In February, private equity firm Leonard Green became the most recent target of Unite Here, a US-based union representing workers in the hospitality industry. The union’s private equity-focused website, PE Closer Look, posted a report suggesting Leonard Green had not been transparent with its investors about the allocation of expenses associated with its use of private jets.
Leonard Green is far from the only firm to come under fire from the outspoken union. Unite Here has become an infamous name in the private equity and real estate industries for its publicly available fund manager list, which labels 18 managers as “irresponsible” and 13 as “responsible.”
PE Closer Look defines irresponsible managers as those “that have refused multiple requests to meet, have refused to identify places to work together, or have had a long-standing, unresolved dispute at a hospitality-related property or portfolio company,” while responsible managers are those “that have reached an agreement ensuring labor peace at hospitality-related properties or companies, creating a basis for co-operation.”
The Carlyle Group, TPG Capital and Ares Management are on the union’s “irresponsible” list, while The Blackstone Group and Apollo Global Management have been deemed “responsible.”
FOIAs and fees
Unite Here has been posting in-depth reports on the managers it considers “irresponsible” since 2013, questioning issues like their fee practices, turnover rates and performance. The Leonard Green report stood out, however, because of the lengths to which Unite Here was willing to go in order to try and dig up dirt.
The union used Freedom of Information Act (FOIA) requests to access old filings of Leonard Green’s Form ADV Part 2A and researched the firm’s three private jets registered with the Federal Aviation Administration (FAA), analyzing its 1,898 flights over the past three years. It then reached out to all Leonard Green LPs, urging them to request more transparency on private jet travel from their manager.
“I didn’t know they were going to those levels, but I’m not terribly surprised,” one source tells pfm.
The goal of Unite Here’s report, according to author Michael Pineschi, was to increase transparency for defined benefit plans. But some industry sources take a more cynical view, suggesting the private jet report was part of Unite Here’s broader campaign to persuade Leonard Green to unionize the Palms Casino Resort in Las Vegas, which the firm owns alongside TPG. When Unite Here released its report, the union had been trying unsuccessfully for eight months to meet with the fund manager regarding unionization of the Palms.
“We, Leonard Green & Partners, pay virtually all (98 percent last year) of the costs associated with private air travel. Our investors were charged nothing,” the firm said in a statement to pfm. The firm declined to comment further on the matter.
For institutional LPs, the union attention is more of a nuisance than anything else, said a source familiar with the matter. When Unite Here shows up at public pension meeting with flyers or publishes scathing reports, it makes more work for the LPs, who have to answer questions from trustees and other stakeholders.
“It makes life miserable for investors’ investment staff,” says one GP whose firm received negative attention from Unite Here in the past. “We haven’t lost a single investor because of it, but for firms that don’t have the same returns, it may impact them.”
US unions protesting private ownership of various assets, or tenets of the private equity industry, isn’t anything new. In 2007-2008, for example, the Service Employees International Union (SEIU) led a number of campaigns against private equity ownership of nursing homes, with Carlyle’s acquisition of Manor Care a particular focal point. The SEIU went on to protest against KKR and others over points including taxation, outsourcing and labor, using tactics including dramatized “street theatre” and picket lines.
That particular type of approach – which majors on attracting negative headlines and attempting to shame LPs and GPs into action – has been fading with some unions in favor of pressing for change from within, market sources say.
“It comes down to where the union thinks it’s going to get the best results,” says Heather Stone, co-chair of the investment advisor and alternative funds group at law firm Locke Lord. Unions may choose to be LPs in private equity funds and make good labor relations a stipulation for their continued commitments, she notes. “It depends on whether that’s a more powerful message than bringing negative publicity to bear.”
If you can’t beat ‘em…
Given the historically contentious relationship between private equity firms and unions, it may come as a surprise that many union pensions – yes, even Unite Here’s – are LPs in private equity funds. In fact, the union investor base is on the rise. Stone says she has seen more unions investing in the asset class in the past year or two than she has in previous years.
In addition to the economic benefits of including private equity in their pensions’ allocations, unions may be looking to the asset class as another way to promote their interests. When they commit to a fund, the union can negotiate language in a side letter that promises the GP will consider using union labor at portfolio companies.
Another aspect potentially driving union investment in private equity is the increased focus on labor relations as an environmental social and governance (ESG) consideration worldwide. Although ESG has yet to become a make or break issue for US LPs, European LPs are sharpening focus on responsible investment, and may be pushing their US-based GPs to be better stewards. Indeed, global private equity firms have begun to include labor relations in their responsible investment policies. KKR, for example, states in its ESG policy that “consistent with applicable law, [the firm] will respect the rights of employees to decide whether or not to join a union and engage in collective bargaining.”
At the end of the day, though, Stone notes, “GPs are being paid to make money for their LPs. The best way to do that in some cases may be to unionize, in other cases it may not be to unionize,” says Stone. “If it’s not going to drive the bottom line, any kind of lobbying won’t affect their decision-making.
If you do not receive this within five minutes, please try to sign in again. If the problem persists, please email: