David Dayen has another excellent piece in The American Prospect: “The AI Bailout Could Be Baked Into the AI Bubble.”  https://prospect.org/2026/08/03/ai-bailout-could-be-baked-into-bubble-private-equity-life-insurers-loans/ 

His basic argument is important: private equity firms have built a circular financial machine in which they own private-credit managers, finance AI and data-center investments, own life insurers stuffed with retirement savings, and increasingly use those insurers to buy private-credit assets generated by the same private-capital ecosystem. If those investments blow up, the losses don’t necessarily stop with Apollo, KKR or Blackstone.

They can land on retirees , competing insurers—and ultimately taxpayers.  State and Local pensions hold billions in Private Credit directly.  401k plans hold annuities that could default.  Corporate Pension plans hold Pension Risk Transfer annuities which could default.

I think Dayen is right. But he may actually understate the problem.

The weak link in this machine is something almost nobody understands:

State insurance guaranty associations are not the FDIC.

Dayen describes state guaranty funds as the mechanism that would step in if a life insurer failed.

Technically yes.  But calling them “funds” gives retirees completely the wrong picture.  https://commonsense401kproject.com/2025/06/24/state-guarantee-associations-behind-annuities-are-a-joke/

There isn’t an Iowa equivalent of the FDIC sitting on hundreds of billions of dollars waiting for Athene to fail. When an insurer becomes insolvent, the state guaranty association generally assesses the remaining solvent insurance companies operating in the state. The surviving companies therefore have to finance the failure after it has already occurred.  That design might work reasonably well when some small insurer fails.   What happens when the failed company has hundreds of billions of dollars of liabilities? That’s an entirely different question.

---

Now Put Athene Into That Equation

Athene isn’t Executive Life.  It’s vastly bigger.

Athene reported more than $445 billion in total assets as of March 31, 2026.  https://commonsense401kproject.com/2026/03/26/apollos-garbage-dump-athene-loading-up-on-risk-endangers-retirees-in-prts-and-other-annuity-investors/

  It was partially designed by Jeffrey Epstein as evidenced in this 2015 excerpt in the Epstein Files https://www.justice.gov/epstein/files/DataSet%209/EFTA00305994.pdf    https://commonsense401kproject.com/2026/02/25/jeffrey-epsteins-pension-destruction-engine-athene/

And Iowa has become perhaps the most important regulatory jurisdiction in this entire private-equity/annuity experiment.

According to the Financial Times, Iowa now oversees roughly $1.3 trillion of insurance assets, while Iowa-based insurers have transferred approximately $449 billion of reserves to reinsurers in jurisdictions including Bermuda and the Cayman Islands. Iowa Insurance Commissioner Doug Ommen himself has warned that the industry’s move toward private-market investments can involve assets that are less appropriate for retirees and that the resilience of these strategies has not yet been tested through a serious downturn.

That gets directly to the issue I raised recently in:

New York vs. Iowa Annuities: Where Does the Extra Spread Come From?

New York vs. Iowa Annuities: Where Does the Extra Spread Come From?

Higher annuity yields don’t magically appear.

They generally come from some combination of:

more credit risk, more liquidity risk, more leverage, more structured credit, more private credit, more regulatory arbitrage, or less capital supporting the same promise.

There is no free lunch in fixed income.

---

The Bigger Problem: The Assets Can All Go Bad Together

The insurance industry’s defense of guaranty associations often implicitly assumes something resembling independent failures.

Company A screws up.

Companies B through Z remain healthy.

B through Z get assessed and protect Company A’s policyholders.

Fine.

But Dayen is describing almost the exact opposite scenario.

Apollo, KKR, Blackstone, Ares and others participate in overlapping private-credit markets.

Insurers increasingly own private placements, structured securities, asset-backed loans and private credit.

Those same credit markets increasingly finance AI infrastructure, data centers and private-equity portfolio companies.

So imagine an AI/data-center/private-credit bust.

The company needing rescue may not be the only insurer experiencing losses.

The companies being asked to finance the rescue could simultaneously be trying to preserve their own capital.

That is the classic problem of correlated systemic risk.

And it is precisely the circumstance under which a post-failure assessment system becomes least credible.

---

Dayen Actually Gives the Numbers Showing How Fast This Changed

The academic research behind Dayen’s article found an extraordinary change after private-equity ownership.   https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7152239

In 2024, about 49.5% of new investments by PE-owned insurers went into privately placed instruments, compared with roughly 14% for unaffiliated insurers.

Private equity also gets something else enormously valuable from owning the insurer:

permanent captive assets under management.

The insurer can pay the affiliated asset manager billions.

The Financial Times reported that Athene Annuity and Life Company paid Apollo approximately $1.3 billion in management fees in 2024, while KKR’s Global Atlantic paid KKR approximately $536 million.

Think about that incentive structure.

Heads:

Apollo earns asset-management fees and spread income.

Tails:

The insurance subsidiary absorbs investment losses.

Extreme tails:

Policyholders, other insurers, guaranty associations—and potentially taxpayers—enter the equation.

That’s one hell of a business model.

---

And Athene Isn’t Simply Buying Random Bonds

The affiliated-investment issue deserves far more attention.

S&P Global data reported by the Financial Times showed Athene’s affiliated assets nearly doubled from about $22.6 billion at year-end 2023 to $40.1 billion at year-end 2024.

Athene accounted for roughly 30% of the entire industry’s increase in affiliated assets during that period.

This doesn’t prove the investments are bad.

It proves the conflicts deserve exceptional scrutiny.

The company manufacturing private credit can own the insurer buying private credit.

The asset manager earns fees.

The insurer earns additional spread.

The annuity salesman gets a more attractive crediting rate.

Everybody looks brilliant—until the credit cycle reverses.

---

Another Problem: Guaranty Coverage Isn’t Unlimited

There is another important qualification to Dayen’s description.

Guaranty associations don’t simply guarantee every dollar of every insurer liability.

Coverage is subject to statutory limits.

The Chicago Fed gives the example of a $400,000 present-value annuity obligation where only $250,000 is protected under a typical state limit—meaning the policyholder could receive substantially less than the promised benefit.

Iowa itself describes statutory coverage limits rather than an unlimited government guarantee.

That’s particularly important for:

• wealthy individual annuity owners;
• pension-risk-transfer retirees;
• corporate retirement plans;
• participants with large lifetime-income benefits.

Calling an annuity “guaranteed” without explaining who guarantees it, up to what amount, under which state’s law, backed by what assets, and through what insolvency process is financial malpractice.

---

Ben Bernanke Already Told Us What Happens When a Giant Insurer Actually Gets Into Trouble

We don’t have to speculate entirely.

We ran the experiment in 2008.

It was called AIG.  https://www.federalreserve.gov/newsevents/testimony/bernanke20090324a.htm

When explaining the Federal Reserve’s extraordinary rescue, Chairman Ben Bernanke testified that AIG’s collapse could have posed “unacceptable risks” to the global financial system.

He specifically said that AIG’s large insurance subsidiaries likely would have been placed into rehabilitation by state regulators, leaving policyholders facing considerable uncertainty about their claims.

That is enormously important.

If state insurance receivership and guaranty associations were such a powerful substitute for a federal backstop, why did the Federal Reserve commit extraordinary resources to keep AIG from collapsing?

Because when the institution becomes sufficiently large and interconnected, policymakers stop asking:

“What does the state guaranty statute say?”

and start asking:

“Will allowing this company to fail crash the financial system?”

That’s the real precedent.

---

From Executive Life to Athene

The irony is that regulators confronted versions of these issues after Executive Life and Mutual Benefit Life more than three decades ago.

The Minneapolis Fed wrote in 1993 about the incentives and moral hazard created by state insurance guarantees following the Executive Life collapse.

Yet today we have constructed institutions dramatically larger than Executive Life, holding dramatically more complex assets, intertwined with private equity, private credit, offshore reinsurance and now potentially the AI infrastructure boom.

And somehow we’re supposed to believe the same fragmented state guaranty system has become a stronger backstop.

I don’t buy it.

---

The Real AI–Annuity Bailout Chain

Dayen’s article lets us draw the complete circle:

401(k)s / pensions / retirees >Annuities and pension-risk transfers>PE-owned insurers>↓

Apollo / KKR / Blackstone asset managers>Private credit>AI companies / data centers / PE portfolio companies>Credit losses>Insurance-company losses>State receivership>State guaranty associations>Assessments on surviving insurers>Potential tax credits / taxpayer exposure

And if the company is too big? Washington.

That’s the story.

---

This Is Why Pension Risk Transfers Matter

And this brings us back to the pension-risk-transfer problem.  https://commonsense401kproject.com/2026/07/22/dol-lax-guidance-on-pension-risk-transfers-has-cost-retirees-billions-while-enriching-insurance-companies/

When an employer transfers a traditional pension to an insurance company, we are continually told that retirees haven’t lost anything because their pension has merely been replaced by an equally safe insurance-company promise.

That’s nonsense.

Before the transfer, the pension is governed by ERISA and backed by the federal PBGC system.

Afterward, the retiree can become a creditor of an insurance company regulated primarily by whichever state domiciles that insurer, with state guaranty-association protection subject to statutory limitations.

Meanwhile insurers increasingly compete by offering sponsors attractive PRT pricing while trying to earn higher investment spreads.

Where do those higher spreads come from?

See Iowa.

See private credit.

See offshore reinsurance.

See affiliated assets.

And now:

See AI.

---

CommonSense Bottom Line

David Dayen deserves considerable credit for connecting the AI bubble to private credit, private equity and life insurers.

But the scariest part isn’t simply that taxpayers may indirectly subsidize insurance failures.

It’s that the ostensible safety net may be structurally incapable of handling the failure of one of today’s gigantic annuity companies during a correlated private-credit crisis.

The state guaranty system was never designed to be the FDIC for a $445-billion retirement conglomerate tied into one of the world’s largest alternative-asset managers.

If Athene—or another insurer of similar scale—ever became genuinely insolvent, I have a very hard time believing America’s life insurers would simply write checks large enough to make everyone whole through Iowa’s guaranty-association machinery.

History suggests something else would happen.

Washington would arrive.

That means we may already have created exactly the arrangement Dayen fears:

Private profits.

Private-credit risk.

Retirement money as funding.

State regulation when things are good.

And federal taxpayers when things get really bad.

The bailout may not merely be baked into the AI bubble.

It may already be baked into the American annuity industry.

Annuities: Who Is Your Regulator—and Does Your 401(k) Fiduciary Even Know?

Annuities Cherry-Pick the Weakest State Regulator

Insurance Regulation in America: Fifty Watchdogs, One Closed Door

Wall Street calls it “democratizing access.” Professor Hilary Allen calls it something closer to creating new bag holders. ERISA fiduciaries should pay attention.

