Workers’ Pensions Are Backing Child Labor Through Private Equity Investments
Public officials have been using the retirement savings of unionized public employees to capitalize, through private equity investments, an outsourcing business that has used low-paid immigrants and even children for hazardous work in slaughterhouses.
Last month, the Biden administration announced it fined a company for employing more than a hundred children to clean meatpacking plants — one of the most dangerous jobs possible, for one of the most dangerous employers in America.
That company, a sanitation contractor called Packers Sanitation Services Inc., has been repeatedly bought and sold by private equity funds that manage retirement money for state and local public employees, according to our review.
In other words, public officials have been using the retirement savings of unionized teachers, firefighters, and police officers to capitalize — and help Wall Street executives profit from — an outsourcing business that has used low-paid immigrants and even children for hazardous work in slaughterhouses.
At various points, private equity firms have loaded Packers up with debt in order to pay themselves big dividends. The company’s current owner is the world’s largest private equity firm, the Blackstone Group, whose Republican mega-donor CEO collected $1.3 billion in pay and dividends last year.
What’s more, the New York Times recently reported on a factory filled with young migrant workers at a giant food contract manufacturer that outsources production for major snack and cereal brands. That company, Hearthside Food Solutions, has also been owned by private equity funds managing public employees’ retirement savings.
Such stories are especially dark examples of what can happen when pension officials put public employees’ retirement savings into opaque private equity investments. Workers’ own money often gets used to finance the war on workers, funding schemes to drive up housing costs, inflate health care bills, and keep wages low.
In this case, the money has helped private equity executives enrich themselves through vulnerable workers risking life and limb, undermining a century’s worth of efforts in the United States to prevent children from working dangerous factory jobs.
These revelations are part of a broader trend. Child labor violations are rising sharply in the United States, including in hazardous industries, according to the Department of Labor. Republican lawmakers in several states are moving to relax child labor laws in order to help employers find more workers in a time of historically low unemployment.
“Private equity firms need to be more proactive and be more serious about labor conditions in the companies they own,” said Justin Flores, a senior campaign and research coordinator at the Private Equity Stakeholder Project, a financial industry watchdog group. “And for the pension funds that are investing in these private equity funds, we think they also need to be more involved and more active in understanding and knowing what they’re investing in and what management is doing at those companies.”
“A Corporate-Wide Failure”
Packers Sanitation Services Inc. says it was founded in 1970 based on a “vision of providing contract sanitation services using a non-unionized workforce.” The Wisconsin-based company has about 16,500 employees.
Many Packers employees work the graveyard shift cleaning meatpacking plants for major food conglomerates. It’s a harrowing job, one that’s often performed by undocumented immigrants. A 2017 Businessweek story found that Packers topped the list of the most dangerous employers in America, based on its rate of dismemberment and other severe workplace injuries.
Last month, the Labor Department announced that Packers paid $1.5 million in fines — a paltry sum for a company that reportedly made $460 million in 2021 — after an investigation found the company had employed at least 102 children on overnight sanitation crews at thirteen meat processing facilities, including those owned by industry giants JBS, Cargill, and Tyson Foods.
According to news reports, children as young as thirteen were using dangerous chemicals to clean back saws, head splitters, fat skinners, and blood-soaked floors. NBC News reported that the kids were “largely undocumented migrants.”
“The child labor violations in this case were systemic and reached across eight states, and clearly indicate a corporate-wide failure by Packers Sanitation Services at all levels,” said Labor Department official Jessica Looman.
The Labor Department has called on Congress to increase fines for child labor violations, noting that the current maximum penalty of just over $15,000 per child is “not high enough to be a deterrent for major profitable companies.”
A Blackstone spokesperson told us in a statement that Packers “has an absolute zero-tolerance policy against employing anyone under the age of 18 and is fully committed to ensuring it is enforced all local plants,” adding that the company “has continued to enhance its already extensive procedures to prevent identity theft — including recent steps to conduct multiple additional audits and trainings, and hire further third-party compliance experts.”
A Packers spokesperson said that none of the underage workers identified by the Labor Department currently work for the company and that many of them left Packers “multiple years ago.”
She continued, “As parents and citizens, we don’t want a single person under 18 working for [Packers], period — and take extensive steps to prevent individuals at the local level from circumventing our wide-ranging procedures.”
Capitalizing on “Pressure on Businesses to Outsource”
Packers has gone through four private equity acquisitions since 2007. Those transactions all appear to have involved funds backed by public pension dollars, according to our review of financial documents.
