Desperate Capital Breeds Productivity Loss: Evidence From Public Pension Investments in Private Equity
July 2026
Working Paper Number:
CES-26-47
Abstract
I study investments of U.S. public pensions in private equity (PE), and trace them to ultimate micro assets'target firms which PE funds invest in, using micro-data on private investments combined with confidential U.S. Census data. I show that more severely underfunded public pensions receive lower average PE returns, and match with smaller GPs on average, than less underfunded pensions. Consistent with matching and returns, firms financed by most underfunded public pensions and smallest PE funds face labor productivity decreases. I introduce a novel instrument'public unionization'in support of underfunding positions driving selection into funds. Lastly, I evaluate alternate mechanisms.
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investing,
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retirement,
equity,
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