Professor Hilary J. Allen’s new Regulatory Review article, “Crypto Assets Have No Place in 401(k) Plans,” may be one of the clearest statements yet of what is wrong with Washington’s push to stuff crypto into American retirement plans.  https://www.theregreview.org/2026/08/10/allen-crypto-assets-have-no-place-in-401k-plans/

Allen, a professor at American University Washington College of Law, argues that the Department of Labor should abandon its proposed rule facilitating alternative assets in 401(k)s and return to its 2022 guidance telling fiduciaries to exercise “extreme care” before adding cryptocurrency.

Her underlying point is even more important:

401(k) participants are not demanding crypto. The crypto industry needs 401(k) participants.

That distinction changes the entire fiduciary analysis.

Who Exactly Is Being “Democratized”?

The political sales pitch is that ordinary workers deserve the same access to crypto and alternative investments supposedly enjoyed by sophisticated institutions and wealthy investors.

Allen turns that argument upside down.

Her May 29 Department of Labor comment warns that “democratizing access” can instead mean using 401(k)s to create a new market for illiquid or speculative assets that existing investors want to sell.

That should sound very familiar to anyone who has watched private equity, private credit, annuities and increasingly complex CITs migrate into retirement plans. First Wall Street creates the product. Then Wall Street needs more assets.

Then it discovers $12+ trillion sitting in defined-contribution retirement accounts.

Suddenly giving workers “access” becomes a national policy priority.

Follow the money.

Allen Identifies the Bagholder Problem

Allen uses a wonderfully blunt Wall Street term: bagholders.

Crypto needs continuing demand. Large existing holders—or “whales”—can only monetize their gains if somebody else buys.

Allen cites Bank for International Settlements research finding that most Bitcoin investors in the studied period lost money and that larger investors probably cashed out at the expense of smaller holders.

Her DOL submission goes further. She points to enormous Bitcoin price swings and concludes that this volatility and dependence upon continuing favorable policymaking make Bitcoin unsuitable for 401(k)s.

Now imagine introducing millions of automatic payroll contributions into that market.

Every two weeks.

Year after year.

That isn’t merely “access.”

It potentially creates one of the largest permanent streams of new buyers in the world.

And ERISA fiduciaries should be asking the most basic question:

Are we adding crypto because it improves participants’ retirement security—or because somebody needs participants’ money?

PwC Already Said the Quiet Part Out Loud

This fits almost perfectly with my June CommonSense piece, “Crypto in 401(k)s: PwC Accidentally Says the Quiet Part Out Loud Again.”   https://commonsense401kproject.com/2026/06/10/crypto-in-401ks-pwc-accidentally-says-the-quiet-part-out-loud-again/

PwC’s own discussion of global crypto regulation describes an extraordinary regulatory infrastructure involving custody, liquidity, disclosure, operational resilience, market conduct, stablecoin reserves, supervision, collateral and cross-border enforcement.

My conclusion was simple:

Traditional diversified mutual funds don’t require an entirely new global regulatory architecture to function. Crypto does.

That isn’t an argument for putting crypto in retirement plans.

It is a warning against doing so.

Allen supplies the complementary economic argument.

Crypto is volatile.

Crypto markets have manipulation concerns.

Crypto suffers extraordinary hacking and fraud losses.

Crypto lacks the fundamentals traditionally used to value investments.

And crypto increasingly creates potential connections between speculative digital markets and the conventional financial system.

Her DOL comment cites more than $81 billion in crypto “grifts and disasters” through May 2026 and FBI data showing crypto-related losses rising from roughly $2 billion in 2021 to more than $11 billion in 2025.

That’s quite a résumé for an asset class we’re supposedly worried workers aren’t getting enough exposure to.

Then There Is ERISA

Allen’s argument is largely about financial stability and retirement security.

I would add another problem:

ERISA.

The statute doesn’t say fiduciaries should select investments because the President, the crypto industry, asset managers or recordkeepers think they’re innovative.

ERISA requires prudence and loyalty.

And ERISA §406 separately regulates transactions involving parties in interest.

That becomes extremely important once crypto moves through the actual machinery of a 401(k):

recordkeepers → custodians → trustees → exchanges → affiliated funds → brokerage windows → target-date funds → CITs → participants.

My earlier CommonSense analysis argued that crypto exposure can raise prohibited-transaction issues where plan service providers or their affiliates receive direct or indirect compensation, spreads, revenue sharing or other economic benefits from transactions involving plan assets.

Calling something “crypto” doesn’t repeal ERISA §406.

Neither does an Executive Order.

Neither does a DOL regulation magically eliminate the underlying conflicts.   https://commonsense401kproject.com/2025/11/03/crypto-as-a-prohibited-transaction-in-401k-plans-target-date-and-brokerage-windows/

The Brokerage Window Isn’t a Casino Exemption

One likely escape route is obvious:

Don’t put Bitcoin directly on the core 401(k) menu. Put it in the brokerage window.

Then everyone can pretend the participant made the decision.

That misses the point.

The fiduciary first selected the brokerage provider, negotiated its compensation, established the window and permitted the investment architecture.

If the recordkeeper, custodian, exchange or affiliated entity is making money from participant crypto transactions, the fiduciary inquiry doesn’t disappear simply because the participant clicked the mouse.

Participant choice isn’t a magic ERISA eraser.

The same concern becomes even more serious if crypto eventually gets buried inside target-date funds or opaque CIT structures where participants may not even realize they own it.

How Do You Benchmark It?

This may be the simplest investment-committee question of all.

Suppose your consultant recommends allocating 2% of a target-date fund to Bitcoin.

Ask:

Against what?

What is Bitcoin’s expected return?

What is its expected risk premium?

What is its appropriate benchmark?

How do you determine whether the spread is reasonable?

How do you measure transaction costs across exchanges?

How do you determine whether custody charges are reasonable?

How do you determine whether the price itself has been manipulated?

How do you document that the allocation improves retirement outcomes?

My PwC piece identified precisely this problem: crypto pricing and regulatory structures remain fragmented across exchanges, jurisdictions, liquidity pools, stablecoin systems and offshore entities.

A fiduciary cannot simply write:

“Bitcoin went up a lot.”

Past appreciation is not a fiduciary investment process.

And Please Stop Calling Bitcoin a Hedge

Allen also attacks the “digital gold” argument.

A hedge should reduce portfolio risk.

Bitcoin has demonstrated extraordinary volatility and has often moved in the same direction as risk assets. Allen therefore questions how something this volatile can simultaneously be sold as portfolio insurance.

This matters enormously in retirement plans.

A 25-year-old speculator can lose 50% and decide to wait.

A 67-year-old participant withdrawing retirement income doesn’t necessarily have that luxury.

Sequence-of-return risk doesn’t disappear because somebody put the word “digital” in front of an asset.

Crypto and Private Equity Are Running the Same Playbook

This is where the crypto debate connects to the larger alternative-assets push.

The sales pitch keeps following roughly the same sequence:

1. Call the product innovative.

2. Say wealthy investors already have access.

3. Declare it unfair that workers don’t.

4. Wrap the investment inside a professionally managed vehicle.

5. Move it into a CIT or target-date fund.

6. Tell fiduciaries diversification makes everything safe.

7. Collect fees and spreads that become increasingly difficult for participants to see.

We’ve already watched versions of this movie with annuities, private equity and private credit.

Crypto may simply be the most extreme version.

The Great Irony: 401(k)s Already Work

This whole debate also ignores something important.

Building a good 401(k) portfolio isn’t particularly difficult.

You can construct an extraordinarily diversified retirement portfolio using inexpensive, liquid, transparent public-market investments.

Stocks.

Bonds.

Treasuries.

Index funds.

Institutional collective funds holding ordinary securities.

Stable-value structures where risks and economics can actually be analyzed.

Nobody has demonstrated that American workers cannot retire successfully because their 401(k)s suffer from a tragic shortage of Bitcoin.

Yet we are contemplating introducing an asset that Professor Allen describes as extraordinarily volatile, vulnerable to manipulation, hacking and scams, and increasingly capable of transmitting instability into conventional financial markets. Her submission concludes by urging DOL to restore its 2022 crypto guidance.

CommonSense Bottom Line

Professor Hilary Allen is right.

But I would take her argument one step further.

Crypto isn’t merely a questionable 401(k) investment. It is almost a laboratory experiment for everything ERISA fiduciaries are supposed to avoid.

Extreme volatility.

Questionable valuation.

Market-manipulation concerns.

Custody risk.

Operational risk.

Hacking.

Opaque spreads.

Conflicted intermediaries.

Difficult benchmarking.

Potential prohibited transactions.

And political pressure to funnel retirement assets into the product.

Wall Street calls that democratizing access.

I have another description:

Turning America’s retirement system into Wall Street’s buyer of last resort.

401(k) plans were created to fund workers’ retirements.

They were not created to provide exit liquidity for crypto whales, private-equity sponsors, asset managers or anybody else looking for the next trillion-dollar pool of permanent capital.

Keep the casino outside the 401(k).

An annuity paying a higher crediting rate looks better.

But there is no magic in insurance.

If one insurance company can consistently credit more than another, somebody should ask:

Where does the extra spread come from?

Increasingly, the answer is:

Private credit.

Structured credit.

More aggressive asset management.

Reinsurance.

Bermuda and Cayman.

And sometimes a more accommodating state regulatory structure.

That brings us to New York vs. Iowa.

Insurance Companies Know the Difference

I spent seven years as an officer of AEGON/Transamerica insurance companies.

We had multiple insurance-company legal entities.

When possible, we generally favored the Iowa companies.

New York was different.

We generally avoided the New York company unless a sophisticated client insisted upon it.

Why would an insurance company care?

Because regulation has an economic cost.

More restrictive investment rules, tougher reserve scrutiny, tighter reinsurance requirements and more regulatory friction can reduce the amount of spread an insurer can extract from its balance sheet.

That’s potentially bad for insurer profits.

But it may be pretty good for the retiree relying on a guarantee for the next 30 years.

Iowa Has Become America’s Annuity Laboratory

Iowa now regulates roughly:

$1.3 TRILLION

of insurance assets.

Its roster includes some of the biggest names in fixed and indexed annuities:

Athene

Transamerica

F&G

American Equity/Brookfield

Sammons/Midland National/North American

Principal-related insurance operations

And Iowa’s own insurance commissioner, Doug Ommen, is now publicly warning about the industry’s migration into private markets.

About one-quarter of life insurers’ fixed-income assets are now private credit, according to recent reporting, and roughly $70 billion is below investment grade.

This isn’t your grandfather’s insurance portfolio.

The Extra Yield Isn’t Free

The old insurance-company model was relatively simple.

Take in $100 from an annuity buyer.

Invest heavily in publicly traded bonds.

Earn 6%.

