Reporter: Mayor Murray, you've established an
Inequality Committee to
consider a
$15/hour minimum wage in Seattle.
Mayor: Yes, that's right. We’re
determined to reduce the excessive inequalities of wealth and income in
Seattle.
Reporter: Well, if you’re really serious about
reducing inequality, then why is the Seattle City Employees’ Retirement System
planning to triple its investment in Private Equity?
Mayor: Private Equity? You
mean the sort of thing Mitt Romney was involved in?
Reporter: Yes, it's the province of the
very wealthy, and Private Equity investors enjoy one of the most
unjust loopholes in the Federal tax code.
Mayor: Which loophole is that?
Reporter: It's the so-called "carried
interest" loophole that allows Private Equity investors to pay lower tax
rates than most Seattle workers pay. (See here
and here).
Mayor: That is unfair! But
the City of Seattle can't do anything about the Federal tax code.
Reporter: Well, not directly, but Private Equity firms
hire lobbyists to preserve this tax break, and Seattle invests money with
these firms. (See here).
Mayor: OK, I take your point. But
the Seattle Retirement System must act prudently, not politically, when it
invests.
Reporter: Yes, of course, but did you know that the
Seattle Retirement System's largest investment in Private Equity, a $20 million
bet on a Private Equity firm located in the Cayman Islands, is now worthless?
(See here and here).
Mayor: All investors make mistakes.
Reporter: Granted, but according to the Retirement
System’s own website (here),
Seattle's Private Equity investments have underperformed their benchmark
by 7.5%/year over the last five years, and by 1.5%/year since April 2007. And these figures don't even include the high fees charged by
Private Equity firms.
Mayor:
(Sigh) That's depressing. Have you talked to the Retirement System's
private financial advisors?
Reporter: Oh, they love Private Equity. But then
they get much higher fees when Seattle invests in actively managed funds like
Private Equity.
Mayor: So, the upshot is that, by getting
out of Private Equity, Seattle can make better investments and
strike a blow against the unjust tax loopholes that benefit the very rich.
Mayor: Maybe I should talk with Councilmember Licata; he's the
Chair of the Seattle City Employees’ Retirement Board.
Reporter: You've both said you wanted to address inequality.