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Forbes Columnist Siedle: “Rhode Islanders Were Lied to by Raimondo”

Thursday, October 13, 2016

 

Forbes Columnist, Ted Siedle

On Wednesday, Forbes columnist Ted Siedle gave a speech to Rhode Island retirees in Warwick, RI. The speech took Governor Gina Raimondo to task for what Siedle said were her failures as General Treasurer and focused on hedge fund investments.

SIEDLE'S SPEECH

Siedle gave the following speech on Wednesday:

The song is called Go the Distance and that’s what we’re going to talk about today.

There are three major thoughts about the premeditated, massive looting of billions from your pension by elected politicians that I would like to share with you.

The three major points are:

1. First, we’ll talk about why truth matters. Why has it been so important to get the truth about pension mismanagement out to the public?

2. Second, I will talk about the special journey heroes are, and have always been, required to undertake—heroes such as those of you who contributed to the first an second-ever crowdfunded forensic investigations of a state pension; and

3. I will urge you to go the distance—continue the battle, recognizing that win or lose it is the right thing to do. We applaud heroes, not because they win but because they try with all their heart.

Following my prepared comments, I will discuss the findings of our recently completed crowdfunded forensic investigation of the pension’s real estate and answer your questions. So let’s get started.

By way of background, let me remind you that as the nation’s leading expert on pension forensics, I told Rhode Islanders four years ago that the high-cost, high-risk, secretive gambling of state pension assets by then-Treasurer Gina Raimondo would result in massive losses and ensure only ever-greater political contributions to Rhode Island politicians and ever-greater fees paid to Wall Street by your pension.

A wealth transfer—that is, your wealth would be transferred to Wall Street, is what I predicted.

Again, this was a premeditated and deliberate misuse of pension assets—with a foreseeable and indeed foreseen disastrous outcome.  

I, as your expert, foresaw a costly disaster.

The so-called experts paid millions from the pension by former Treasurer Raimondo, predicted the reckless gamble would result in stellar performance worth the outrageous fees Wall Street gunslingers charge.

Raimondo’s hired experts blessed the reckless gamble and were dead wrong.

Dead wrong. How wrong?

Their bad advice cost the pension over $2 billion. Over $2 billion. Hedge funds alone lost $500 million.

It my opinion, what happened at ERSRI should be criminally investigated on the federal level since your state Attorney General Kilmartin is either incapable or unwilling. Kilmartin’s useless.

Recently 31-year old Treasurer Seth Magaziner—whom I call “Kid” Magaziner because of his obvious lack of knowledge and judgment—announced that due to disastrous performance he would cut the pensions’ hedge fund investments in half over the next two years.

Of course he didn’t come out and say Governor Raimondo’s billion-dollar hedge fund gamble was a colossal blunder that has already cost the pension $500 million.

Kid Magaziner didn’t explain why it would be necessary for your pension to pay two more years of lavish fees to Wall Street losers that will continue to underperform over the next two years, costing the pension another $100 million.

But do we really expect politicians to tell the truth and take responsibility for their actions anymore? I don’t think so.

Think about it: What would happen if Raimondo and Magaziner openly admitted their incompetence cost Rhode Island taxpayers and state workers $2 billion? Can you imagine the public forgiving their recklessness? Of course not.

Truth Matters

The first major point, truth matters, is perhaps the most important.

Truth matters, not only because without it you cannot asses the need for change and make changes but also for its own sake.

Win or lose, you need to know the truth—to understand what is happening around you.

Knowing the truth does not guarantee you will prevail in your quest but without it you are doomed.

Let me recall for you how I first got involved in my search for truth in Rhode Island.

On the cover of the January 2013 Institutional Investor magazine I was sent by the publisher was a picture of the svelte figure of Rhode Island General Treasurer Gina Raimondo, perched like an underfed raven in black business attire on bleached white Capitol steps.

Raimondo, heralded Institutional Investor magazine, was “solving the nation’s retirement dilemma.”

“Gina Raimondo shows how tough pension reforms can pay fiscal and political dividends.”

Did you hear that: solving the nation’s retirement dilemma with tough pension reforms?