Credit the annuity owner 4%.

Keep the spread.

Today Wall Street has discovered a potentially more profitable model:

Annuity: 4%

↓

Private Credit: 7%–9%

↓

Insurer captures a much larger spread

That sounds terrific—until someone remembers the first rule of finance:

Higher yields generally come with higher risk.

Private credit may be less liquid.

It may not have a readily observable market price.

It may rely upon private ratings.

It may involve affiliated asset managers.

And its value may be based substantially on models rather than transactions in a public market.

Recent reporting estimates life insurers held about $480 billion of privately rated debt in 2025. Private ratings can matter directly to insurer capital because regulatory capital treatment depends partly upon the credit quality assigned to an investment.

So the real game isn’t merely:

How much does the asset yield?

It is also:

How much regulatory capital must the insurer hold against it?

Iowa: 72. New York: 21.

In our CommonSense Regulatory-Arbitrage Risk Score, where 100 represents the greatest opportunity for regulatory flexibility/arbitrage—not probability of insurer failure—we estimate:

	New York	Iowa
Regulatory-Arbitrage Risk Score	21	72
Private/structured-asset flexibility	Lower	Higher
PE/affiliate complexity	Lower	Higher
Offshore/reinsurance exposure	Lower	Much higher
Additional regulatory friction	Higher	Lower
Major annuity companies	TIAA, NY Life, MetLife	Athene, Transamerica, F&G, AEL/Brookfield, Sammons

These are CommonSense analytical scores, not official regulator ratings.

But the underlying regulatory differences are real.

New York law contains extensive, specific limitations governing the investments of domestic life insurers.

And New York separately maintains extensive life-insurer reserve, valuation and filing requirements.

Iowa has become one of the industry’s preferred centers for the newer annuity/private-capital model.

Then $449 Billion Leaves Iowa

Here is the statistic every ERISA fiduciary should understand.

Iowa insurers have reportedly passed approximately:

$449 BILLION

of reserve funds to reinsurers in other jurisdictions.

That includes Bermuda and Cayman.

Iowa Commissioner Ommen himself is now warning about the increasing complexity of private-market investments and securitizations.

So the modern annuity can look like this:

401(k) participant

↓

Iowa-regulated annuity

↓

Private Credit

↓

Reinsurance

↓

Bermuda / Cayman

The participant sees one word:

GUARANTEED

New York Creates Friction

New York isn’t perfect.

New York insurers invest in private assets too.

They reinsure risk.

And nothing about a New York domicile eliminates insurance-company credit risk.

But New York has historically imposed more regulatory friction.

Its insurance law contains detailed limitations governing life-insurer investments.

It has extensive rules governing when insurers receive reserve credit for reinsurance.

It requires extensive insurer-specific valuation and reporting.

And New York has demonstrated that it will aggressively police its regulatory perimeter.

That costs insurers money.

Which may help explain why insurers don’t always want to issue through New York.

Higher Spread—or Lower Protection?

This is the question ERISA fiduciaries should be asking.

Suppose:

Iowa annuity: 5.0%

New York annuity: 4.5%

The easy analysis is:

Iowa wins by 50 basis points.

The fiduciary analysis should be:

Why am I getting another 50 basis points?

Is it better management?

Longer duration?

Less capital?

More private credit?

More structured securities?

Affiliated asset management?

Offshore reinsurance?

Different reserve treatment?

Or simply a different regulatory regime?

Until the fiduciary knows the answer, 50 basis points isn’t necessarily alpha.

It may be compensation for risk.

Wall Street Understands This Perfectly

Insurance companies employ armies of:

actuaries

lawyers

investment professionals

capital-management specialists

and reinsurance experts

to decide which legal entity should issue an annuity, what assets should back it, how much capital must support it and whether liabilities should be reinsured elsewhere.

They understand exactly what it means to issue through Iowa instead of New York.

Yet many 401(k) committees appear to compare annuities primarily on:

crediting rate

insurance-company rating

and perhaps fees.

That isn’t enough.

Ask the Question

When one annuity pays more than another, don’t simply congratulate the consultant for finding the higher rate.

Ask:

Where does the extra spread come from?

Then ask:

How much is private credit?

Who originated that credit?

Is the asset manager affiliated with the insurer?

How are the assets valued?

Who rates them?

How much regulatory capital backs them?

Has the liability been reinsured?

Where?

Bermuda? Cayman?

And:

Why did the insurance company choose Iowa instead of New York?

Insurance companies understand regulatory arbitrage.

Private equity understands regulatory arbitrage.

Wall Street understands spread.

ERISA fiduciaries need to understand all three before calling an annuity “safe.

Annuities: Who Is Your Regulator—and Does Your 401(k) Fiduciary Even Know?

Your 401(k) statement may say:

BlackRock. Prudential. Lincoln. Or simply: Target Date 2055.

What it probably doesn’t say is: Las Vegas, Nevada.

Welcome to the increasingly strange world of Collective Investment Trusts—or CITs.

CITs aren’t SEC-registered mutual funds. And behind some of the biggest names in American retirement investing sits a company most participants have never heard of:

Great Gray Trust Company.

Great Gray is a Nevada-chartered trust company headquartered in Las Vegas. It is ultimately controlled by funds affiliated with Madison Dearborn Partners, a major private-equity firm.

And Great Gray isn’t some tiny niche trustee.  As of March 31, 2026, it reported:

$318.6 billion of fund assets 80+ investment sub-advisers 200+ recordkeepers and 38 trading platforms.

Those relationships put Great Gray in the middle of a retirement ecosystem containing some of the biggest names on Wall Street.

The Names You Actually Know

Great Gray is trustee for CITs sub-advised or used in products involving major financial brands.

BlackRock is helping Great Gray build the new Panorix Target Date Series, including private-equity investments.

Goldman Sachs Asset Management created a private-credit CIT specifically selected for Panorix.

**PGIM—the investment-management arm of Prudential—**offers more than 55 CITs across its own Prudential Trust Company and Great Gray platforms. PGIM lists its entire target-date CIT series and a real-estate CIT on the Great Gray platform.

And Lincoln Financial says its Income America 5ForLife target-date portfolios providing guaranteed lifetime income are collective investment funds for which Great Gray Trust Company is the trustee.

Then there is distribution.

Great Gray’s own platform materials list trading relationships providing access through familiar retirement companies including:

Empower Principal Nationwide Voya TIAA John Hancock Lincoln Vanguard and Fidelity.

That doesn’t mean all those companies have hired Great Gray to manage their proprietary funds. In many cases Great Gray is providing CITs that can be accessed through their retirement platforms.

But that’s precisely the point.

A participant may know BlackRock, Lincoln, Prudential, Empower or Principal.

Almost nobody knows the name of the Nevada trust company sitting behind the CIT structure.

BlackRock + Goldman + Great Gray

The new Panorix structure shows where this is headed.

Great Gray is trustee.

BlackRock designs the custom target-date glidepath and supplies index investments and private equity.

Goldman Sachs supplies private credit.

Private Equity owned consultant Wilshire handles liquidity and cash-flow management.

Great Gray retains ultimate fiduciary authority over the CIT.

So an ordinary participant could see:

TARGET DATE 2055

while underneath sits:

Great Gray — Trustee  BlackRock — Private Equity  Goldman Sachs — Private Credit

Wilshire — Liquidity Management

And the legal trustee at the top of this increasingly complicated investment structure is:

**Great Gray Trust Company, LLC  Las Vegas, Nevada**

Lincoln Adds the Insurance Layer

Lincoln makes the regulatory maze even more interesting.

Lincoln says its Income America 5ForLife portfolios are target-date collective investment funds with guaranteed lifetime income.

And Great Gray is the trustee.  Now the structure can become:

401(k)  Target-Date CIT  Great Gray — Nevada  Investment Managers  Lincoln Lifetime-Income Guarantee Insurance Regulation by State of Indiana

That means one seemingly simple retirement product can potentially involve ERISA, Nevada trust-company regulation, investment managers operating under federal securities law, and Indiana state insurance regulation.

And the participant sees:

Income America 5ForLife.

$318 Billion of Funds. $1 Million Statutory Capital Floor.

Now comes the number every plan fiduciary should know.

Nevada law starts the statutory minimum stockholders’ equity requirement for a retail trust company at:

$1 MILLION

The Nevada regulator can require substantially more, and Great Gray’s $318.6 billion of fund assets are trust assets—not Great Gray corporate assets or liabilities.

So this isn’t financial leverage in the traditional balance-sheet sense. It is something more interesting:

Operational Leverage.

A relatively thin corporate entity can exercise trustee and fiduciary authority over an enormous pool of other people’s retirement assets.   Private equity understands that model very well.

Control enormous assets.  Put comparatively little corporate capital underneath the operating company.  Earn fees from the platform.   Add managers.   Add products.  Add distribution.

And scale.  Great Gray says more than 9% of its reported fund assets are already in fund-of-fund structures where Great Gray serves as trustee or administrator at multiple levels.

Now add private equity and private credit inside those structures.

And Great Gray Itself Is Private-Equity Owned

That’s the part that makes this such an extraordinary case study. Great Gray is ultimately controlled by investment funds affiliated with Madison Dearborn Partners.

So:  Private Equity   owns Great Gray which trustees 401(k) CITs that can invest in

Private Equity.

The circularity is remarkable.

And the regulatory history makes it even more interesting.

Great Gray’s enormous CIT business previously belonged to Wilmington Trust, N.A.—a national bank subject to OCC regulation.

On April 28, 2023, the CIT business moved to the Nevada-chartered Great Gray Trust Company.

On April 29—one day later—Great Gray was sold to the Madison Dearborn affiliate.

The structure effectively went:

OCC-Regulated National Bank >  Nevada Trust Company> Private-Equity Ownership>BlackRock Private Equity>Goldman Sachs Private Credit>Prudential/PGIM >CITs>Lincoln Lifetime Income

That deserves considerably more attention from ERISA fiduciaries.

Why Nevada?

Nevada permits Great Gray to operate as a non-depository trust company rather than a conventional bank.   It doesn’t need to take deposits.  It doesn’t need to make loans.

It can concentrate on the extraordinarily scalable business of administering and trusteeship of other people’s assets. Nevada’s statutory capital floor starts at $1 million.

And I have not found a Nevada CIT-specific regulatory code comparable to either the OCC’s detailed 12 CFR §9.18 framework or Pennsylvania’s detailed collective-investment-fund rules applicable to Vanguard’s trust company.

When a private-equity-owned Nevada trust company overseeing more than $300 billion begins helping BlackRock and Goldman Sachs put private equity and private credit into ordinary workers’ target-date funds, asking “Why Nevada?” isn’t unreasonable.

It’s basic fiduciary due diligence.

Follow the CIT

At the next 401(k) committee meeting, don’t merely ask:

“Who manages our target-date fund?”

