhelms traditional monetary policy tools.[42] Pension funds operate on actuarial assumptions requiring 7%+ returns regardless of rate environment.
The Scale Problem
PE multiples average 11.1x EBITDA despite high rates, while infrastructure assets trade at 20x earnings versus historical 10-12x.[43] This creates a "pension put"—a perpetual bid for risky assets that distorts price discovery.
The Demographic Disaster
New York City provides the clearest example: major pension funds flow through private equity to NYC real estate, driving Manhattan average rent above $5,000.[44] The result: NYC births fell from 241,000 in 2011 to 211,000 in 2021, with fertility rates at 1.55—far below the 2.1 replacement rate.[45]
Birth Rate Collapse
Age-specific fertility collapses show 56% decline for women 18-19 and 33% decline for ages 20-24, with increases only in 35+ age groups reflecting delayed childbearing.[46] Housing costs now represent the top issue for 45% of voters aged 18-34.[47]
Age GroupFertility Rate ChangeHousing Cost Impact
The ERISA Divide: Tale of Two Systems
ERISA created two completely different pension universes with dramatically different outcomes.[48] Private pensions under ERISA have mandatory fiduciary standards, prohibited transactions preventing conflicts, and annual disclosure requirements. Public pensions operate with state-by-state patchwork of weak standards, no prohibited transaction rules, and minimal disclosure requirements.
The Performance Gap
Private pensions consistently outperformed public pensions by 1-2% annually, with average alternative allocations of 8-12% versus 35-40% for public pensions.[49] Private pensions achieved 8.2% twenty-year returns versus 6.8% for public pensions, with minimal unfunded liabilities compared to $5+ trillion for public pensions.[50]
How ERISA Stopped the Madness
ERISA's fiduciary standard works through five key mechanisms: exclusive benefit rules, prudent expert standards, diversification requirements, cost disclosure, and legal accountability.[51] Private pension boards include financial professionals rather than political appointees, with investment committees focused on risk-adjusted returns rather than headline yields.
ERISA's Protection Mechanisms
ERISA creates natural limits through fiduciary liability preventing excessive risk-taking, participant lawsuits punishing poor performance, and professional standards demanding evidence-based investing. Public pensions lack these feedback mechanisms, allowing problems to compound for years before detection.
The McDonald's Ice Cream Machine Absurdity
The McDonald's ice cream machine debacle exemplifies pension-funded consolidation creating absurd market failures.[52] Taylor Company's exclusive contract since 1956 means their C602 model serves 13,000+ US McDonald's locations, generating $75 million annually from repairs alone—25% of Taylor's total revenue.[53] The machines fail at extraordinary rates: 10-15% are broken nationally, reaching 30% in cities like New York, costing franchisees $625 daily.[54]
The Enforcement Mechanism
The monopoly uses cryptic error codes accessible only through a secret service menu, with DMCA protections ensuring only Taylor-authorized technicians can perform repairs at $300+ for the first 15 minutes.[55] When startup Kytch developed a device allowing franchisees to decode errors, McDonald's corporate sent warnings about "serious safety risks."[56]
The Building Materials Monopoly
Bain Capital's $7 billion acquisition of US LBM in 2020 created the third-largest national lumberyard through aggressive roll-ups, completing dozens of acquisitions since 2009.[57] During pandemic peaks, lumber prices hit $1,686 per thousand board feet—a 406% increase that added $36,000-$48,000 to average new home prices.[58]
Construction Cost Explosion
Overall construction costs remain 30% higher than five years ago, with building materials inflation at 34% since December 2020.[59] The combined top five distributors now serve 74 of the top 100 metropolitan areas, with CalPERS and CalSTRS providing substantial funding through PE allocations averaging 14% of their portfolios.[60]
MaterialPeak Price IncreaseImpact on Home Prices
The International Dimension
European investors have systematically structured their strategies around accessing US pension fund capital, with 47% of European VC funding coming from outside Europe.[61] US pension funds allocate 1.9% to venture capital versus EU pension funds' 0.018%—a 100x difference.[62] French unicorns like Dataiku, Algolia, and Aircall relocated headquarters to the US explicitly for capital access.[63]
The Great Relocation
Index Ventures operates dual London/San Francisco headquarters, while Creandum opened SF offices specifically for US pension fund access.[64] This creates a system where US pension funds are simultaneously the source of capital and ultimate exit for investments worldwide.
