A CalSTRS letter asks the billionaire chairman of a private equity firm that owns Hilton Hotels to “personally address the board in open session” if there is no progress in a lengthy labor dispute at hotels in San Francisco, Chicago and Honolulu.
The California State Teachers Retirement System has $1.8 billion committed to the Blackstone Group, one of the nation’s largest leveraged buyout firms. Its chairman and chief executive offer is Steven Schwarzman.
Blackstone’s purchase of the famous hotel chain for $26 billion in 2007, with $20 billion borrowed or “leveraged” from seven banks, has been called “a poster child for overpriced acquisitions of the era” by the Wall Street Journal.
Schwarzman threw a 60th birthday party for himself in 2007 costing $3 million. The event at New York’s historic Park Avenue Armory, with 500 guests dining on filet mignon and lobster, “marked a peak in the modern gilded age,” Fortune magazine said.
The CalSTRS letter to Schwarzman on Nov. 5 asks for prompt “comprehensive information” about the labor dispute with weekly updates. A delegation representing union workers at the San Francisco Hilton appealed to the board earlier this month.
A milder and much shorter letter, three paragraphs instead of three pages, was sent by the California Public Employees Retirement System on Oct. 1 to the Blackstone president, Hamilton James, and senior managing director, Kenneth Whitney.
CalPERS, with $1.4 billion committed to Blackstone, asked to be kept informed about the progress of talks between Hilton and the hotel workers union, Unite-HERE, whose contract in San Francisco expired more than a year ago.
“As you know, matters involving labor negotiations are very important to the board and membership at CalPERS,” said the letter. “A large majority of CalPERS members are represented by labor unions.
“Our great hope is that this matter can be resolved expeditiously and in a satisfactory way for both sides. Our belief is that such a resolution is value accretive to both shareholders and stakeholders, including the labor unions.”
The big pension funds have a built-in conflict. Private equity is expected to produce higher-than-average returns needed to meet investment targets. Labor unions say the leveraged buyouts often used by private equity firms can harm workers.
Both pension funds, responding to a dimmer economic outlook, are considering lowering their investment earnings forecasts, creating a need for higher employer contributions to replace the revenue.
The higher returns expected from private equity may become even more important. Last year CalPERS increased its private equity allocation from 10 to 14 percent of total investments, while CalSTRS went from 9 to 12 percent.
Meanwhile, some labor unions say leveraged buyouts, the most common form of CalPERS and CalSTRS private equity investment, often harm workers as costs are cut to repay the debt or “leverage” used to buy the company.
A website of the national Service Employees International Union, “Behind the Buyouts: Inside the World of Private Equity,” reports on mass lay-offs, gutted companies and other problems.
“The buyout deals and money-generating strategies that are generating immense wealth for the private equity buyout industry and many of its investors can have harsh consequences for workers and the companies they buy and sell,” says the SEIU website.
A food worker union website, “The IUF’s Private Equity Watch,” says Blackstone received a $178 million “subsidy” by purchasing some of its Hilton debt sold at a discount by the federal reserve after the Wall Street meltdown.
There was concern that Blackstone might not be able to meet its debt payments, forcing a sale of some Hilton assets, the Wall Street Journal reported. But a restructuring earlier this year was expected to trim $4 billion from the $20 billion debt.
Pension funds have been active in other labor disputes. In 2004, CalPERS tried to oust the chief executive of Safeway, Steven Burd, who took a hard line during a grocery store clerk strike in Southern California.
The president of the CalPERS board at the time, Sean Harrigan, was an official in the striking grocery clerk union. Safeway agreed to a shakeup of its board of directors, but Burd refused to step down.
Four years ago, the SEIU asked CalPERS to use its investment clout in a janitors strike in Houston. CalPERS board members reportedly urged Hines, a large commercial real estate owner and manager, to push for a settlement giving janitors a “living wage.”
The precedent of pension fund aid to the Houston janitors was mentioned by the San Francisco union delegation along with CalSTRS’ own investment “risk factors,” which list worker rights violations as a threat to long-term profitability.
At the San Francisco Hilton, the union said it has held two short strikes, a civil disobedience action resulting in 150 arrests, disruptions in the lobby seeking public support, and a campaign urging conventions to boycott the city’s largest hotel.
“Right now the amount cost by the boycott I think would conservatively bridge the gap in the positions at the (contract bargaining) table,” Ivana Krajcinovic of Unite-HERE told the CalSTRS board.
Tino Amaya, a 33-year Hilton employee, said sometimes only two people are available to move equipment once handled by dozens. Tim Miller, a 16-year Hilton employee, said housekeepers are being asked to clean 20 rooms a day, up from 14 now.
Hilton says the proposal is part of a “green” movement to “refresh” rooms, conserving energy and resources and requiring less work. Wages, health care and pensions also are said to be issues in the labor dispute.
The hotel workers were accompanied by a member of a teachers union, Ken Tray, who said undernourished children without proper housing and health care have difficulty focusing on their lessons.
“Teachers have a special code of conduct,” Tray told the board. “We dedicate ourselves to the well-being of the children and their families. We can’t abide being part of this attack on the good hard-working people of the city.”
Several teachers on the board said CalSTRS should urge Blackstone to end the lengthy dispute with a settlement fair to both sides. But they don’t want investment returns made “on the backs of working people.”
As the union began a six-day strike at the Hilton last month, representatives of nine San Francisco hotels held a news conference to give their side of the dispute in separate negotiations with the union.
“San Francisco hotels are offering pay raises, increased health care coverage and a pension freeze — no increase, but no reduction either — and its hotel workers are already among the best paid in the country,” said a report in the San Francisco Business Times.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com/ Posted 15 Nov 10