Ask:

Who is the legal trustee?

Who owns the trustee?

Where is it chartered?

Who regulates it?

How much corporate capital does it maintain?

What investments are underneath it?

Are BlackRock, Goldman, Prudential or other managers putting private assets into it?

Does it contain an insurance guarantee?

Which insurance company provides it?

Who regulates that insurer?

Are any underlying partnerships or reinsurance entities offshore?

Because the logo participants recognize may be BlackRock, Prudential or Lincoln.

The recordkeeper may be Empower, Principal, Nationwide, Voya or Fidelity.

But somewhere underneath the familiar names, the legal trustee exercising ultimate fiduciary authority may be a private-equity-owned trust company headquartered in:

Las Vegas, Nevada.

That is something every ERISA fiduciary selecting a CIT should know.

If you own a mutual fund in your 401(k), you probably assume there is a federal regulator somewhere watching the store.  Usually, there is.

Mutual funds are regulated by the SEC. Their securities are publicly priced. Their holdings are disclosed. Federal securities laws apply.

But put an annuity in the same 401(k), and suddenly the answer to the simple question — “Who is my regulator?” — can become surprisingly obscure.

For a traditional fixed annuity, lifetime income annuity or many other insurance contracts, the primary regulator generally is not the SEC. (Variable Annuities have some light SEC regulation; others none)

It is a state insurance commissioner. The NAIC itself says plainly that life insurance and annuities are regulated by state insurance commissioners.

And increasingly, there may be another regulator hiding behind the first one:

Bermuda. Cayman. Barbados.

That should be a major ERISA fiduciary issue.

First Question for Every Fiduciary: Who Regulates This Annuity?

I have worked around retirement plans and insurance products for roughly 40 years.

In all that time, I can remember only one large plan sponsor that took the domicile question seriously enough to make it part of its annuity-selection process. It was a major pharmaceutical-company 401(k). The sponsor specifically wanted its annuity issued by an insurer regulated in New York, because it viewed New York as substantially tougher than competing state insurance jurisdictions.

That sponsor understood something most plan committees apparently never even ask:

An annuity is only as strong as the insurance company promising to pay it — and the regulatory system policing that company.

Yet I suspect most 401(k) fiduciaries could not answer these questions, and most of their consultants are clueless as well.  

What state regulates our fixed annuity or Lifetime Annuity? Who is the insurance commissioner? How much of the liability has been reinsured? Where? Bermuda? Cayman? What regulator supervises the reinsurer? What assets actually back our participants’ guarantee?

If the committee cannot answer those questions, how exactly did it perform prudent due diligence?

The Non-SEC Annuity Map

Using 2024 annuity-reserve data and public company filings, we estimated the amount of fixed, fixed-indexed, payout, group, pension-risk-transfer and other principally non-SEC annuity liabilities overseen by the leading state regulators.

These are estimates rather than a perfect NAIC Schedule S census, but the concentration is striking:  Perhaps over 95% in top 10 states.

State regulator	Estimated non-SEC annuity liabilities	Major insurers
New York	~$535 billion	TIAA, New York Life, MetLife, Equitable
Iowa	~$341 billion	Athene, Transamerica, Sammons/Midland/North American, Brookfield/American Equity, Principal
Texas	~$210 billion	Corebridge/AIG, VALIC
New Jersey	~$150 billion	Prudential
Minnesota	~$140 billion	Allianz Life, Ameriprise/RiverSource
Indiana	~$113 billion	Lincoln, Global Atlantic
Massachusetts	~$105 billion	MassMutual
Ohio	~$60 billion	Nationwide
Connecticut	~$57 billion	Voya, Talcott
Michigan	~$45 billion	Jackson, John Hancock
Nebraska	~$40 billion	Pacific Life
Colorado	~$38 billion	Empower/Great-West

The broader U.S. annuity market had roughly $4.5 trillion of reserves in 2024, according to ACLI’s NAIC-based data.

But the interesting story isn’t merely which state is biggest.

It is why certain states became so big.

Iowa: America’s Annuity Regulatory Capital

New York’s giant insurance industry developed over generations.

Iowa’s rise tells a different story.

Iowa now hosts approximately $1.3 trillion of insurance assets, according to S&P data cited by the Financial Times. Iowa-based insurers also had approximately $449 billion of reserve funds passed to reinsurers in other jurisdictions.

Among the companies centered there are Athene, American Equity, F&G, Transamerica and Sammons companies Midland National and North American. That makes the Iowa Insurance Division one of the most important retirement regulators in America.

Think about that.  A teacher in California. A hospital worker in Florida. A manufacturing employee in Ohio. A participant in a national Fortune 500 401(k).  Their retirement savings may ultimately depend upon a promise substantially supervised from Des Moines, Iowa.

The problem is that most participants — and probably many plan sponsors — have no idea that Iowa is their regulator in the first place.

Then Comes the Hidden Regulator

Now the story gets even stranger.   The state-regulated insurer may not retain all of the economic risk.  It can reinsure huge blocks of liabilities elsewhere.  Increasingly, that means offshore.

By the end of 2024, U.S. life insurers and annuity providers had ceded approximately $1.1 trillion of reserves to foreign reinsurers, principally in jurisdictions including Bermuda, Cayman and Barbados.

By year-end 2025, Bermuda alone reportedly accounted for approximately $1.1 trillion of U.S.-ceded life and annuity liabilities, or roughly 40.7% of all U.S. life-insurer ceded liabilities.  So the actual chain can look something like this:

401(k) participant > Employer retirement plan> Fixed annuity> Iowa-regulated insurance company> Offshore reinsurance affiliate> Bermuda Monetary Authority>Private credit, structured securities and other privately valued assets

That is a long way from what the participant probably imagined when the plan called the investment a “guaranteed annuity.”

The Financial Times reported that Athene alone had transferred risk associated with approximately $193 billion of liabilities to offshore affiliates by the end of 2024. It also reported growing concern about Cayman structures, including comments that roughly $150 billion of insurance reserves there were backed by materially less capital than might be required in the United States or Bermuda.

Did the fiduciary understand any of this before committing participants’ retirement savings?

The SEC Comparison Is Almost Absurd

Suppose a plan invests $100 million in a mutual fund.  The plan can examine:public holdings, market prices, SEC filings, prospectuses, audited financial statements, federal securities regulation, and standardized performance data.

Now suppose it puts $100 million into a fixed annuity. The investment may ultimately depend upon: the insurer’s general account, a state regulator chosen through the insurer’s corporate domicile, statutory accounting, reinsurance agreements, offshore affiliates, private credit, privately rated assets, and potentially another country’s solvency regime.

Yet many plan committees probably spend more time debating the expense ratio on a Vanguard fund than determining which sovereign regulator ultimately stands behind their annuity.  That is backwards.

ERISA does not permit fiduciaries to substitute labels for investigation. Calling something fixed, guaranteed, stable or insurance does not eliminate credit risk. It doesn’t eliminate liquidity risk. It doesn’t eliminate asset-valuation risk. It doesn’t eliminate reinsurance risk. And it certainly doesn’t eliminate regulatory risk.

Annuities are contracts not securities. Who owes us the money? Which legal entity issued the guarantee? Where is it domiciled? Who regulates it? What capital standard applies? Has the liability been reinsured? To whom? In what jurisdiction? What assets back that reinsurer? Could the liability or assets be moved again?

And perhaps most importantly: Did the fiduciaries compare regulatory jurisdictions when choosing among otherwise similar annuities? Regulation Should Be Part of ERISA’s “Prudent Process”

Suppose two annuities offer essentially the same economics crediting rate and AA S&P rating. One is issued through a legal entity domiciled in a jurisdiction with stronger capital requirements, greater transparency and tighter limits on reinsurance. The other sits in a jurisdiction selected in part because the insurer considers its rules more favorable and then reinsures substantial liabilities offshore.

Can an ERISA fiduciary simply say: “They are both insurance companies, so we didn’t consider the difference”? That is increasingly difficult to defend.

A fiduciary does not have to conclude that New York is always better than Iowa, or that Bermuda is inherently unsafe.

But a fiduciary should at least know the difference exists.

The plan sponsor I encountered decades ago understood that. It deliberately wanted New York regulation.

Whether its conclusion was right or wrong, the process was fundamentally more sophisticated than the process I see in many plans today.

Every Plan Committee Should Ask One Question

At the next investment committee meeting, trustees and fiduciaries with an annuity should ask their consultant:

“Who regulates our annuity?” Do not accept:  “The insurance company is highly rated.”

Ask again.  Which regulator?  Then ask:

Has any of our liability been reinsured outside that jurisdiction?

If the consultant cannot answer those questions immediately, perhaps the plan has just discovered a due-diligence problem worth considerably more attention than the next five-basis-point debate over mutual-fund expenses.

Because when someone’s retirement savings depend upon a decades-long insurance promise, knowing who regulates the promise should be Fiduciary Due Diligence 101

https://commonsense401kproject.com/2026/08/06/calling-bs-on-social-security-solvency-fearmongering-while-selling-retirees-riskier-annuities/ https://commonsense401kproject.com/2026/07/21/annuities-cherry-pick-the-weakest-state-regulator/     https://commonsense401kproject.com/2026/07/27/erisa-investment-standards-should-be-higher-than-mutual-fund-standards-not-lower/

New York vs. Iowa Annuities: Where Does the Extra Spread Come From?

Follow the Abbott Money

Texas is becoming the perfect private-capital ecosystem.

Hundreds of billions of dollars sit in Texas public pensions and university investment funds. Private equity and private credit are expanding rapidly. AI data centers are consuming extraordinary amounts of electricity, water, land and infrastructure. Energy companies stand to make fortunes supplying them.

And now Apollo Global Management is moving a major strategic hub to Austin.

Governor Greg Abbott welcomed Apollo with open arms despite their clear links to the Jeffrey Epstein scandal. 

That would be interesting enough.

But follow the money.

Some of Abbott’s largest political donors are simultaneously major players in energy, real estate, infrastructure, technology and the Texas data-center boom.

Some have received Abbott appointments.

Some have direct relationships with Texas public investment funds.

Some have both.

It shows why Texas desperately needs transparency about the intersection of campaign contributions, gubernatorial appointments, pension investments and the data-center gold rush.

---

Abbott’s Million-Dollar Club

Abbott doesn’t raise political money in ordinary amounts.

Transparency USA reports approximately $71.4 million in contributions during the 2026 election cycle and $67.5 million cash on hand.

Among the biggest contributors:

S. Javaid Anwar — $3.37 million

The Permian Basin oil executive was previously identified by the Texas Tribune as Abbott’s largest overall donor. Abbott appointed Anwar to the Texas Higher Education Coordinating Board.

