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There are ever more link-ups between private equity firms and sovereign wealth funds, as private equity looks for new sources of money and sovereign wealth for financial skills and indirect influence.



In the United States, the Service Employees International Union is challenging PE-SWF alliances and wants to prevent them from using US pension savings to further increase their power.



The 1.9 million-member UNI affiliate wants the pension funds regulated by US states to invest in the nation’s crumbling infrastructure. That would renew roads, airports and other facilities, while at the same time blocking their takeover by private equity firms and their SWF backers.



“[PE funds] have one purpose: to make money, and the only way they can make money is to raise fees and take out all the profits,” said SEIU president Andy Stern in a recent radio interview.



The SEIU’s proposal, presented to the association of Democratic state governors in December, comes at a time when money has been rushing into the infrastructure funds set up by PE firms like the US’s Carlyle Group and Australia’s Macquarie, for investment in industrialised as well as developing countries.



The union is seeking the creation of an investment pool with contributions from state pension funds, like the California Public Employees' Retirement System (Calpers). The pool would specialise in US infrastructure. "It is a question of whether public pensions could pool investments [so that] they would all own a piece of different infrastructure projects," Andy Stern told the Financial Times newspaper. "That way you … keep it in public hands."



On the regulatory front, the SEIU is backing draft legislation in the California state assembly that would prohibit the state’s public pension funds from investing their money in private equity firms that are partly or wholly owned by governments with poor conduct on human rights.



Calpers is one pension fund that would be affected by the legislation. It owns a 5.5% stake in the Carlyle Group, which in September 2007 sold a 7.5% stake in the PE firm to Mubadala Development, a SWF owned by the government of Abu Dhabi (United Arab Emirates). The US State Department describes the UAE's record on human rights as "problematic".



Investments by the public pensions in PE firms and their funds would be banned outright if the PE firm has among its owners the SWF of a country that hasn’t ratified certain international human rights conventions. If a country has ratified those conventions, the California pension funds would still need to evaluate the SWF before investing and issue a detailed written report on the SWF’s transparency, governance and other factors at least 60 days before making an investment decision.



The SEIU warned in December that the Carlyle Group’s embrace of Abu Dhabi is undermining respect for human rights. “As Carlyle’s profits and political connections boost Abu Dhabi’s wealth and influence, pressure diminishes to improve human rights practices in the UAE,” said Stephen Lerner, the director of the union’s PE project.