The edition included a seemingly in-depth, yet fanciful meandering tale about Raimondo’s humble origins and charmed ascent to political power, “a venture-capitalist-turned-political-rising-star.”

I was so blown away by the significant omissions and half-truths in the article that I felt compelled to politely call the reporter, whom I knew, for some answers—answers which it turned out she did not have.

The glowing article about Raimondo did not mention the investment performance track record of this small-time venture capitalist that succeeded in getting herself elected as state Treasurer and chief fiduciary of the pension after only a few years in the venture capital business.

In my opinion whether she was adept at managing institutional money—including the $5 million she talked the pension into investing in her Point Judith II fund—was more important than hearing about how she grew up in a middle class Italian-American family, got good grades and was valedictorian of her high school class. There was no hint as to her investment results in the 2013 article.

Today, we know Raimondo’s Point Judith Capital fund charged the pension 2.5% a year over ten years and lost the pension 1.1%.

That was a great deal for Gina—getting paid the highest fees the pension paid for lousy performance. On the other hand, it was a terrible deal for the pension—her investment scheme cost you money.

Gina’s performance clearly reveals today—after 10 years of secrecy—that she has never been a competent money manager.

As a seasoned forensic investigator, I knew as I read the article in Institutional Investor that successful money managers shout about their performance and assets under management from the rooftops.

They won’t shut up. If a money manager doesn’t talk about his investment results, watch out!

I wasn’t sure Raimondo’s performance stats outright stunk but the secrecy surrounding them was a significant “red flag” to me—as was the fact that, up to that point in time, apparently no one had even bothered to ask the crucial question.

I had more unanswered questions.

How was this political newbie able to raise four times more money than her Republican rival in 2010 for her campaign? How much of the money came from out-of-state Wall Street donors?

Was it true that there was no history of regulatory concern regarding “pay to play” or corruption at the state pension, as the magazine stated? I had reason to believe otherwise.

I would later uncover documents confirming the SEC had investigated pay-to-play at the pension. Raimondo just hadn’t disclosed the SEC inquiry to the public.

Why did the Truth in Numbers report she miraculously pulled out of her hat after only months on the job fail to mention that the proposed cuts to workers’ benefits would be used to pay skyrocketing fees to Wall Street hedge funds she would hire? Why was there not a single mention of the escalating investment costs?

Who were the undisclosed investment firms backing Engage Rhode Island, a tax-exempt political organization that reportedly raised close to $1 million in support of Raimondo’s so-called pension reform?

How likely was it that loading up on high-cost, risky opaque investments would reduce risk and produce sustained outperformance?

Not very—just ask Warren Buffett. He very publicly bet $1 million hedge funds wouldn’t outperform the S&P 500. Why wasn’t Institutional Investor or any anyone else challenging Raimondo’s absurd gamble hedge funds would outperform low-cost index investing? 

Did anyone seriously believe Raimondo was smarter than Buffett?

The local newspaper, the Providence Journal, like Institutional Investor, adored Raimondo. While the tiny state of Rhode Island has had more than its fair share of political corruption, no investigative journalist had focused upon her pension shenanigans.

To be fair, the ProJo was the first to publish Raimondo’s recipe for meatloaf.

The reality behind the Raimondo fairy tale was so obvious to me that I hastily penned an article in Forbes called Rhode Island Public Pension ‘Reform’ Looks More Like Wall Street Feeding Frenzy, telling a very different story.

I wrote:

“A look behind the curtain reveals her changes to the investment portfolio of the $7 billion Employee Retirement System of the State of Rhode Island will inevitably dramatically increase both risk and fees paid to alternative investment managers, such as hedge funds and private equity firms.

There’s no prudent, disciplined investment program at work here—just a blatant Wall Street gorging, while simultaneously pruning state workers’ pension benefits. It’s no surprise that some of Wall Street’s wildest gamblers have backed her so-called pension reform efforts in the state legislature.”

Thousands of Forbes readers asked, why hadn’t this story been reported? Why did it take a mere blogger from Forbes (as Raimondo referred to me) to expose the pension subterfuge? Clearly, there was another side of the story to be told.

I was stunned when Treasurer Raimondo hastily responded to my initial Forbes article publicly acknowledging, when asked by reporter Ted Nesi, she didn’t even know the amount of fees the pension paid to Wall Street and that fees didn’t matter. Insane!

