Florida governor Ron DeSantis has been putting huge sums of state retirement money into underperforming private equity firms that have donated to his campaign efforts.
Florida governor Ron DeSantis speaks to guests at the Republican Party of Marathon County Lincoln Day Dinner annual fundraiser on May 6, 2023 in Rothschild, Wisconsin. (Scott Olson / Getty Images)
Florida governor and Republican presidential hopeful Ron DeSantis has been crusading against “woke” investments for allegedly threatening his state employees’ retirement funds. But the most imminent threat to Florida public employees’ retirement dollars appears to be the massive state pension investments that have gone to some of the Republican Party’s Wall Street donors under DeSantis’s watch.
Despite a federal anti-corruption rule designed to prevent donors from receiving pension investments, private equity executives have donated millions to political groups supporting DeSantis, all while the governor oversaw the transfer of more than $1 billion of Florida public employees’ retirement dollars into these donors’ high-fee, high-risk “alternative investments.”
Our review found that had the state pension fund instead been invested in a simple, low-cost index fund, compared to its present mix of holdings, teachers, police officers, and other state employees would have about $10 billion more in their retirement funds.
“From a distance, it sure looks like the pensioners are getting hurt here,” Kathleen Clark, an ethics expert and professor at the Washington University in Saint Louis School of Law, told us. “It certainly seems like it raises the distinct possibility that the decisions that the pension board is making may be serving DeSantis’ political interests and not the pensioners’ interest.”
The low-return, high-fee investment strategy under DeSantis — who serves with two other Republicans on the state pension board — has been harmful for the state’s retirees, who had already been struggling with subpar retirement payouts.
But under DeSantis’s leadership, the state pension fund’s investments have been a boon for financial firms whose executives have delivered huge donations to the Republican Governors Association (RGA), which has pumped $22 million into the Friends of Ron DeSantis, a political committee that supported DeSantis’s gubernatorial campaigns and is expected to finance a super PAC supporting his 2024 presidential bid. Friends of Ron DeSantis was the largest recipient of RGA cash last cycle.
The pension fund’s underperformance comes as Republican legislative leaders in April put the kibosh on restoring annual cost-of-living adjustments for public employees that were cut in the wake of the 2008 financial crisis.
The federal pay-to-play rule — which came into effect in 2011, in the wake of bribery scandals at pension funds across the country — was crafted to halt private equity firms and other investment managers from using campaign contributions to improperly influence pension-fund decision makers. But the financial firms receiving pension money have donated to the RGA rather than directly to DeSantis — and federal officials have declined to enforce the rule’s anti-circumvention provisions.
DeSantis and the RGA did not respond to questions from us.
“DeSantis Is Delivering for the Private Equity Industry”
As governor, DeSantis is the chairman of the Florida State Board of Administration (SBA), which appoints officials who make and approve investments for the state’s $180 billion retirement fund. The SBA’s other trustees are state attorney general Ashley Moody and state chief financial officer Jimmy Patronis, two Republicans who are close allies of DeSantis.
Over the past few years, many of the Wall Street interests benefiting from DeSantis’s private equity investments have donated money that has ended up funding the Florida governor’s political committee.
Many of the Wall Street interests benefiting from DeSantis’s private equity investments have donated money that has ended up funding the Florida governor’s political committee.
Take Aeolus Capital Management hedge fund, which received a $50 million commitment from the Florida pension fund in May 2019, four months after DeSantis became governor, and has since delivered a negligible 0.7 percent annual return for state pensioners in four years, compared to an average annual 15.75 percent return for the S&P 500 index of major stocks.
Paul Singer, the founder and co-CEO of Elliott Management, which as of 2020 owned a majority stake in Aeolus, a reinsurance hedge fund based in Bermuda, hosted a 2021 Colorado meeting of elite conservative billionaires, called the American Opportunity Alliance, where DeSantis appeared alongside former vice president Mike Pence and others. The following year, Singer pumped $750,000 into the RGA.
Three weeks after Singer’s donation, the RGA transferred $2 million into the Friends of Ron DeSantis group, which raised $177 million in the 2022 cycle. Singer also donated $500,000 to the RGA in March 2020.
Singer is well known on the world stage for buying up the debt of countries in the Global South, like Argentina, then aggressively calling on payment. Singer also chairs the Manhattan Institute, a conservative think tank that employs Chris Rufo and Ilya Shapiro, leading propagators of the “critical race theory” panic.
While there has not been reporting since 2020 that shows whether Elliott continues to hold a majority stake in Aeolus, the CEO that Elliott installed in 2020, Andrew Bernstein, remains in place. Neither Aeolus nor Elliott responded to repeated requests for comment from us.