While investors in private equity funds can’t know exactly how private equity funds will deploy their money, officials at the Pennsylvania Public School Employees’ Retirement System (PSERS) knew when they invested with Blue Point Capital Partners that the Ohio-based private equity firm could target outsourcing companies.
A March 2007 report from PSERS staff recommending its board invest in Blue Point Capital Partners II said that the firm’s criteria for portfolio companies included “outsourcing and consolidation trends.”
“Blue Point will continue to seek investments in companies that are in a market position to capitalize on the general pressure on businesses to outsource non-core operations or consolidate suppliers,” officials wrote, noting the firm had invested in the “industrial outsourcing” and “specialty chemicals” sectors.
The PSERS board soon committed to invest up to $100 million “in a side fund to Blue Point Capital Partners II.”
One month later, Blue Point Capital Partners II acquired Packers for a reported $90 million. Other investors in the Blue Point fund included retirement systems in Ohio and Boston.
In 2011, Blue Point sold Packers to Harvest Partners, a private equity firm based in New York, for a reported $540 million.
The purchase was made by Harvest Partners V — a fund whose investors included state retirement systems in North Carolina and Kentucky.
In 2014, Packers was sold for $1 billion in part to Leonard Green & Partners. The Leonard Green fund involved, Green Equity Investors VI, received investments from more than two dozen state and local public pension funds, according to the financial data service Preqin.
The fund’s investors included state retirement systems in Alaska, Illinois, Kentucky, Michigan, Minnesota, Nebraska, New Mexico, New York, Ohio, South Carolina, Texas, and Washington.
Blackstone, based in New York, purchased Packers in 2018 at an undisclosed price. According to the Wall Street Journal, Blackstone acquired Packers using Blackstone Core Equity Partners. That Blackstone fund has received investments from state retirement systems in California, New York, and North Carolina.
A spokesperson for the California State Teachers Retirement System, which invested $500 million with the Blackstone fund, told us, “We continually monitor our holdings, engage companies, and collaborate with general partners to monitor and address the risks in the portfolio and develop and implement action plans to mitigate them.”
According to research from the Private Equity Stakeholder Project, Leonard Green and later Blackstone both loaded the Packers’ balance sheet with debt in order to pay themselves hundreds of millions of dollars in dividends.
“Our Hearts Break”
The Packers story shares many similarities with the story of Hearthside Food Solutions — the company at the heart of a recent New York Times exposé on young migrant workers laboring in dangerous factories.
That story followed several children who entered the United States as unaccompanied minors and were placed with sponsors, only to end up working full-time at a Hearthside factory in Michigan. The Labor Department is now investigating the company for potential child labor violations.
Hearthside said in a statement that it was “appalled” by the “Times article alleging that the industry is employing underage individuals in unsafe conditions, and further suggesting that some of these issues may be taking place at one of our locations. Our hearts break for the young people whose stories are documented in the article.”
Like Packers, Hearthside is built around the premise of helping companies outsource labor. The company is the largest food contract manufacturer in the United States. Workers in its factories bake and package cereal and snacks for industry giants like General Mills, Quaker Oats, and Frito-Lay.
Hearthside has a history of union busting. In job listings for plant managers and directors, the company actively seeks out candidates with “experience in a non-union manufacturing environment and union avoidance.”
Since 2009, Hearthside has gone through a series of private equity transactions — at least some of which involved funds supported by public employees’ retirement savings.
Its first private equity buyer was Wind Point Partners, based in Chicago, with the investment reportedly coming from Wind Point Partners VII. That fund’s investors have included state pension systems in Maryland, Michigan, Missouri, and Texas.
In 2018, Hearthside was acquired by Charlesbank Capital Partners, based in Boston, and the Swiss firm Partners Group for $2.4 billion.
According to Preqin, one of the funds involved was Charlesbank Equity Fund IX. State retirement systems in Florida, Michigan, Missouri, and Tennessee have invested in that Charlesbank fund.
Partners Group Direct Equity 2016 was also involved with the Hearthside acquisition. The San Bernardino County Employees’ Retirement Association in California has invested with that fund.
Experts say that public pension officials who oversee government workers’ retirement savings have an opportunity — and responsibility — to better police the behaviors of the private equity firms they are financing.
“Pension funds have a lot of leverage — they have a lot of ability to shape how private equity works,” said Flores, of the Private Equity Stakeholder Project. “If they take the high road approach, and say, ‘We don’t want to be invested in the exploitation of workers, or pricing people out of their homes, or abusing tenants’ and things like that, we think we’ll see a change in behavior of private equity.”