(Pension fiduciaries are supposed to keep track of little details like how much they pay in fees and whether the fees paid are reasonable.)

GoLocalProv immediately seized the opportunity to write about the emerging pension controversy that the Providence Journal had ignored.

My first article was quickly followed by another on Forbes posing 22 questions for the Treasurer to answer about the pension which prompted Raimondo to admit, among other things, that fees had grown from $11 million to $70 million; the pension indeed had a history of “pay to play,” and she was forced to change the pension’s financial disclosures and reporting to be more accurate.

Raimondo was unprepared for scrutiny by a nationally-recognized pension expert and sought to contain the damage. Both former Treasurer/Lt. Governor Roger Begin and Andy Stern, former head of the SEIU, wrote letters to the editor of ProJo saying I was wrong and Raimondo was right about gambling on hedge funds.

Thankfully, in September 2013, an unconventional voice from an unexpected media source joined the effort. Matt Taibbi of Rolling Stone came storming in with a scathing article called Looting the Pension Funds revealing the broader motives behind Raimondo’s deceptive pension reform.

Adding her shoulder to the cause, in October, 2013 Gretchen Morgenson of the New York Times - arguably the nation’s most credible financial reporter, in an article entitled How to Pay Millions and Lag the Market, slammed Raimondo for paying hedge funds millions to underperform the market.

Forbes, the New York Times, Rolling Stone and, most impressively, the Oracle of Omaha Warren Buffett—arguably the most successful investor of all time—all agreed years ago that Raimondo’s reckless pension gamble would fail.

And fail it did. Billions have been lost. Billions in retirement savings.

Rhode Islanders were blatantly lied to by then-General Treasurer Gina Raimondo who claimed to be reforming the pension to make it more sustainable.

Raimondo’s so-called pension reform was a ruse.

The truth is she successfully used billions of state workers’ retirement assets—shifted the money to friends on Wall Street—to further her personal political ambitions.

That reckless gamble worked out very well for Raimondo—she’s now Governor and likely on her way to Washington. You, on the other hand, paid the price. Your COLA benefits were cut to supposedly make the pension more sustainable but in reality your COLA money went to Wall Street billionaires—who then gambled with it and lost big- $500 million lost in hedge funds, over $2 billion lost in alternative investments.

Your sacrifice was for nothing. Pensioners will inevitably be asked to sacrifice more in the future to, once again, “fix the pension.”

That is the truth.

And that’s why you cannot give up the battle.

The Special Journey of Heroes

Heroes are ordinary people who rise above their common daily lives and become involved in a quest for a greater truth.

Each of you who contributed to the either of the two crowdfunded forensic investigations of your state pension, the Double Trouble Report last year and the current Beyond Bad real estate report are heroes, in my opinion.

I both congratulate you and thank you.

You helped make history in Rhode Island and nationally. Never before have participants in a state pension banded together to hire their own expert and investigate the truth about looting of their pension.

Let everyone who gave take credit: You helped expose the greatest theft in the history of this state. And the same looting of state pensions in underway in every other state in the union.

Our findings have been and will continue to be shared with law enforcement, such as the FBI, and regulators, such as the SEC.

Following our meeting today, I encourage all of you to send our most recent Beyond Bad investigation to the SEC.

It is highly unusual for the SEC to receive reports of publicly-funded forensic investigations of state pension wrongdoing from hundreds of harmed pension participants. Let your voices be heard. Use the report you paid for to turn up the heat on Wall Street regulators.

In a state known for widespread corruption and lacking an effective Attorney General, crowdfunded forensic investigations of wrongdoing may be the only redress possible.

While one would have expected organized labor to rally behind your cause, labor largely missed the boat. In fact, in Rhode Island many labor leaders are in bed with the opposition—for whatever reasons.

It’s very disappointing the limited role labor has played to date and, in my opinion, it’s extremely short-sighted of labor.

As heroes, you responded to a call to action to join the crowdfunding cause and now you have arrived at a new vantage point: you are now armed with the truth.

And armed with the truth, you cannot go back to believing—if you ever did—that your elected officials are prudently managing your pension.

