How and why a retired Maine high school field hockey coach owns 89 cents worth of an absolutely disgusting indoor water park in The Poconos
America's Pension Fund Debacle
I don’t know if there’s a name for my phobia. But I am deeply and darkly haunted by indoor water parks -- structures filled with grotesque children, the body fluids of grotesque children and the constant and looming threat of a massive e. Coli outbreak.
One of the more disgusting indoor water parks is The Great Wolf Lodge in The Poconos -- one of 19 Great Wolf Lodge waterparks/skin rash epicenters/centers of violence over inner tube availability.
I am not alone in believing The Great Wolf Lodge to be a personal form of hell. Just look at this review from TripAdvisor commentator maddys320 who gave it 2 stars despite finding possible fecal matter in her hotel room bedsheets.
So who owns the Great Wolf Lodge in The Poconos?
Well, a retired high school gym teacher from Maine’s Cape Elizabeth High School who also coached the legendary Cape Elizabeth Capers 1981 state champion field hockey team owns a portion of this indoor water park.
(You can find out this woman’s name by clicking on that link. But I refuse to list it because she might, like a normal person, have a Google Alerts set up for her name and would get mad at me, and I have issues about strangers not liking me.)
And her portion is worth 89 cents.
This is not just a story about the disturbing existence of indoor water parks and all they represent.
This is also a story about how the retirement needs of the 21 million Americans people who currently or used to work for public schools and/or local and state governments are met -- and how global economic trends have given the world of finance’s masters of the universe enormous influence over their lives.
What The F Is A Pension Fund
Pension funds were once how Americans retired.
In the past, workers were guaranteed a certain amount of money per year they would receive after retirement -- or what’s known as a “defined benefit.” Each company/government agency/blah would have its own way to calculate this figure. But the end result was a guaranteed annual payment.
We’ve largely moved on from that system. Today, most people who work in the private sector have a “defined contribution,” which is a fancy way of saying “401(K),” which is a fancy way of saying, “You’re on your own, jerkface.” Today’s retirement plans require workers to contribute a share of their paycheck into a retirement account with the employer possibly, if they really want to, contributing a certain amount of “matching funds” along the way. In essence -- most people take the risk of financing their own retirement.
Pension funds today are almost solely the domain of public-sector employees :
Like this incredibly sexy firefighter from Dearborn, Michigan
Or this effortlessly cool Golden Gate Bridge toll booth collector
Or the interim but hopefully one day soon permanent director of the Oregon Department of Motor Vehicles.
There’s no shortage of people in this country who think that literally everyone with a public sector job is a lazy tub-of-goo who makes way too much money -- and that no one should be guaranteed a retirement, especially one paid by taxpayer dollars.
This may be true. This may not be true.
But I spent the early part of my career as a reporter for a crapload of weekly community newspapers. Remember all of those scenes in Parks and Rec where Leslie Knope and the gang had to sit in ridiculously tiny chairs while getting screamed at by feral members of the general public?
I had to go to literally hundreds of those types of meetings. And I will testify on the spiritual tome of your choice that those are the most accurately depicted scenes ever captured in a prestige comedy.
Who the fuck would want to deal with any of that noise? The one single thing that could possibly deal with that level of regular insanity is a guaranteed retirement.
Fund-duh-mentals
There are over 21 million Americans who are guaranteed to receive a certain amount in annual retirement. Now consider that Americans are living longer. Right now, the average American has a life expectancy of over the age of 78. By 2060, the average American will live until the age of 86, according to the U.S. Census. (This will rank us as 43rd in the world for those of you playing along at home.)
It takes a gigantic sum of money for pension funds to pay out their guarantees (or what are referred to as liabilities). And the growing life expectancy means that these guarantees/liabilities will have to be paid out for a much longer time. This figure constantly grows.
The pot of money used to pay these liabilities (assets) comes from a certain chunk that is taken out of a government worker’s paycheck combined with what the state chooses to contribute. And this pot can also grow via investments, as discussed below.
But right now America is suffering through a major crisis via underfunded pensions -- plans that have more liabilities than assets. The gap is in the trillions. This Wall Street Journal article from 2018 has a headline that captures the issue perfectly: “The Pension Hole for U.S. Cities and States Is The Size of Germany’s Economy.” (P.S. - Germany has a really big economy.)