Edward Roski Jr. — $2 million

Roski is chairman of Majestic Realty.

Majestic senior executive Jim Fonteno has an interesting résumé: former trustee of the Teacher Retirement System of Texas and former chairman of the TRS Investment Committee.

Kelcy Warren — $1.50 million this cycle

Warren controls Energy Transfer, one of America’s largest pipeline companies.

The Texas Tribune previously calculated Warren had already given Abbott approximately $2.9 million by 2022.

Abbott also appointed Warren to the University of Texas System Board of Regents.

And Texas public investment funds have invested in Energy Transfer securities.

Joe Gebbia — $1.5 million

The Airbnb co-founder is another Abbott megadonor. Texas TRS reported owning 93,405 Airbnb shares in February 2026.

Kenneth Fisher — more than $1 million

Fisher Investments previously managed approximately $350 million for the Employees Retirement System of Texas before ERS terminated the mandate in 2019.

Elon Musk — $500,000

Texas TRS reported owning 783,916 Tesla shares in February 2026.

But the private-market and governance connections deserve considerably more scrutiny.

---

Kelcy Warren: Exhibit A

If you want to understand the Texas ecosystem, start with Kelcy Warren.

Warren is a huge Abbott donor.

Abbott appointed him to the UT Board of Regents.

Warren controls Energy Transfer.

Texas public investment funds have invested in Energy Transfer.

And now the AI data-center boom promises potentially enormous additional demand for natural gas and energy infrastructure.

This is not some hypothetical future industry.

Texas’ proposed electric-grid connections reached an astonishing 474 gigawatts this summer.

Approximately 90% was associated with data centers.

That is more than five times Texas’ record peak electricity demand.

Only after the boom reached those proportions did Abbott order regulators to pause most new approvals while conducting an audit.

Energy Transfer and other pipeline companies could be enormous beneficiaries if Texas attempts to satisfy even a fraction of that demand with new gas-fired generation.

Again, that doesn’t establish that Warren bought Abbott.

It establishes something more useful:

The financial interests of some enormous Abbott donors overlap directly with policies controlled or influenced by Texas government.

---

Ray Hunt: Follow the Pension Money

The Hunt connection may be even more interesting from a pension perspective.

The Hunt family has been a significant Abbott donor.

Hunt Energy is positioned in the energy and power-infrastructure economy.

But Hunt also had a direct commercial relationship with Texas TRS.

Hunt Realty and TRS created the Akard Street real-estate investment platform.

TRS ultimately took control of the platform.

That isn’t a passive S&P 500 investment.

It is the kind of direct institutional relationship pension trustees should disclose alongside political relationships.

---

Private Equity Moves Onto the Pension Board

Then Abbott made a particularly revealing appointment.

In June 2026, Abbott appointed Dan West to the Teacher Retirement System of Texas Board of Trustees.

West’s occupation?

Private equity.

He is an investor at SCF Partners, which specializes in energy services, equipment and technology.

So while Texas TRS pours billions into private markets, Abbott has placed a professional private-equity investor on the board overseeing teachers’ retirement assets.

Again, private-equity experience can be useful.

But who represents the skeptical side of the table?

Who asks whether private equity actually beat public markets after fees?

Who challenges GP valuations?

Who questions carried interest?

Who demands the LPAs and side letters?

Who asks whether the consultant recommending another private-equity allocation has conflicts?

Texas appears much better at bringing Wall Street into the pension boardroom than bringing Wall Street skeptics into it.

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And Then Apollo Arrives

Now add Apollo.

Texas TRS has already been a major Apollo investor, including a reported $400 million commitment to Apollo Investment Fund X.

Then, on August 3, Governor Abbott announced that Apollo was establishing a major strategic hub in Austin.

Abbott proclaimed:

“Texas is the new financial capital of America.”

He may be right.

But Austin is also becoming America’s public-pension/private-equity capital.

Apollo will be surrounded by enormous pools of public institutional capital:

Teacher Retirement System of Texas

Employees Retirement System of Texas

Texas Municipal Retirement System

Texas County & District Retirement System

UTIMCO

Collectively, these institutions oversee hundreds of billions of dollars.

For Apollo, Blackstone, KKR, Ares and the rest of the private-market industry, Austin is increasingly where the money is.

---

The Data-Center Money Trail

Now connect Wall Street to the data-center boom.

Abbott’s current donor records include:

Edward Roski / Majestic Realty — $2 million

Kelcy Warren / Energy Transfer — $1.5 million

Black Mountain Power — $500,000

Black Mountain founder John Bennett — $500,000

Elon Musk — $500,000

And that is before adding major Abbott donors associated with natural gas, electric transmission, oil, real estate and infrastructure.

Texas created enormous incentives for data centers.

Private capital rushed in.

Data centers demanded enormous amounts of electricity.

Energy and infrastructure companies stood to benefit.

Then proposed electricity demand exploded to 474 GW.

Suddenly Abbott discovered that Texas might have a problem.

In August he ordered a comprehensive audit and effectively paused many new grid connections.

Good.

But where was the audit before the gold rush?

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Abbott’s Appointment Machine

There is a larger governance problem here.

The Texas Tribune conducted an extraordinary analysis of Abbott’s university appointments.

It found that more than 70% of Abbott’s appointees to the state’s university-system boards had contributed to Abbott.

Approximately 30% had contributed more than $100,000.

Among them was Kelcy Warren.

This doesn’t prove that Abbott sells appointments.

Abbott denies contributions determine appointments.

But when governors can accept unlimited six- and seven-figure political contributions from wealthy business executives and then appoint some of those same executives to powerful public boards, the appearance problem is obvious.

Add public pension money and private equity and the stakes become much larger.

---

What is missing is the cross-match.

Texas retirees should be able to type “Kelcy Warren,” “Apollo,” “Black Mountain,” “Majestic,” “Hunt,” “Blackstone” or “KKR” into one database and see:

How much did they give Texas politicians?

Who appointed whom?

How much pension money do they manage?

What fees are they collecting?

What Texas projects do they own?

What tax breaks did they receive?

And what infrastructure are Texas ratepayers being asked to finance?

That is not accusing anyone of a crime.

That is basic public accountability.

Texas has assembled almost every ingredient necessary for a private-capital feeding frenzy:

Political money.

Pension money.

Private equity.

Private credit.

Cheap land.

Natural gas.

Tax incentives.

Data centers.

And politicians eager to proclaim Texas open for business.

Apollo’s move to Austin isn’t the story.

Apollo’s move is the symbol of the story.

Texas is rapidly becoming America’s private-capital capital.

Before Wall Street gets any more Texas pension money, electricity, water or tax subsidies, somebody needs to follow the money.

Appendix — Follow the Abbott Money

The current-cycle contribution figures below come from Transparency USA’s 2026 Abbott records, which report roughly $71.4 million in total contributions.

Abbott contributor	2026-cycle giving identified	Business	Key connection
S. Javaid Anwar	$3.37M	Midland Energy	Oil & gas; Abbott appointee; Tribune previously identified him as Abbott’s top overall donor
Edward Roski Jr.	$2.00M	Majestic Realty	Data-center/industrial real estate; Majestic executive Jim Fonteno formerly TRS trustee & Investment Committee chair
William Doggett	$1.59M	Doggett Equipment	Heavy equipment/infrastructure
Kelcy Warren	$1.50M	Energy Transfer	Gas/pipelines; former Abbott-appointed UT Regent; Texas public-investment exposure to Energy Transfer
Joe Gebbia	$1.50M	Airbnb co-founder	TRS held 93,405 Airbnb shares
Bobby Cox	$1.19M	Bobby Cox Companies	Texas business/real estate
Kenneth Fisher	$1M+	Fisher Investments	Former ~$350M Texas ERS investment-management mandate
Elon Musk	$500K	Tesla/SpaceX	AI/compute; TRS held 783,916 Tesla shares
Black Mountain Power LLC	$500K	Black Mountain	Direct Texas data-center/power-development connection
John Bennett	$500K	Black Mountain	Founder/CEO; direct data-center connection

The Abbott appointment pattern is independently significant. The Texas Tribune found that more than 70% of Abbott’s university-system appointees were donors, with roughly 30% giving more than $100,000. It specifically identified Warren at $2.9 million historically and Anwar at more than $6.2 million at the time of its 2022 analysis.

Appendix B — The Strongest Pension Cross-Matches

Name / firm	Political connection	Public-capital connection	Significance
Kelcy Warren / Energy Transfer	Major Abbott donor; Abbott-appointed UT Regent	Texas public funds have held Energy Transfer securities	A — donor + appointment + public capital + data-center energy
Ray Hunt / Hunt Realty	Abbott donor family	Direct Akard Street real-estate relationship with TRS	A — direct pension commercial relationship
Edward Roski / Majestic	$2M current-cycle Abbott donor	Majestic executive formerly TRS trustee and Investment Committee chair	A — revolving-door/governance connection
Kenneth Fisher	$1M+ Abbott donor	Fisher Investments formerly managed ~$350M for ERS	A — direct asset-manager relationship
Dan West / SCF Partners	Abbott appointee	Abbott appointed PE professional to TRS board in June 2026	A — PE directly inside pension governance
Apollo	Abbott publicly welcomed Austin expansion	TRS has committed substantial capital to Apollo, including reported $400M Fund X commitment	A — major PE/pension relationship
Elon Musk / Tesla	$500K Abbott donor	TRS owns 783,916 Tesla shares	B — direct but ordinary public-market investment
Joe Gebbia / Airbnb	$1.5M Abbott donor	TRS owns 93,405 Airbnb shares	B — direct but ordinary public-market investment

Appendix C — The Data-Center/Power Network

Texas’ situation has become extreme enough that Abbott ordered a new audit last week. ERCOT had approximately 474 GW of proposed new demand, about 90% associated with data centers and more than five times Texas’ peak load.

Abbott donor / interest	$ identified	Potential Texas boom exposure
Roski / Majestic	$2.0M	Data-center/industrial real estate
Warren / Energy Transfer	$1.5M current cycle	Natural-gas pipelines and power-generation fuel
Black Mountain Power	$500K	Power/data-center development
John Bennett / Black Mountain	$500K	Data-center development
Musk	$500K	AI, computing, electricity-intensive infrastructure
Hunt interests	Significant Abbott donor	Power, energy, real estate
Kinder interests	Abbott donor	Natural-gas pipeline infrastructure
Oncor-linked interests	Abbott donor	Electric transmission/distribution
Hilcorp-linked interests	Abbott donor	Oil and natural gas

————————————————————————————————

“Why Did the Bonus Number Win 19 Out of 20 Times?

Ohio STRS has apparently decided that the best response to allegations that it used favorable performance numbers to help determine investment-staff bonuses is to bury Ohio teachers under enough investment jargon that hopefully everyone gives up.  https://www.strsoh.org/news/investments.html

GIPS.  Performance examinations.  Time-weighted returns. Net fiduciary position. Valuation conventions. Different methodologies. Independent verification.