Then there’s the private equity firm Thoma Bravo. At the end of March 2022, just four weeks after the Florida pension put $150 million into a Thoma Bravo fund, the group’s cofounder Carl Thoma donated $40,000 to the RGA. It came just two days after the RGA made its $2 million contribution to the DeSantis committee and appears to be Thoma’s first-ever contribution to the RGA.
The Florida pension made another $100 million commitment to a different Thoma Bravo fund in August of last year. The following month, Thoma doated another $100,000 to the RGA, and just two weeks later, the RGA donated $3 million to DeSantis.
Thoma Bravo has attracted controversy in the past year for its ownership of RealPage, a real estate technology platform that has driven coordinated increases in rent across the country, according to a ProPublica investigation.
Bradford Freeman of the private equity firm Freeman Spogli, meanwhile, donated $50,000 to the RGA in 2018, just seventeen days before the RGA gave $1 million to the DeSantis political committee. The next year, his firm received a $100 million commitment from the Florida pension.
In 2015, Freeman Spogli executives hosted fundraisers for former Florida governor Jeb Bush and paid him lucrative speaking fees, after he had overseen investments in the firm during his tenure as chair of the SBA
James Carey of Stone Point Capital donated $10,000 to the RGA just weeks before the 2018 election. The firm received two $100 million commitments from the Florida pension under DeSantis’s governorship, in 2020 and 2022, records show.
While the pay-to-play rule “prohibits acts done indirectly, which, if done directly, would violate the rule,” it does not explicitly cover contributions to super PACs or 527 groups like the Republican and Democratic Governors Associations. This is true even if the super PACs were controlled by the politician in question, or the 527 group was funneling donations into the respected candidate.
In the case of Friends of Ron DeSantis, DeSantis filed a statement of solicitation with the Florida election officials in early 2018 declaring he had established the political committee, which can accept unlimited contributions.
Ron DeSantis filed a statement of solicitation with the Florida election officials in early 2018 declaring he had established the political committee, which can accept unlimited contributions.
“This situation makes it look like the Republican Governors Association is a way of laundering campaign contributions, as they’re allowing these entities to do indirectly what they cannot do directly,” said Clark, the Washington University ethics expert.
Eileen Appelbaum, the codirector of the Center for Economic and Policy Research and who studies private equity, said, “It’s pretty obvious that DeSantis is delivering for the private equity industry, and in exchange they’re providing funding for his campaigns.”
DeSantis recently filed a notice with state election officials notifying them that he is “no longer associated” with Friends of Ron DeSantis — a necessary move before the political committee can start funding the super PAC backing his potential 2024 campaign.
Anti-“Woke” Giveaways to Wall Street
For years, Florida public pensioners have received benefits well below the national norm. The average public pension that Florida public employees receive was just $23,712 per year in 2020, as opposed to the national average of $29,132.
Due to poor performance during the 2008 financial crisis, the Florida legislature reduced what it offered to state employees for their retirement. Pensions granted after July 2011 are not subject to cost-of-living adjustments, meaning that teachers and other public employees who retire in 2023 with thirty years of service receive less than two-thirds the cost-of-living adjustment that they would have received prior to July 2011.
Florida’s pension system has for years poured public employees’ retirement savings into so-called alternative investments, which include private equity, real estate, and hedge funds — a trend that has continued under DeSantis’ watch.
The state’s high-risk, high-fee strategy has resulted in an about $10 billion loss relative to a stock-bond index fund from fiscal years 2019 to 2022, our review has found.
Florida’s pension system has for years poured public employees’ retirement savings into so-called alternative investments, which include private equity, real estate, and hedge funds
During that same period, pension fees to investment managers have increased by 11 percent. Since DeSantis’s first year as governor, total investment management fees have risen from 0.26 percent of assets to 0.29 percent, an increase that cost the pension $54 million in additional fees in 2022.
“It should come as no surprise that an investment amateur would recklessly pump ever greater sums into the highest cost, poor-performing investments, who happen to make substantial political contributions,” said Edward Siedle, a former attorney with the Securities and Exchange Commission (SEC) who now resides in Florida.
Rather than rethink his investments into low-performing and politically connected investment funds, DeSantis has been vocally opposed to environmental, social, and governance (ESG) investing.
ESG considerations urge large investors, like pension funds and endowments, to consider the environmental and social impacts of their investments and assess the governance structure of firms. For years, ESG considerations were relatively uncontroversial, and to date even their proponents admit that they have had a limited impact on corporate behavior.