This did not used to be the case. In fact, it was only 20 years ago when America’s public pension system was generally very well-funded. But states decided that they could divert money intended for the pension fund to other projects (i.e. - shit that gets them votes) believing they were in good shape and could continue to grow via investments. But then something called “multiple small recessions” followed by “The Great Recession” occurred. It will not shock you to learn, though, that politicians would avoid returning to making sure pension funds were properly funded in order to continue to spend money on shit that gets them votes.
As I am sure you can guess, no one really has any clue exactly how to fix underfunded pensions. But here are the options:
1) State and local governments contribute more per employee. (This sounds sensible but is likely to anger people called “people who anonymously comment on newspaper articles” who are also now called “elected Republican officials.” And also, a lot of states and cities are, like, completely fucking broke, especially after 2020.)
2) Public workers contribute more per paycheck/take less in retirement benefits/etc. Or current retirees might see reductions in their benefits. (This may sound doable but many public sector employees are, like, completely fucking broke, especially after 2020, and are also prone to going to pension board meetings where Prince Valiant joinis unionized workers in a Twisted Sister singalong.)
Those combined factors -- aging demographics combined with immense political pressures and a sliver of the population who LARP as Timothy McVeigh -- mean pension fund managers face a lot of pressure to do all they can to increase assets.
We’re getting closer to the disgusting waterpark, sheeple.
Investments
Pension funds invest in pretty much every corner of the investing universe. Many are highly influential -- such as the mammoth California Public State Employees Retirement Plan (Calpers), which is regarded globally as one of the most powerful entities in the world of finance, and one that is not afraid to flex its muscle to improve corporate governance and sustainable investing.
Each fund allocates a certain percentage of its holdings to different ways to invest. The most well known are equities, which is a fancy work for stocks, which is how you mispronounce “stonks.” Pension funds -- especially the biggest ones that have large teams of investment managers -- can buy or sell shares of individual companies or mutual funds/ETFs. But many, especially smaller ones, rely on the advice of outside experts they hire for a fee.
But pension funds cannot just invest in stocks, which are inherently volatile and risky. After all, pension funds have a gigantic need to preserve a huge amount of their assets to pay out their guarantees.
The primary way to do so is by investing in “fixed income,” which is a fancy way to say bonds, and, thankfully, there’s no r/WallStreetBets version of this word yet.
The most well-known and important fixed income vehicles in the world are U.S. Treasuries, which are issued to finance our federal government’s debt. Our Constitution famously guarantees that our federal government will repay all of its debts.
This, more than anything else, makes America the center of global finance and all that comes with it, like DJ D-Sol, the house music alter ego of Goldman Sachs CEO David Solomon.
U.S. Treasuries are regarded as the safest investment in the world and have an incredibly robust market -- $600 billion worth are traded in a single day. Buying a U.S. Treasury guarantees you a certain interest rate periodically paid to you until they mature (as quickly as one month and as long as 30-years). Or, due to their unfathomably large market, they can be quickly sold to other investors and turned into cash.
But those interest rates I mentioned? They have consistently dropped for decades and have hit rock bottom lows throughout the course of the pandemic. Today, a 10-year U.S. Treasury has a yield of 1.09%. In 1990, that same bond had a yield of 8.55%.
The primary reason why we have such low interest rates right now is because the Federal Reserve believes this is the best course of action to literally save our economy. Without getting into the weeds of how it happens, low interest rates makes it easier for us to borrow money to buy houses or cars (like my dream car, a cherry red 2017 Kia Sorrento.) At the same time, it makes it incredibly hard for us to save any money via a checking account or a savings account or a bank CD.
It’s the same for pension funds. They have to balance preserving their pot of cash while also finding ways for it to grow, and investing in fixed income is a major part of that strategy. Record low interest rates for U.S. Treasuries means they have to look at other places to try and close the gap between assets and liabilities.
That forces them to look for other ways to earn larger returns. But to do so requires them to seek out riskier investments -- those that have a chance to bring back really sizable returns but can also royally and completely fail worse than NBA slam dunk champion Nate Robinson swinging fists against Jake Paul.