I can’t tell you where this journey will take you but you have no choice but to continue. The massive pension losses will only mount in the future.

If you fail to act, things will get worse.

Nothing will get better unless you make it happen.

Go the Distance

In conclusion, I implore you to go the distance.

Don’t give up on your heroic journey. Continue to fight for truth and to preserve the retirement security you were promised. Hold those who break their promises and squander your retirement security accountable.

Don’t look back to the days when you trusted others—including politicians and labor groups—to protect your interests. What worked in the past, will not work now and you need to embrace new solutions.

Stay on track. Do not be distracted by politicians and the so-called experts they hire—with your money—to work against you.

Don’t accept defeat.  For its only when you accept defeat that you are truly defeated.

As the song, Go the Distance says, “It’s an uphill slope.”

You are involved in the fight of your life battling powerful Wall Street interests and their political puppets.

Yes, it’s an uphill slope but the song goes on to say “don’t lose hope.”

Three reasons not to lose hope:

Their game plan- the Wall Street wealth transfer—has been exposed;
Their experts have been discredited;
The massive losses they have caused are already glaringly apparent and will only grow;
There will be no hiding the ultimate train wreck.

So I urge you to go the distance—keep shining light on the looting—until your journey is complete.

 

Related Slideshow: Pension Fund Management Fees

Below are 38 private equity firms which were paid management fees for money state pension fund has yet to invest with them. For each firm, the firm name or individual fund name is listed, along with the following: the total money the state has committed to investing with them, the amount the state has provided, the amount the state has yet to provide, the management fee rate, and the amount in management fees the firm was paid for the money that it had not yet been provided. Figures are for fiscal year 2014. Data were obtained from publicly available documents from the state Treasurer’s office.

Prev Next

38.

TPG Partners IV

Total Money Committed: $13,953,742

Money Provided: $13,889,321

Money Not Provided: $64,421

Management Fee: .05%

Amount of Fee for Money Not Provided: $322

Prev Next

37.

Castile III

Total Money Committed: $5,000,000

Money Provided: $4,850,000

Money Not Provided: $150,000

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $1,500

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36.

Kayne Anderson Energy Fund III

Total Money Committed: $15,000,000

Money Provided: $14,633,574

Money Not Provided: $366,426

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $3,664

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35.

Thomas McNerney & Partners

Total Money Committed: $15,000,000

Money Provided: $14,700,000

Money Not Provided: $300,000

Management Fee: 2.00%

Amount of Fee for Money Not Provided: $6,000

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34.

Leapfrog Ventures II

Total Money Committed: $10,000,000

Money Provided: $9,490,000

Money Not Provided: $510,000

Management Fee: 1.25%

Amount of Fee for Money Not Provided: $6,375

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33.

Point Judith II

Total Money Committed: $5,000,000

Money Provided: $4,536,061

Money Not Provided: $463,939

Management Fee: 1.50%

Amount of Fee for Money Not Provided: $6,959

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32.

LNK Partners

Total Money Committed: $12,500,000

Money Provided: $11,871,493

Money Not Provided: $628,507

Management Fee: 1.25%

Amount of Fee for Money Not Provided: $7,856

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31.

Kayne Anderson Energy Fund IV

Total Money Committed: $15,000,000

Money Provided: $14,201,594

Money Not Provided: $798,406

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $7,984

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30.

W Capital Partners

Total Money Committed: $15,000,000

Money Provided: $14,197,500

Money Not Provided: $802,500

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $8,025

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29.

Lighthouse Capital Partners V

Total Money Committed: $11,250,000

Money Provided: $10,462,500

Money Not Provided: $787,500

Management Fee: 1.06%

Amount of Fee for Money Not Provided: $8,348

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28.

WLR

Total Money Committed: $8,000,000

Money Provided: $7,234,744

Money Not Provided: $765,256

Management Fee: 1.50%

Amount of Fee for Money Not Provided: $11,479

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27.

Lighthouse Capital Partners VI

Total Money Committed: $15,000,000

Money Provided: $14,250,000

Money Not Provided: $750,000

Management Fee: 1.54%

Amount of Fee for Money Not Provided: $11,550

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26.