The Cost of Living Correlation
Every 10% increase in pension alternative allocations correlates with 20-25% increases in essential service costs over the following 3-5 years.[65] Housing costs increased 80% while pension real estate allocation doubled, and childcare costs rose 70% while pension allocation to childcare PE quintupled.[66]
The Vicious Cycle
The Solution: ERISA Transparency for All
The research reveals systematic opacity designed for deception, with Norway achieving perfect transparency through fund values updated 13 times per second online and all 7,000+ holdings published annually.[67] The Netherlands requires mandatory "look-through" fee reporting for all investment layers, while Canada achieves governance excellence through multi-channel disclosure systems.[68]
The Transparency Solution
The ironclad reform package requires immediate net-of-fee reporting, standardized fee disclosure, and protected whistleblower programs with financial incentives. Technology implementation should include AI-powered anomaly detection, public APIs for real-time access, and blockchain for immutable transaction records.
Reform PhaseTimelineKey Requirements I don't think we need a blockchain. Lulz to AI. But you get the point.The Path Forward
The pension fund looting represents a far greater threat to Americans' quality of life than immigration or other commonly cited issues. Every veterinary bill, rent payment, childcare invoice, and healthcare cost now includes a hidden tax flowing to private equity firms and pension fund backers. The solution requires recognizing pension funds as government actors they truly are, implementing radical transparency reforms, and potentially restricting pension investment in essential service industries.
The Irony of Public Service
The irony is profound: public employees' own retirement savings have become the primary tool for extracting wealth from their communities. Meanwhile, an elite class of retired government employees collects pension payments that can exceed $400,000 annually, creating a system where current workers fund both inflated service costs and extreme pension payments.
Why ERISA Transparency Is the Only Solution
ERISA's success demonstrates that transparency and accountability work—private pensions achieved better performance with lower fees and minimal unfunded liabilities.[69] The fiduciary standard creates natural limits that prevent the speculative excess plaguing public pensions. Fee transparency creates competitive pressure, while legal accountability ensures decision-makers face consequences for poor performance.
The Error Detection Advantage
ERISA transparency enables better error correction and detection through multiple mechanisms. When fees are disclosed, excessive costs become obvious; when performance is transparent, underperforming managers get fired; when fiduciaries face personal liability, they make better decisions. Public pensions lack these feedback mechanisms, allowing problems to compound for years before detection.
The First Step in a Long Journey
Applying ERISA transparency to public pensions won't solve every problem overnight, but it's the essential first step. International best practices from Norway, Netherlands, and Canada show that perfect transparency is achievable with modern technology. Only through understanding the true scope of pension fund control can we begin to address the drivers of American economic inequality and social dysfunction.
The Choice Before Us
The trajectory seems clear: continued consolidation until regulatory intervention or market failure forces reconsideration. The question isn't whether this system is sustainable, but rather what replaces it when the contradiction between public good and private returns becomes undeniable. Maximizing pension returns through market monopolization ultimately undermines the very communities these funds serve.
The stealth nationalization of America is nearly complete, creating an elite class of government pensioners collecting hundreds of thousands annually while young workers pay inflated prices for essential services. The shadowy technology ecosystem helping private equity firms conceal their performance ensures this system can continue without accountability. The only question is whether we'll recognize it in time to implement the transparency reforms that could begin to fix it. ERISA transparency for public pensions represents our best hope for restoring accountability to a system that has quietly seized control of the American economy.
Citations:
Citations
Federal Reserve Economic Data (FRED), "State and Local Government Employee Retirement Fund Assets"
Marketsgroup, "Global Pension Assets Study 2024"
OECD Economic Outlook Database, "Government Financial Balance Sheet"
Crunchbase, "Uber Funding History and Investor Database"
