“‘…An investment manager [in alternatives] owes a fiduciary duty such that he or she treats investors in a similar manner,’ said Ron Geffner, a former SEC regulator who is now a private attorney and the vice president of the Hedge Fund Association. ‘That said, many things may be negotiated in a side letter, giving managers the flexibility to negotiate certain terms with investors.’
“According to financial experts who were asked about special investor rights in general (not specifically the Rhode Island deals), financial firms sometimes use side letters to court deep-pocketed investors with access to non-public information, lower fees or special rights to withdraw their money — potentially leaving other investors with losses. The letters are also used to comply with certain clients' special needs — say, a public institution's bylaws requiring it to collect customized data about its investments. Some financial firms say they do not have to notify investors of their side letters with others.
“‘There is a legitimate reason for some of these preferences,’ said Harvard University’s Jay Youngdahl, an attorney who serves as a trustee for a steelworkers’ pension fund in Ohio. ‘But there’s also a not-so-legitimate reason for these preferences: If you are a Wall Street money manager, it allows you and your buddies to build a black box and loot retirees’ money.’
“…That kind of opacity is where the legal concerns come in, said Hofstra University law professor Daniel Greenwood, who has studied alternative investments. ‘There’s nothing illegal about secrecy in and of itself, but when you set up a highly secretive, highly profitable investment scheme and then you allow public officials to direct public money into it, you have to wonder if there are kickbacks and financial favors for insiders — and that does lead to the question of whether these investments fulfill the law’s fiduciary requirements,’ Greenwood told IBT. If you hand someone else’s money to someone and say, I won’t ask what you will do with it, you can’t be terribly surprised if one of the people you hand money to is Madoff. You are setting yourself up to be robbed…’”
For this special report from International Business Times (January 6, 2016), Wall Street Fine Print: Retirees Want FBI Probe of Pension Investment Deals by David Sirota, Click Here.
Also read the following previous articles from this blog:
Interesting article. The Board of Trustees of the Chicago Teachers' Pension Fund are mostly teachers who meet once a month. How can you successfully monitor the fund's investments when teaching full-time and meeting once a month.
ReplyDeleteThe Chicago Teachers' Pension Fund is currently engaged in a lawsuit over interest rate swamps. To me, this is an indication that are investing in what they don't understand.
As a pension plan that is approximately 50% funded, there should be very little tolerance for risk. Stocks have a greater potential for higher returns but they also pose greater risk. A 50% funded pension plan can not afford to take a 'hit'.
The most troubling passages in the article, according to Dave Madsen:
ReplyDelete“…Siedle and the retiree group he represents say they are concerned the provisions could enable financial managers to boost the returns of sophisticated or well-connected private investors — such as firm executives, their family members, friends and business associates — with cash from the $3 trillion now in public pension systems across the country…
“If you are a Wall Street money manager, it allows you and your buddies to build a black box and loot retirees’ money.
“…Similarly, private equity giant GTCR (which does not manage Rhode Island money) says ‘family members, certain business associates, other friends of the firm or other persons may invest alongside funds’ it runs for regular investors. GTCR notes that it ‘might have an incentive to improve the performance of one fund by selling underperforming assets to another fund in order, for example, to earn fees.’ The firm, whose most famous stakeholder is Illinois Republican Gov. Bruce Rauner, says it may withhold some information from certain investors ‘that are subject to Freedom of Information Act or similar requirements’ — meaning governments…”
—Dave
The teachers and retirees in New Jersey, where my nephew and his wife both teach, believe this is a New Jersey problem due to its uniquely New Jersey legislature and governor's corruption. When will we understand that this assault and teachers' pensions (and the pensions of other employees) is a national assault via political corruption of both political parties?
ReplyDelete