This means pension funds don’t just invest in blue-chip stocks or conservative index funds. They have to find stocks of companies that don’t have a track record of success but have hopes to grow. They have to buy other bonds that can provide higher yield -- debt issued by other countries or from U.S. corporations or from the packaged mortgages featured in The Big Short starring Anthony Bourdain, which are all types of investments with a greater chance of defaulting on paying back their interest and initial principal..
There are even riskier types of returns. Pension funds can invest and own in real estate. Pension funds can place their money into hedge funds (which is like buying and selling stocks and bonds but via a secret cabal that plays by no man’s rules.)
And pension funds can also invest large amounts of money into something called private equity.
Private Equity: A Modern Day Curse Word
Private equity is a phrase often used as a synonym for “biggest dickheads alive.” I’ll go into a deepdive as to why, yes, private equity is another way of saying “assfucks who make it impossible for my to work in journalism” and “douchebags who tear apart city hospital systems” another day.
The best reason for you to hate the world of private equity is because of the sheer amount of “hey, I may be rich but I’m not like those rich people, I’m totally casual” men in this realm who own professional sports teams. Like:
Detroit Pistons owner Tom Gores
Or Milwaukee Bucks co-owner Wes Edens
Or the other guy who owns the Milwaukee Bucks, Marc Lasry
And Boston Celtics owner/character actor in a Lifetime original Wyc Grousbeck
But, for now, I will keep the definition of private equity simple. Essentially, a private equity fund is a fund set up to invest in privately held companies -- or those that are not traded on a stock market. A private equity fund can become a part owner of a company that it believes can grow with the right investment.
Or it can buy enough (or all) of a company to become its primary owners and take over its management. And, typically, a private equity firm will eventually sell a company it owns to another company at a later date, hopefully at a profit.
Private equity funds need a lot money. Pension funds have it. So private equity companies go to pension funds and ask them for large sums of money to invest. And, of course, private equity funds also charge pension boards pretty steep fees for the right to invest their money in private companies.
Also, it’s pretty fucking batshit what pension funds will throw their money at. I decided to play a game entitled “How long will it take for me to find a batshit investment the Philly pension board has made?”
The answer: It took me no more than six minutes to find out that the Philly pension board intends to invest $50 million in a fund that invests in African companies -- which means retired Philadelphia parks employees now have exposure to Algeria’s leading cardboard manufacturer and processor, a Nigerian “fast casual” chicken sandwich restaurant chain and a home goods retail chain for the citizens of Botswana, Lesotho and Namibia.
Literally: Six minutes for me to dig that up. Why did they decide to make this decision? Beats me. They don’t, like, really make it easy for anyone to hear those conversations.
So that explains how we get to the unnamed (and, please, no one rat me out) Maine teacher described above and how she has come to have a small percentage of her retirement tied into the fate and fortune of a waterpark that received a 2-star review from Gram who complained about how a fire in a nearby room left them sick and sneezing in their own ant-infested hovel.
And here’s how I calculated how she owns 89 cents worth of a facility where Gran had to put towels into the drain of a tub in order to shower. (Again: two-stars.)
MY CALCULATIONS
The Maine Public Employees Retirement System made public its 2020 annual financial review reveals it has $15.8 billion in assets. It also disclosed that it invested $24 million in the Centerbridge Capital Partners III private equity fund worth $6.17 billion. That means that the Maine pension plan’s stake is 0.3% of the entire value of this fund.
In 2019, it was announced that a new $2.9 billion joint venture between Centerbridge and private equity was created to purchase Great Wolf Resorts. Centerbridge owns 45% of that joint venture, valued at $1.26 billion. There are 19 Grey Wolf Resorts, which means we can estimate that the Poconos location is valued as a $66.3 million property. This means that the MainePERS’ stake in the Poconos location (0.3%) is worth $257,954.
The Maine Education Association lists the salary pay scale for each district in the state. According to this, a teacher in the Cape Elizabeth school district at the top end of the pay scale (or the most experience) without a master’s degree (she teaches gym) makes $70,412. To calculate an annual pension for Maine you take the average of the final three years of person’s salary (we’ll say $70,412) times how many years they have been in service (39 years) and then by 2%. I’m estimating her annual pension at $54,921. Her annual pension is equivalent to 0.0003% of the entirety of Maine’s pension fund.
That 0.0003% stake in Maine’s $257,954 stake in the Great Wolf Lodge Poconos is worth 89.6 cents which is a lot funnier rounded down to an even 89 cents.