Anything, apparently, except answering the obvious question:

Why did the performance number that helped determine investment-staff compensation come out higher in 19 of 20 years?

That is the remarkable finding of the Heritage Foundation’s Allen Mendenhall and Dan Sutter in Retirement at Risk: The Political Economy of Public Pension Governance. https://commonsense401kproject.com/2026/07/13/new-academic-paper-ohio-strs-had-two-performance-numbers-and-used-the-better-one-to-pay-bonuses/

The authors compared STRS’s reported investment returns with returns they reconstructed from audited financial information for 2003–2022.

STRS’s reported number was higher 19 times out of 20.

The average difference was about 0.33% per year.

The authors estimate the compounded difference at approximately $9.3 billion over the period.

And — here’s the part STRS would probably prefer Ohio teachers not dwell upon — the more favorable performance measure was used in evaluating investment performance and determining incentive compensation.

This is the central finding of a peer-reviewed academic paper.

Funny How the Errors Keep Going in the Same Direction

Different legitimate performance methodologies can absolutely produce different numbers.

That isn’t the scandal.

The scandal is the direction.

If this were merely innocent statistical noise, sometimes STRS’s number should be higher and sometimes it should be lower.

That is essentially what the researchers found at Ohio’s other giant pension system, OPERS.

OPERS’s discrepancies were much smaller — about 0.08% — and went both directions.

STRS?

19 out of 20 in the favorable direction.

What extraordinary luck.

It is almost as if an employee were allowed to calculate his own batting average for purposes of determining his bonus — and somehow discovered 19 years out of 20 that he was batting better than the accountant thought.

STRS can produce another 40-page explanation of investment-performance methodology if it wants.

It still has to explain 19 out of 20.

The Compensation Makes This Much Worse

This might be an interesting accounting dispute if STRS investment employees were ordinary Ohio public employees earning ordinary public-sector salaries.

They aren’t.

As CommonSense previously documented, STRS has created what amounts to a little Wall Street compensation island in Columbus.

Based on the compensation data we reviewed:

• 4 STRS employees earned more than $600,000.
• 20 earned more than $400,000.
• 49 earned more than $300,000.
• 85 earned more than $200,000.

And the disparity inside STRS itself is extraordinary.

The average investment employee was paid approximately $180,693, versus about $89,686 for accounting employees.

The Chief Investment Officer received approximately $913,909, versus approximately $193,933 for the Chief Financial Officer.

So the people helping produce and defend the investment-performance numbers can make multiples of the people responsible for financial controls.

That is not a trivial governance detail.

That is the governance problem.

Meanwhile, Ohio’s governor — who runs the entire State of Ohio — makes a fraction of what STRS’s top investment personnel can receive.

Apparently managing an Ohio teachers’ pension portfolio is several times more valuable than managing Ohio.

And teachers and retirees are supposed to regard this compensation structure as perfectly normal.   https://commonsense401kproject.com/2026/05/02/ohio-strs-investment-staff-paid-excessively-to-look-the-other-way/

STRS’s Favorite Magic Word: GIPS

When challenged about performance, STRS repeatedly retreats behind GIPS compliance and independent verification.

That sounds impressive.

But it doesn’t answer the question.

GIPS is a performance-presentation framework. It tells an organization how performance should be calculated and presented under specified conventions.   https://commonsense401kproject.com/2026/08/05/gips-compliance-the-new-gaap-why-pension-trustees-should-stop-confusing-reporting-standards-with-market-reality-with-private-equity/  

It does not magically transform every underlying valuation into an observable market price.

That becomes particularly important with private equity, private credit, real estate and other alternatives.

A private-equity GP can mark a partnership at $100.

The accountant can determine that the valuation process complies with accepted accounting rules.

The performance people can correctly calculate a return using $100.

The GIPS verifier can determine that the calculation and presentation comply with GIPS.

And an actual buyer might still only pay $75.

Everybody can therefore be “compliant” while the economic value available in an actual transaction is substantially different.

As CommonSense has argued before:

The math can be perfectly correct while the number being fed into the math remains questionable.

And when those resulting performance numbers help determine bonuses, valuation isn’t some obscure accounting debate anymore.

It becomes a compensation issue.   https://commonsense401kproject.com/2025/08/25/misleading-claims-of-gips-compliance-at-ohio-strs/

The World’s Most Convenient Measuring Stick

The deeper problem at STRS is the same problem we have identified at other public pension systems.

Staff participates in an extraordinarily convenient closed loop:

Choose complicated investments.

Accept private-market valuations that aren’t continuously tested by markets.

Measure performance using specialized methodologies and custom benchmarks.

Have consultants and verifiers certify that the methodology was followed.

Declare value-added.

Pay bonuses.

Then, when somebody asks whether a simple transparent portfolio might have produced a better result at dramatically lower cost, explain that the comparison isn’t sophisticated enough.

Apparently the only unacceptable benchmark is one ordinary teachers can understand.

For compensation purposes, STRS should publish one reconciliation every year:

Audited financial return

versus

GIPS-reported investment return

versus

return used to calculate staff incentive compensation.

Put all three numbers on one page.

Then disclose the exact dollar amount of compensation produced by each calculation.

And for private assets, add one more column:

Estimated realizable secondary-market value.

If a private-equity partnership is carried at $100 million, tell Ohio teachers what independent buyers would actually pay for it.

Then recalculate performance and bonuses using that number.

If STRS’s performance is as terrific as STRS says it is, this should be an easy exercise.

Don’t demand Wall Street compensation for performance measured using pension-accounting conventions, GP-estimated private-market values, customized benchmarks and internally generated performance calculations.

You don’t get to claim you are a public servant when discussing accountability and a Wall Street rainmaker when discussing compensation.

Pick one.

Bottom Line: 19 Out of 20

STRS can torture this issue with as much investment terminology as it wants.

The number that matters remains remarkably simple:

19 out of 20.

The academic researchers found STRS’s reported performance exceeded the result they reconstructed from audited financial information in 19 of 20 years.

The more favorable performance numbers were connected to investment-staff incentive compensation.

At OPERS, the differences were smaller and went both ways.

At STRS, they overwhelmingly went one way.

Toward higher reported performance.

Toward higher apparent value-added.

And toward the compensation system.

Ohio teachers don’t need another lecture about GIPS.

They need a straight answer to a very simple question:

Why did the number connected to paying the investment staff keep winning?

Until STRS answers that without hiding behind methodological jargon, its tortured explanations may simply reinforce the problem they are supposed to explain.

Because when employees are allowed to help define the measuring stick used to determine their own bonuses, the issue isn’t whether the measuring stick technically complies with industry standards.

The issue is who gets to hold the ruler.

ERISA is supposed to be simple.

The retirement plan exists for the exclusive benefit of participants.

Not for the employer’s investment bankers.   Not for the CFO’s lenders.   Not for the consultant’s business partners.   Not for private-equity firms that finance the corporation.

And certainly not for Wall Street firms looking for another distribution channel for expensive products that would have a much harder time getting into an SEC-regulated mutual fund.

Yet I believe this basic principle explains one of the biggest remaining problems in America’s retirement system: too many retirement-plan investment decisions may still be influenced by corporate and Wall Street relationships that have little or nothing to do with what is best for participants.

Thole Exposed the Strange Economics of Defined-Benefit Plans

The Supreme Court’s 2020 decision in Thole v. U.S. Bank illustrates an important distinction.

In a traditional defined-benefit pension, participants generally receive the pension benefit they were promised regardless of whether the plan invests cheaply in index funds or pays enormous fees to hedge funds and alternative managers—assuming, of course, the employer ultimately remains capable of funding the benefit.

That means excessive investment costs can economically fall primarily on the corporate sponsor, rather than immediately reducing an individual participant’s account.

The Supreme Court consequently held that the Thole plaintiffs lacked Article III standing because they had received all of their monthly pension benefits and would receive the same benefits regardless of the lawsuit’s outcome.

Whatever one thinks of the standing decision, it highlights something important:

A DB pension and a 401(k) are fundamentally different economic animals.

In a 401(k), participants own the consequences.

If the investment earns less because of excessive fees, participants lose.

If an alternative investment is overvalued, participants lose.

If a private-equity fund charges layers of management fees, carried interest and portfolio-company expenses, participants lose.

If an annuity provider retains an excessive insurance spread, participants lose.

There is no corporate balance sheet automatically making the participant whole.

Intel: Running a DC Plan Like a DB Plan

That is why the Intel litigation is so important.

As I have previously argued, Intel appears to have imported the institutional-pension model into a defined-contribution plan, using private equity and other alternatives through structures whose underlying economics can be extraordinarily difficult for ordinary participants—and sometimes even sophisticated fiduciaries—to evaluate.

That might make conceptual sense in a $50 billion pension plan staffed with investment professionals.

It is much harder to justify when the ultimate investor is an employee whose retirement account bears the investment results.

The central question should therefore be:

Why expose a 401(k) participant to opacity, valuation discretion, illiquidity, leverage and multiple layers of fees unless the fiduciary can demonstrate that participants are actually being compensated for taking those risks?

“Institutions invest this way” isn’t an answer.

A 401(k) isn’t a corporate pension.    https://commonsense401kproject.com/2026/01/17/the-supreme-courts-intel-case-is-about-secrecy-fake-benchmarks-and-fiduciary-illusions/

The 401(k) System Has Actually Improved—Because of Litigation

There are roughly 8,000 large 401(k) and ERISA-covered 403(b) plans with more than $100 million in assets.

My rough estimate from years of examining plans is that perhaps half—around 4,000—are now reasonably well run.

That is dramatically better than a decade ago.

I would estimate that the number of well-run large plans has increased roughly fourfold.

And I don’t credit Washington for most of it.

I credit ERISA litigation.

Fee lawsuits forced fiduciaries to examine recordkeeping costs.

Litigation pushed plans toward institutional share classes.

It exposed revenue sharing.

It challenged proprietary funds.

It forced committees to document their processes.

It made consultants explain themselves.

It made corporate boards recognize that the 401(k) plan wasn’t simply an employee-benefits department backwater.

Democratic administrations have talked about protecting retirement investors, but in my view the Department of Labor has done far too little to confront these structural conflicts. Republican policymakers have increasingly pushed in the opposite direction—toward expanding access to private equity, private credit, annuities and other complicated Wall Street products.

The plaintiffs’ bar may have done more to improve America’s large 401(k) plans than either political party.

But the Easy Problems Were Fixed First

The first generation of ERISA litigation went after problems that could be seen relatively easily.

A mutual fund charged 100 basis points when an otherwise identical institutional share class charged 40.

