As they push for more infrastructure spending, some unions also are flexing their financial muscle to make a direct connection between union jobs and where $500 billion in union pension assets are being invested.
“We are making sure all of our resources are utilized to support our mission, not to undermine it,” said Sean McGarvey, North America’s Building Trades Unions president, at a Washington legislative conference in mid-April. “We are getting smarter and taking control of our own destiny. If we recognize the value and power of our retirement funds … we can drive job creation today and for generations to come.”
All 14 building trades unions will insist that their pension funds are invested in a fiduciary manner that also provides work opportunities for members, Mr. McGarvey said.
Tying the investment of union pension assets to union jobs has long been the point of union-affiliated asset managers like Ullico Inc. and the AFL-CIO’s Housing Investment Trust. Officials at the Laborers’ International Union of North America, Washington, took that a step further in 2004, launching a capital strategies program that maps their $50 billion in pension assets to where they are invested and whether union jobs benefit.
In case any money managers or investment consultants weren’t paying attention, the building trades at the conference released their second annual consultant report card, rating managers on information “that trustees and all members should find useful,” Mr. McGarvey told attendees. “We will no longer be taken for granted, and those that are hired to assist us will know they work for us, not the other way around.”
The report card is based on a 29-question survey that details investment performance, fees (including what the manager is doing to lower them) and conflicts of interest. On the subject of job creation, consultants were asked to spell out how much they track and promote responsible contractor policies that wind up giving preference to union labor among infrastructure and real estate managers.
Another tool is having money managers sign those responsible contractor policies that promote fair benefits and wages, working conditions and training opportunities in projects financed with money from private equity and infrastructure investments. That includes giving union contractors advance notice of project bid requests, protecting not only jobs but the investments by ensuring “we are competing on who can perform the best, not necessarily who can cost the least,” Mr. McGarvey said.
‘Already having an impact’
It is already having an impact, said Jon Levin, president of GCM Grosvenor in Chicago. The commitment to organized labor by his firm, whose 200-plus multiemployer plan clients make it a large provider of alternative investments to such plans, “goes well beyond the RCP.” Mr. Levin said.
He cautions that “RCPs can take on many shapes and sizes, so the specifics matter. Application to operations and maintenance, real advance notice, transparency, and enforceability are essential components that must be fully integrated into infrastructure investing.”
Blackstone Group Inc. announced its RCP in September 2017 with the launch of a dedicated infrastructure fund started with an initial $20 billion commitment from the Public Investment Fund of Saudi Arabia and another $20 billion expected. The agreement with the building trades unions came about “because we believe a fairly compensated and well-trained workforce is critical to producing high-quality infrastructure projects that help drive local economic growth,” Sean Klimczak, senior managing director and global head of infrastructure for Blackstone in New York, said at the time.
John Lamb, head of U.S. real estate investment management for BlackRock (BLK) Real Assets, also told RCP proponents at the Washington meeting that while executives at his firm have spent the past month putting together an RCP agreement process that will begin with U.S. real estate, “it is being considered in the context of the more broad real assets platform.”
Normal course going forward
Having responsible contractor policies with asset managers “is a mechanism for increasing communication, and has at the very least set expectations to how our money is invested. I think this will be the normal course of doing business going forward,” said Michael Monroe, chief of staff for the NABTU.
Concerns over the perceived fiduciary risk of tying investments to job creation have been addressed, union officials and others say. “We’ve always come to it from a fiduciary perspective. Every investment has to be in (the pension fund’s) best interests,” said Keith Cahill, head of consultant relations and Taft-Hartley client business for J.P. Morgan Asset Management (JPM) in New York. “Development is a risk, so as a fiduciary you want to manage those risks, and one of the ways you do that is by ensuring a safe workforce.”
Union officials are getting moral and on-the-ground support from some public pension funds, including the five that make up the $194 billion New York City Retirement Systems, which in September adopted responsible contractor policies for their real estate and infrastructure investments.
The policies, which apply wherever the city pension fund owns 50% or more of a real estate or infrastructure asset and are encouraged in other investments, are also better for the long-term health of the pension funds “because when workers are paid fair wages and benefits, our investments are better positioned to create long-term value for our pension beneficiaries,” said New York City Comptroller Scott Stringer, the pension funds’ fiduciary.
Thomas P. DiNapoli, New York state comptroller and sole trustee of the $209.1 billion New York State Common Retirement Fund, Albany, agreed that insisting on responsible contractors for developing and managing real estate and infrastructure investments “is the best way to ensure strong returns.”
Along with insisting that potential investments in domestic equity real estate and infrastructure “explicitly consider” a prospective manager’s contracting policies and practices, the pension fund wants post-closing reporting on compliance with such policies when the fund owns more than 50% of the investment, even for deals that closed before the policy was adopted in January. In the works are manager compliance certifications and reports, with the goal of ensuring “that every dollar of pension fund capital is funding projects that pay fair wages and benefits,” said Mr. DiNapoli, who has enlisted consultants to help monitor and limit investor risk and local officials within the 2.3 million-member building trades unions to scan for upcoming bids and share contractor information.
Building trades officials are now talking with public pension fund executives in California and Oregon, and they say other large public pension funds are noticing.
To Gary LaBarbera, president of the Building and Construction Trades Council of Greater New York, it’s a simple matter of due diligence and holding managers accountable. Union and public-sector funds “are actively discussing that now. I believe they will ultimately change real estate investment where pension fund money is involved. I think we are changing the paradigm over time.”
Between union pension funds and public pension funds like those in New York, “that combination should be able to generate enough investment dollars to make it happen,” said Sue Crotty, senior vice president in Segal Marco Advisors’ Chicago office who leads their multiemployer practice. Executives at Marco Segal Advisors, the largest union pension fund consultant, have been advocating for a U.S. infrastructure fund for years so client money didn’t go overseas, and the union jobs connection “is a good trend we are seeing,” she said.
“We believe the time is right for the asset managers to raise a lot of money, provide a good return for investors, and create substantive infrastructure in the U.S.”
Source: Pensions & Investments