Report: Dem Candidate for RI Gov Undermined Public Pension System to Curry Wall St Favor

A new investigation conducted by Former SEC Investigator and Forbes columnist Ted Siedle uncovers the misdeeds of Rhode Island General Treasurer Gina Raimondo during her handling of the state’s Employee Retirement System.  

Commissioned by AFSCME, the report, “Rhode Island Public Pension Reform: Wall Street’s License to Steal,” charges that Raimondo’s investment strategy is a lose-lose: “alternative investments both reduce returns and increase risk.”  Siedle accuses Raimondo of selling out Rhode Island’s public workers for an “opportunity to enrich herself and her hedge fund backers.”  

The report begins with the claim that, “Two years ago, Rhode Island’s state pension fund fell victim to a Wall Street coup.”

It continues:

“It happened when Gina Raimondo, a venture capital manager with an uncertain investment track record of only a few years — a principal in a firm that had been hired by the state to manage a paltry $5 million in pension assets — got herself elected [general treasurer] … with the financial backing of out-of-state hedge fund managers.

“In short, the foxes (money managers) had taken over management of the henhouse (the pension).”

Raimondo has written off the report as “a political attack paid for by opponents of pension reform.” She is a likely candidate in the 2014 gubernatorial election.  

In a recent article for Forbes, Siedle defends and explains his report, adding that misleading the public is much worse than withholding hedge fund information.  

Refusing to disclose to the public, including participants in the state pensions, material information regarding high-cost, high-risk speculative investment schemes is bad enough.

Far more indefensible is Raimondo’s claim that the state is contractually obliged to defer to the hedge fund and alternative manages on the release of so-called proprietary information. Delegating to private entities the decision as to what records are available under the open-records law would, obviously, effectively nullify it.

While Raimondo claims that the state’s hedge fund managers oppose release of material information about their operations to any party, in my professional experience that’s unlikely. If she wanted their information made public, they would comply — in a heartbeat.

Siedle is not the only researcher to take issue with Raimondo’s approach. New York Times financial columnist Gretchen Morgenson has reached similar conclusions:

In today’s edition (Sunday Oct. 20) Morgenson raises many of the points that others, including Rhode Island organized labor leaders and Rolling Stone magazine have mentioned. But it won’t be as easy for Raimondo, who declined a request from Morgenson for an interview, to swat this one away. That’s because Morgenson isn’t a labor union financed opponent of Raimondo. Or a polemical latter-day Hunter S. Thompson wannabe writing for a magazine better known for its coverage of the music scene than high finance.

Morgenson is a Pulitzer-winning financial writer who has long covered Wall Street for the Times. Her column, entitled “How to Pay Millions and Lag Behind the Market,’’ examines Raimondo’s strategy of shifting pension investments from traditional sources, such as stocks and bonds, to hedge funds.
“In less than two years, he Rhode Island pension system has ramped up its investments in hedge funds, private equity and venture capital from zero to almost $2 billion, or one-quarter  of its assets under management,’’ writes Morgenson. “But this mix of investments hasn’t outperformed the fund’s peers…’’

Former State Treasurer Frank Caprio made that point in a recent interview with RI Public Radio. But because he has announced his candidacy for treasurer and has obvious political motivations, some have questioned his credibility.

No serious observer questions Morgenson’s credentials.

In Morgenson’s original piece, the secrecy and high fees involved in the underperforming hedge fund are taken to task:

Unfortunately, the hedge funds held by the state have underperformed the overall stock market so far this year. As of Aug. 31, the most recent data available, the Rhode Island State Investment Commission said its 10 hedge funds investing in stocks returned an average of 8.73 percent, while nine so-called real-return hedge funds generated 3.61 percent. Neither matched the 16.15 percent gains in the Standard & Poor’s 500-stock index during the period.

According to a recent poll conducted by Brown University Raimondo has an eight point lead (42 to 34) in the Democratic primary against Providence Mayor Angel Taveras with a quarter of likely voters still undecided. Interestingly, Raimondo also enjoys a 65 percent approval rating among the state’s Republicans.  

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Chaz Bolte
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