A recordkeeper received $150 per participant when comparable services cost $40.

A plan stuffed its lineup with the sponsor’s proprietary funds.

Those cases mattered.

But today’s conflicts can be much harder to see.

They increasingly occur outside the transparent world of SEC-registered mutual funds.

Private equity.

Private credit.

Collective investment trusts.

Insurance-company general and separate accounts.

Lifetime-income products.

Custom target-date funds.

Alternative-investment vehicles.

This is precisely where ERISA standards should become higher, not lower.

Instead, we seem determined to move retirement assets into structures with less transparency.

Follow the Corporate Relationships

Suppose a corporation’s 401(k) committee selects a large Wall Street firm.

The traditional fiduciary analysis asks:

Was the investment prudent?

Were the fees reasonable?

Was performance properly benchmarked?

Those are necessary questions.

But they may no longer be sufficient.

We should also ask:

What other business does this Wall Street firm do with the corporation and its executives?

Consider the possibilities.

The company’s CFO may have banking relationships with the same institution providing retirement-plan products.

The corporation may borrow money from that bank.

It may use the bank for investment banking, treasury management, derivatives, acquisitions or bond offerings.

The corporation may borrow from a private-credit fund affiliated with Apollo, Blackstone, JPMorgan or another enormous financial organization.

Executives may have personal wealth-management relationships.

A consultant may have relationships with investment managers that extend well beyond the consulting contract.

These relationships don’t prove an ERISA violation.

But pretending they don’t matter is equally unreasonable.

I Saw This Problem Thirty Years Ago

This isn’t theoretical to me.

In the 1990s, I worked on defined-contribution plans for a bank.

We lost one piece of retirement-plan business to another bank.

Why?

As I understood it, the competing bank offered the corporate client a better deal on its commercial lending relationship.

Think about what that means.

The decision supposedly concerned the employees’ retirement plan.

But another corporate banking relationship could influence who received the retirement business.

That experience permanently changed how I look at retirement-plan conflicts.

Whenever someone tells me that a sophisticated corporate retirement committee selected a financial company solely because it was best for participants, my next question is:

What other business was going on between the two companies?

Now Add Private Equity and Private Credit

The potential conflict becomes even more significant as Apollo, Blackstone and other alternative-asset managers expand across corporate finance.

These aren’t simply “investment managers” anymore.

They can be lenders.

Private-credit providers.

Insurers.

Asset managers.

Real-estate financiers.

Buyout sponsors.

Retirement-product manufacturers.

Owners of companies doing business with plan sponsors.

And increasingly, they want access to defined-contribution retirement assets.

Imagine a corporation borrowing hundreds of millions of dollars from a private-credit platform while its retirement committee is simultaneously considering products affiliated with that same financial organization.

Does that automatically mean the retirement investment is imprudent?

Of course not.

But ERISA’s exclusive-benefit rule should require fiduciaries to ask whether the relationship affected the decision.   https://commonsense401kproject.com/2026/08/03/more-academics-oppose-private-equity-in-401k-clayton-and-de-fontenay/

Participants shouldn’t become bargaining chips in a larger corporate relationship.

Consultants Can Be the Missing Link

The consultant is supposed to protect the committee from precisely these conflicts.

But what happens when the consultant has conflicts of its own?

I have previously written about the relationships between major pension consultants and private-equity firms, and why consultants should receive much greater scrutiny in ERISA litigation.

Consultants can occupy an extraordinarily powerful position.

They decide which managers get presented.

They construct peer groups.

They recommend benchmarks.

They evaluate fees.

They prepare committee materials.

And when something goes wrong, corporate fiduciaries frequently point to the consultant and say:

“We relied on our expert.”

That defense becomes considerably less reassuring if the supposedly independent expert has undisclosed financial, ownership, marketing, conference, insurance, referral or other relationships with the financial firms being recommended.

The consultant should be the firewall.

A conflicted consultant can instead become the distribution system.

How America’s Largest Pension Consultants Became the Distribution Arm for Private Equity & Private Debt

Why 401(k) Consultants Should Be Included as Defendants in ERISA Litigation

And Don’t Ignore Personal Relationships

Discovery should go further.

Who introduced the consultant?

Who introduced the investment manager?

Was the consultant already working with the CEO, CFO or board members?

Were there family relationships?

Friendships?

Prior employers?

Banking relationships?

Insurance relationships?

Executive-benefit arrangements?

Private-wealth relationships?

Commercial loans?

Investment-banking mandates?

Private-credit loans?

These aren’t accusations that every relationship is corrupt.

They are questions that sophisticated fiduciary oversight should already be asking.

ERISA demands loyalty.

You cannot intelligently evaluate loyalty while deliberately ignoring relationships capable of creating divided loyalties.

Mutual Funds Put Some Guardrails Around This Problem

This is another reason I continue to argue that ERISA investment standards should be higher than SEC mutual-fund standards—not lower.    https://commonsense401kproject.com/2026/07/27/erisa-investment-standards-should-be-higher-than-mutual-fund-standards-not-lower/

Public mutual funds aren’t perfect.

But they operate inside a highly developed federal securities framework involving standardized disclosures, audited financial statements, pricing requirements, liquidity rules, custody requirements and extensive public reporting.

Most importantly, investors can usually determine what they own and what it costs.

Now compare that with the direction Wall Street wants retirement plans to travel:

Private equity inside a CIT.

Private credit inside another pooled vehicle.

An annuity embedded inside a target-date fund.

Alternative assets buried several layers beneath a participant’s investment election.

Each additional layer can make conflicts, compensation and valuation harder to see.

Opacity isn’t an unfortunate side effect. It can have enormous economic value to Wall Street.

The Next Generation of ERISA Litigation Should Follow the Money Outside the Plan

For years, ERISA cases have examined the money flowing out of the retirement plan.

That remains important.

But perhaps the next generation of cases needs to examine money flowing around the retirement plan.

Who lends money to the employer?

Who handles its investment banking?

Who manages executive wealth?

Who sells its insurance?

Who finances its acquisitions?

Who owns its consultant?

Who pays the consultant?

Who finances the consultant?

Who owns the recommended manager?

What business does the employer conduct with the manager’s affiliates?

And what relationships exist among the executives, consultants, recordkeepers, insurers and investment managers?

The most important conflict may never appear on the Form 5500.

The Common Sense Test

Strip away the acronyms and fiduciary jargon.

A worker puts $100 into a 401(k).

Every person involved in deciding what happens to that $100 should be trying to make that worker’s retirement better.

Period.

If an investment is selected because it helps the employer’s banking relationship, something is wrong.

If it helps obtain corporate financing, something is wrong.

If it helps the consultant’s business relationships, something is wrong.

If it puts a CEO’s friend in the door, something is wrong.

If it gives a private-equity manager another captive pool of assets while providing no demonstrable benefit to participants, something is wrong.

And if nobody can determine whether any of those things happened because the investment has been buried inside opaque private funds, CITs, annuity contracts and custom target-date structures, that opacity is itself a fiduciary warning sign.

ERISA doesn’t say:

Put Wall Street first unless participants can prove exactly how the deal was made.

It says fiduciaries must act for the exclusive purpose of providing benefits to participants and beneficiaries.    We will see soon if the Supreme Court will uphold this in Intel.

After fifty years of ERISA, that shouldn’t be a revolutionary concept.

Yet in far too many retirement plans, it apparently still is.

For decades, Americans have been told the same story:

“Social Security may not be there for you.” The warning has become Wall Street’s greatest marketing tool. Convince workers that Social Security is on the verge of collapse, and suddenly expensive annuities become the “safe” alternative.

There is just one problem. The financial markets themselves don’t believe it, based on Credit Default Swap rates.  https://commonsense401kproject.com/2025/10/29/annuity-risk-measured-by-credit-default-swaps-cds/

“The market prices the credit risk of a typical annuity insurer at roughly 10-30 times, and sometimes 50-100 times during periods of stress, the credit risk of obligations backed by the U.S. Treasury.”

CDS spreads represent what sophisticated investors are willing to pay to insure against default. When you compare U.S. Treasury obligations to large life insurers, the difference is striking. That means the market itself prices the single-company credit risk of many annuity providers dramatically 10 to 100 times above that of obligations backed by the U.S. government.

Social Security Is Not Just Another Pension

Critics constantly describe Social Security as “going broke.” That is simply not how the system operates.

Social Security is a hybrid:

• an earned retirement benefit;
• a payroll-tax financed insurance system;
• a disability insurance program;
• survivor insurance;
• and an income redistribution program enacted by Congress.

Unlike a private insurer, Congress can:

• adjust payroll taxes;
• modify benefits;
• raise or eliminate taxable wage caps;
• change retirement ages;
• transfer general revenues if it chooses.
• Can change demographics ie let in select immigrants like a few million young engineers

Whether one agrees with those policy choices or not, they make Social Security fundamentally different from a private insurance company whose only source of payment is its own balance sheet.

The Political Solution Already Exists

Senator Bernie Sanders and others have long argued that Social Security’s projected funding gap could largely be addressed by applying payroll taxes to earnings above the current taxable wage cap.

For 2026, the Social Security taxable wage base is $184,500. Wages above that amount are not subject to the 6.2% Social Security payroll tax (or the employer’s matching 6.2%).

Whether Congress adopts that proposal is a political question. But it demonstrates an important point: Social Security’s challenge is primarily political—not one of corporate insolvency.

Those making over $184,500 who would pay the Sanders Tax probably make up 95% of the political donations to both parties and are helping push the media narrative through their connections.

Yet We Are Told the Opposite

At the same time politicians warn workers about Social Security, retirement plans increasingly steer participants toward:

• fixed annuities;
• private-credit backed insurers;
• private-equity owned insurance companies;
• pension risk transfers;
• lifetime income products.

These products depend on a single insurer remaining solvent for decades. If that insurer fails, retirees cannot simply vote for a new funding mechanism. Consumers are often reassured that state guaranty associations protect annuity owners. https://commonsense401kproject.com/2025/06/24/state-guarantee-associations-behind-annuities-are-a-joke/

If someone tells you Social Security is “too risky,” ask one simple question:

Would they rather trust the taxing authority of the United States—or the balance sheet of a single insurance company?

The credit markets have already answered.   Insurance Companies are 10 to 100 times riskier

And they are not buying the fear.

---

Why Offshore Structures and Weak State Regulation Make Most Annuities ERISA “Prohibited Transactions”

For years, I have argued that private equity performance rests on a simple premise: the manager gets to decide what the investment is worth. Increasingly, I see the same problem developing with the industry’s use of GIPS compliance.

GIPS—the Global Investment Performance Standards—has become a powerful marketing tool. Pension trustees hear the words “GIPS compliant” and assume that means the reported performance has been independently validated. It has not.

The comparison reminds me of another accounting convention that investors have learned to question: GAAP accounting.