DeSantis launched his first volley against ESG in August 2022, when he and his fellow SBA trustees issued a resolution condemning the practice.
“Corporate power has increasingly been utilized to impose an ideological agenda on the American people through the perversion of financial investment priorities under the euphemistic banners of environmental, social, and corporate governance and diversity, inclusion, and equity,” DeSantis said. “With the resolution we passed today, the tax dollars and proxy votes of the people of Florida will no longer be commandeered by Wall Street financial firms . . . we are prioritizing the financial security of the people of Florida.”
DeSantis followed that resolution with changes to the pension’s investment policy and proxy voting guidelines — the guidelines the state uses to determine how it votes on shareholder resolutions. And in January, he further prohibited “woke ESG considerations,” implementing guidelines that would ensure “all investment decisions focus solely on maximizing the highest rate of return.”
“Thanks to the leadership of Governor DeSantis, the Florida Cabinet reaffirmed today that we don’t want a single penny of our dollars going to woke funds,” said Patronis, the state’s chief financial officer. “We need asset managers to be laser focused on returns and nothing more.”
In his book released in February, DeSantis expanded his critiques of “woke” investments, calling for the “crippling” of the ESG movement.
DeSantis’s condemnation of ESG investing has come out of the broader culture wars, of which the governor is an eager participant. But combating ESG is also a major interest of Leonard Leo, a conservative strategist and cochair of the Federalist Society, who last year received the largest-known dark-money transfer in American history to advance the political interests of the religious right and reshape American politics.
In April, we reported that the leader of DeSantis’s new super PAC, Never Back Down, was deeply involved in orchestrating that $1.6 billion donation. Friends of Ron DeSantis could transfer its resources — $85 million at this point — to Never Back Down if DeSantis decides to run for president, according to the Washington Post.
But while the DeSantis administration claims to be fighting to stop Floridians’ tax dollars from being “commandeered by Wall Street financial firms” and ensuring asset managers are “laser focused on returns,” such priorities don’t seem to apply to the SBA’s private equity investment strategies.
Kent Perez, deputy executive director of the Florida SBA, said, “No elected officials, including SBA trustees, participate in, or approve the selection of individual investments.”
While the DeSantis administration claims to be fighting to stop Floridians’ tax dollars from being ‘commandeered by Wall Street financial firms,’ such priorities don’t seem to apply to the SBA’s private equity investment strategies.
Index funds have been championed by everyone from Warren Buffett to Jack Bogle, the founder of the world’s largest asset manager, because they deliver better returns by minimizing a central drag: fees. In contrast, the private equity, hedge funds, and private real investments massively expanded by the Florida SBA under DeSantis’ tenure come with fees that can be 5,000 percent higher than traditional index funds.
Siedle, for his part, said, “If DeSantis really wanted to improve the pension, he should try to change the organizational structure and usher in an era of transparency, so the public can see how the pension has been grossly mismanaged.”
“It Sure Looks Like the Pensioners Are Getting Hurt”
In their new book These Are the Plunderers: How Private Equity Runs — and Wrecks — America, journalist Gretchen Morgenson and financial policy analyst Joshua Rosner found that the SEC, especially under President Donald Trump, routinely waived enforcement penalties for any violations of the pay-to-play rule that was implemented in 2011 to prevent campaign contributions from having a corrosive influence at public pension funds.
In its twelve-year history, the SEC appears to have never enforced the rule’s anti-circumvention provision.
While the Biden administration has launched other rulemaking that would crack down on some of the private equity industry’s worst practices, including requiring expanded disclosure of performance and preferential terms offered to some investors but not others, it has not expanded enforcement of the pay-to-play rule beyond a modest crackdown in September against some minor firms.
In response to that minor enforcement action, Trump-appointed SEC commissioner Hester Peirce launched a broadside against the pay-to-play rule, calling it “an exceedingly blunt instrument.” Prior to her appointment in 2018, Peirce spent six years at the Koch-backed Mercatus Center at George Mason University.
“These pay-to-play rules were adopted because of the concern that political donations would distort the judgment of these governmental officials, that they would not just create bad public policy, but also negatively impact those whose money is at stake,” said Clark at the Washington University in Saint Louis.
Meanwhile, in early May, DeSantis doubled down on his crusade against “big banks and corporate activists who’ve colluded to inject woke ideology into the global marketplace,” signing legislation that would “block the use of ESG in all investment decisions at the state and local level” as well as in procurement and contracting.
“Through this legislation,” said DeSantis in a statement, “Florida will continue to lead the nation against big banks and corporate activists who’ve colluded to inject woke ideology into the global marketplace, regardless of the financial interests of beneficiaries.”
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