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Thursday, September 11, 2014
Bloomberg View Forgot to Mention Rhode Island’s State Treasurer, Gina Raimondo, “and Her Hedge Fund Backers at the Expense of the State’s Pension Fund” (from Forbes)
“The Employee Retirement System of Rhode Island has secretly agreed to permit hedge fund managers to keep the state pension in the dark regarding how its assets are being invested; to grant mystery hedge fund investors a license to steal, or profit at its expense using inside information; and to engage in potentially illegal nondisclosure practices.
“The following is a summary of a four-month, 106-page forensic investigation my firm, Benchmark Financial Services, Inc. was retained by Rhode Island Council 94 of the American Federation of State, County and Municipal Employees, AFL-CIO, to provide of the Employee Retirement System of Rhode Island and contains findings which have been referred to the U.S. Securities and Exchange Commission for further investigation and appropriate action.
“Two years ago, Rhode Island’s state pension fund fell victim to a Wall Street coup. 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 as the General Treasurer of the State of Rhode Island with the financial backing of out-of-state hedge fund managers. Raimondo’s new role endowed her with responsibility for overseeing the state’s entire $7 billion in pension assets.
“In short, the foxes (money managers) had taken over management of the henhouse (the pension). For Raimondo, a 42 year-old Rhode Island native, serving as state treasurer represents a major career boost. It also has presented her with an opportunity to enrich herself and her hedge fund backers at the expense of the state’s pension fund, the public workers who are counting on it to finance their retirements and the taxpayers who could be stuck for millions, or billions, of dollars if it’s mismanaged.
“Further, a significant portion of the Treasurer’s wealth and income relates to shares she owns in two illiquid, opaque venture capital partnerships she formerly managed at Point Judith Capital—one of which she convinced the state to invest in on different, less favorable terms. Unlike the state which paid millions for its shares in one of the Point Judith funds, the Treasurer was granted shares in both of the venture capital funds for free.
“Worse still, the venture capital industry is noted for its lack of transparency and once the Treasurer assumed office she refused to disclose virtually any information regarding the investment fund in which she and the state pension remain co-investors.
“For example, the Treasurer refused to release documents which would reveal whether she (or any other investor) had been granted any special rights more favorable than those granted to the state, or other limited partners in the fund.
“Point Judith Capital, the Treasurer’s former employer, is a firm which is substantially funded by Tudor Investment Corp., a multi-billion dollar private equity and hedge fund conglomerate controlled by the secretive billionaire Paul Tudor Jones. Without Tudor as a strategic partner possessing a substantial investment performance history, Raimondo’s Point Judith would not have been a contender for a $5 million venture capital commitment from the state.
“In a very real sense, today Rhode Island’s leading investment fiduciary is largely compensated by an out-of-state hedge fund investor—worse still, she is paid indirectly and secretly. The myriad unique conflicts of interest and risks related to this unprecedented state of affairs have not been thoroughly investigated or addressed.
“Transparency and accountability have suffered as the pension has increased its allocation to hedge, venture capital and private equity funds to almost $2 billion or 25 percent and the Treasurer has withheld most information about these high-risk, high-cost investments from both the State Investment Commission, a 10-member volunteer body that is chaired by the General Treasurer and oversees the investments of the state pension, and the general public. Ironically, in Rhode Island, limitations on public access to records have grown in the Information Age.
“The Treasurer has emerged as the leading national advocate of a disingenuous form of public pension ‘reform’ which involves slashing worker’s benefits and thwarting public access to information regarding the riskiest of pension investments while, in secret, dramatically increasing the risks to retirement plans and the fees they pay to Wall Street. A report she produced in 2011 titled ‘Truth in Numbers: The Security and Sustainability of Rhode Island’s Retirement System’ made a stark case for the pension overhaul and benefits cuts she envisioned, while notably omitting details regarding the greater costs and risks related to her plans for restructuring the Fund’s investment portfolio…”
For the complete article from Forbes, “Rhode Island Public Pension Reform: Wall Street's License to Steal” by Edward ‘Ted’ Siedle, Click Here.