By Tim Eavenson

Last week, I posted a summary of a LERA presentation on the benefits of private equity firms using labor pension funds to invest in struggling businesses.

One of the upshots discussed at the lunch was that the pension funds had greater control over the use of their investments.

Instead of just being a faceless, unimportant investor, the fund's money would be used to direct an individual business's trajectory, making it a win-win for the union. The pension money grows, and the investment advances the agenda of the union.

At least one union is stretching the limits of that theory. Earlier this month, the Beverly-Hills-based private equity group Platinum Equity bought the struggling San Diego Union-Tribune for an undisclosed amount. Usually, what happens after that is that the private firm just reorganizes or breaks up the company, and then sells it for a profit, which satisfies its investors.

In this case, though, the Los Angeles Police and Fire Pension System has upwards of $30 million invested in Platinum, and one of the unions contributing to that pension fund, the Los Angeles Police Protective League, wants a little more for its money than double-digit ROI . From the San Diego News Network:

"[T]he union that represents Los Angeles police officers is demanding the ouster of the newspaper's editorial page staff....

In a letter to Platinum Equity Chief Executive Tom Gores, Los Angeles Police Protective League President Paul M. Weber said the Los Angeles Police and Fire Pension system is now a Union-Tribune part-owner because of its $30 million investment in Platinum."

The union is complaining about editorials in the Union-Tribune that have repeatedly criticized the amount of money going into San Diego's public employee pension plans. The union says that it's investment makes it part owner of the paper, and therefore the editorials are out of line, and the staff should be replaced.

How exactly one contributor of one investor of the company that eventually bought the newspaper becomes part owner is sort of lost on me. And, apparently, on Platinum:

"In a recent interview with the Union-Tribune, a Platinum executive indicated that the union was wasting its time because Platinum has no editorial agenda."

But the union does make one interesting point. This idea of "control" is a selling point for the private equity funds. The news story has the following quote from the union's letter to Platinum:

"When you went to pension funds seeking their investment dollars, you promised to invest that money for the benefit of those funds and their members... One way you can fulfil that promise is to dismiss the Editorial Staff of the San Diego Union-Tribune."

In this case, of course, the argument is meaningless because the union isn't the investor, the pension fund is. But if a pension fund decided to get militant, who would be the final decisionmaker? The private equity fund, for sure. That's why we separate funds from their beneficiaries - so fiduciaries can focus on the greater financial good, without getting bogged down in principle and moral directives.

But that makes the private equity funds' "control" selling point a fallacy from the start, right?