GAAP often permits firms to carry assets at management’s estimate of fair value. Likewise, GIPS generally accepts the valuation methodology used by the private equity manager. Neither asks the harder question:

What would someone actually pay for this partnership today?

That distinction matters enormously.

The 100-Cent Myth

A private equity general partner may report that a limited partnership is worth 100 cents on the dollar. The valuation follows accepted accounting policies. Auditors review the process. Performance statistics are calculated from those values. The investment manager may even claim GIPS compliance at the firm level.

Yet when investors attempt to sell the very same limited partnership interest on the secondary market, buyers frequently demand substantial discounts.

In many periods, secondary-market transactions have occurred at 70 to 80 cents on the reported NAV for certain private equity or private credit interests. Discounts vary widely by market conditions, asset quality, strategy, and liquidity, but the secondary market often provides the closest observable evidence of what sophisticated buyers are actually willing to pay.

That should raise an uncomfortable question.

If sophisticated institutional buyers consistently pay substantially less than reported NAV, which number better reflects economic reality?

The GP’s valuation?

Or the market’s?

GIPS Is About Presentation, Not Price Discovery

This is not a criticism of GIPS itself.

GIPS was designed to standardize how investment firms present performance, not to determine whether every underlying private asset has been perfectly valued.

Likewise, auditors generally evaluate whether managers have followed accepted valuation procedures—not whether the reported value equals the price that would clear in an arm’s-length market transaction.

Those are fundamentally different questions.

A valuation process can satisfy accounting standards and still materially differ from what an actual buyer would pay.

Pension Fiduciaries Should Care

This distinction becomes critical for ERISA plans and public pension systems.

Trustees often receive quarterly reports showing smooth, steadily rising returns supported by audited financial statements and references to GIPS-compliant reporting.

That combination creates an aura of certainty.

But if the underlying assets could only be sold at a significant discount, then reported returns may overstate the economic value available to beneficiaries.

Unlike publicly traded securities, private partnerships rarely face continuous market pricing. Instead, they rely heavily on manager judgment, valuation models, comparable-company multiples, projected cash flows, and periodic appraisals.

None of those substitutes for an active market.

The Missing Benchmark

Public securities face an unforgiving daily test.

Every trading day, thousands of independent buyers and sellers establish a market price.

Private equity generally does not.

Instead, the industry largely benchmarks itself against its own reported valuations.

That is a remarkably circular process.

Imagine if publicly traded stocks could report performance based primarily on management’s opinion of what the shares should be worth rather than where they actually traded.

No regulator would tolerate it.

Yet pension systems increasingly accept exactly that framework for trillions of dollars of private assets.

What Trustees Should Ask

Every pension board investing in private markets should ask straightforward questions:

• What percentage of reported NAV has similar partnerships sold for in recent secondary-market transactions?
• How often have our reported valuations exceeded realizable market prices?
• How sensitive are our reported returns to changes in valuation assumptions?
• Why are we relying primarily on GP marks instead of observable market evidence when it exists?

Those questions go to the heart of fiduciary oversight.

The Bottom Line

GIPS compliance should not become the private-market equivalent of a “seal of approval.”

It is a reporting framework—not an independent market valuation.

Nor should audited financial statements lull fiduciaries into believing that reported NAV necessarily equals realizable value.

Markets ultimately determine prices.

Accounting standards and performance reporting standards merely describe them.

When a partnership is carried at 100 but consistently changes hands in the secondary market at 70 or 80, fiduciaries should not simply celebrate the reported return.

They should ask why the market disagrees.

For retirement plans entrusted with workers’ lifetime savings, that may be the single most important valuation question of all.

Appendix: The New STRS Performance Video Asks the Right Question — But the Problem Goes Deeper

A new video circulating among Ohio teachers questions the investment-performance story being presented by the State Teachers Retirement System of Ohio. https://www.youtube.com/watch?v=3ItC4lkDSqQ

That is exactly the question trustees and beneficiaries should be asking.

But there is an even more fundamental problem than whether STRS beat or trailed a particular benchmark:

Before comparing performance, we need to know whether the performance number itself represents economic reality.

That distinction becomes especially important at STRS because billions of dollars are invested in private equity, private credit and other alternative investments for which there is no continuously observable market price.

STRS Can Report Excellent Private-Market Returns — On Paper

STRS itself has presented extraordinarily strong historical results for its alternative-investment portfolio.

For example, an STRS investment presentation reported a 10-year annualized alternatives return of 11.45% through September 30, 2023, compared with an 8.04% return for the total STRS fund. STRS also reported substantially lower measured volatility for alternatives.

Those numbers look terrific.

But there is a huge difference between a publicly traded stock returning 11% and a private-equity partnership reporting an 11% return.

A stock has to face the market every day.

Private equity generally does not.

The private-equity GP estimates what its portfolio companies are worth. Those valuations flow into the partnership’s NAV. The NAV flows into the pension’s performance calculation. The resulting performance then gets compared with benchmarks and may ultimately help justify investment-staff bonuses.

That creates a circular system:

The private manager helps determine the valuation → the valuation determines the return → the return demonstrates apparent investment skill → the apparent investment skill helps justify fees and bonuses.

GIPS Does Not Solve This Problem

STRS and its defenders frequently point to sophisticated performance measurement, consultants and GIPS compliance as evidence that the reported numbers can be trusted.

That misses the point.

As I explained in my August 5 CommonSense piece, GIPS is fundamentally a performance-reporting framework, not an independent price-discovery mechanism.

A calculation can be perfectly performed under an accepted methodology while the underlying asset value remains questionable.

That is the private-market equivalent of saying:

“The math is correct. We haven’t established that the starting number is.”

If a private-equity partnership is reported at $100 million and the return calculation correctly uses $100 million, compliance with a performance standard does not independently establish that an unrelated buyer would actually pay $100 million for the partnership.

The $100 NAV Versus the $70–$80 Market Question

This is why trustees should stop beginning their analysis with:

“Did STRS beat its benchmark?”

The first question should be:

“What could STRS actually sell these investments for?”

Suppose a private-equity partnership is carried at $100.

The GP’s valuation methodology supports $100.

The accountant accepts the valuation process.

STRS reports performance using $100.

The consultant calculates the return using $100.

The performance presentation follows accepted standards.

But suppose sophisticated secondary-market buyers will only pay $75.

Economically, that $25 difference matters far more to an Ohio teacher than whether the performance calculation complied with GIPS.

As my earlier piece argued, discounts on some private-equity and private-credit interests can be substantial, although they vary greatly by strategy, vintage, quality and market conditions.

That does not mean every STRS private investment is worth 70 or 80 cents on its reported dollar.

It means trustees should demand evidence showing how reported NAV compares with observable transaction values whenever such evidence exists.

Ohio STRS Has Another Performance Problem: Two Numbers

There is an additional reason to scrutinize STRS performance carefully.

Allen Mendenhall and Dan Sutter independently reconstructed STRS investment returns from audited financial information and found that STRS’s reported investment return exceeded their independently calculated figure in 19 of 20 years from 2003 through 2022.

They calculated an average annual difference of approximately 0.33 percentage points.

Even more troubling, STRS reportedly used the higher internally reported performance measure in determining investment-staff incentive compensation.

That doesn’t prove fraud.

Different legitimate performance methodologies can produce different numbers.

But 19 favorable differences out of 20 years deserves an explanation, particularly when compensation is connected to the more favorable measure.

It also makes the current debate over GIPS much more important.

“Independent” Verification Can Verify the Wrong Thing

The pension industry repeatedly answers criticism with words that sound reassuring:

Audited.
GIPS compliant.
Independently verified.
Consultant reviewed.
Institutional quality.

Trustees need to ask what each term actually means.

An accountant can verify that an accepted valuation process was followed without independently establishing the price at which an asset could actually be sold.

A GIPS verifier can examine compliance with performance-presentation requirements without independently auctioning STRS’s private-equity partnerships.

An investment consultant can report that STRS beat its policy benchmark without establishing that the benchmark represents the opportunity cost available to teachers.

Indeed, STRS’s consultant Meketa reported that for the five years ending March 31, 2025, STRS returned 10.98% annually versus its total-fund benchmark of 10.54%.

That may be an entirely accurate calculation.

The question is what lies underneath the calculation.

Mark the Private Portfolio to Something Resembling a Market

There is a simple stress test STRS could perform.

Take every material private-equity and private-credit partnership and estimate its current secondary-market liquidation value using actual bids, comparable secondary transactions or independent market indications.

Then recalculate:

STRS total-fund NAV.

Private-market performance.

Five- and ten-year total-fund returns.

Performance versus investable public-market alternatives.

Investment-staff incentive compensation.

Then show Ohio teachers both numbers side by side:

Pension Accounting View	Economic/Market Stress Test
Reported private-market NAV	Estimated secondary-market value
Reported PE/private-credit return	Return using market-adjusted NAV
STRS policy benchmark	Transparent investable benchmark
Reported staff value-added	Value-added after market adjustment
Bonus calculation	Bonus calculation using adjusted returns

That would be real transparency.

The Video Is Asking the Question Trustees Should Have Asked Years Ago

The importance of the new STRS performance video is not whether every number or conclusion in it ultimately proves correct.

Its importance is that Ohio teachers are beginning to challenge the performance architecture itself.

That is healthy.

STRS has recently publicly promoted the claim that independent benchmarking shows “strong investment performance at a lower cost,” while pointing to long-term peer rankings and internal-management savings.

Fine.

Then STRS should welcome an even tougher test.

Don’t merely show teachers the return.

Show them the price.

Show the original cost of every major private investment.

Show the GP-reported NAV.

Show subsequent cash distributions.

Show secondary-market indications.

Show actual secondary sales.

Show every write-down following a realization.

And reconcile those numbers with the performance figures used to compensate investment staff.

Bottom Line

The debate over Ohio STRS performance should no longer be reduced to competing charts showing whether STRS ranked in the top quartile, second quartile or bottom quartile against some consultant universe.

The deeper issue is whether pension performance based partly on manager-estimated private-market values should be treated as equivalent to performance produced by securities continuously priced by independent buyers and sellers.

GIPS compliance does not answer that question.

An audit does not necessarily answer that question.

Beating a consultant-designed benchmark does not answer that question.

There is one test that cuts through all of them:

What would an independent buyer pay today?

If STRS reports a private partnership at 100 and the market says 75, Ohio teachers deserve to see both numbers.

And if marking private assets closer to observable market values materially changes STRS’s reported performance, benchmark comparisons or staff bonuses, then the controversy is much larger than whether somebody used the wrong performance chart.

The real question becomes whether Ohio teachers have been shown investment performance—or merely professionally standardized estimates of investment performance.

Misleading Claims of GIPS Compliance at Ohio STRS