Birch Hill Equity Partners III

Total Money Committed: $16,868,142

Money Provided: $16,249,482

Money Not Provided: $618,660

Management Fee: 2.00%

Amount of Fee for Money Not Provided: $12,373

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25.

Trilantic IV

Total Money Committed: $11,098,351

Money Provided: $9,759,061

Money Not Provided: $1,339,290

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $13,393

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24.

Fenway III

Total Money Committed: $15,000,000

Money Provided: $13,590,494

Money Not Provided: $1,409,506

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $14,095

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23.

Bain X

Total Money Committed: $25,000,000

Money Provided: $24,237,500

Money Not Provided: $762,500

Management Fee: 2.00%

Amount of Fee for Money Not Provided: $15,250

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22.

Charterhouse Capital Partners VIII

Total Money Committed: $19,443,313

Money Provided: $17,898,663

Money Not Provided: $1,544,650

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $15,447

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21.

Centerbridge

Total Money Committed: $15,000,000

Money Provided: $13,909,377

Money Not Provided: $1,090,623

Management Fee: 1.42%

Amount of Fee for Money Not Provided: $15,487

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20.

W Capital Partners II

Total Money Committed: $15,000,000

Money Provided: $13,403,309

Money Not Provided: $1,596,691

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $15,967

Prev Next

19.

Leeds Weld Equity Partners IV

Total Money Committed: $10,000,000

Money Provided:$8,900,361

Money Not Provided: $1,099,639

Management Fee: 1.46%

Amount of Fee for Money Not Provided: $16,055

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18.

TPG Partners V

Total Money Committed: $20,000,000

Money Provided: $17,671,819

Money Not Provided: $2,328,181

Management Fee: 0.75%

Amount of Fee for Money Not Provided: $17,461

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17.

CVC European Equity Partners IV

Total Money Committed: $22,513,310

Money Provided: $19,882,272

Money Not Provided: $2,631,038

Management Fee: 0.75%

Amount of Fee for Money Not Provided: $19,733

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16.

TPG VI

Total Money Committed: $10,000,000

Money Provided: $8,307,515

Money Not Provided: $1,692,485

Management Fee: 1.21%

Amount of Fee for Money Not Provided: $20,479

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15.

Providence Equity Partners V

Total Money Committed: $25,000,000

Money Provided: $22,842,007

Money Not Provided: $2,157,993

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $21,580

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14.

Nautic Partners VI

Total Money Committed: $20,000,000

Money Provided: $18,586,688

Money Not Provided: $1,413,312

Management Fee:1.65%

Amount of Fee for Money Not Provided: $23,320

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13.

Providence Equity Partners VI

Total Money Committed: $25,000,000

Money Provided: $22,409,906

Money Not Provided: $2,590,094

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $25,901

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12.

CVC V

Total Money Committed: $27,288,860

Money Provided: $23,999,027

Money Not Provided: $3,289,833

Management Fee: 1.00%

Amount of Fee for Money Not Provided: $32,898

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11.

Thomas McNerney & Partners II

Total Money Committed: $15,000,000

Money Provided: $13,237,500

Money Not Provided: $1,762,500

Management Fee: 2.00%

Amount of Fee for Money Not Provided: $35,250

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10.

Palladin III

Total Money Committed: $10,000,000

Money Provided: $7,446,026

Money Not Provided: $2,553,974

Management Fee: 2.00%

Amount of Fee for Money Not Provided: $51,079

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9.

Centerbridge Special Credit Partners II

Total Money Committed: $25,000,000

Money Provided: $18,125,000

Money Not Provided: $6,875,000

Management Fee: 1.50%

Amount of Fee for Money Not Provided: $103,125

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8.

MHR Institutional Partners III

Total Money Committed: $20,000,000

Money Provided: $12,625,604

Money Not Provided: $7,374,396

Management Fee: 1.75%

Amount of Fee for Money Not Provided: $129,052

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7.

Advent Global Private Equity Fund VII

Total Money Committed: $20,000,000

Money Provided: $8,080,000

Money Not Provided: $11,920,000

Management Fee: 1.50%

Amount of Fee for Money Not Provided: $178,800

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6.

Oaktree Capital Management Fund III

Total Money Committed: $20,000,000

Money Provided:  $9,600,000

Money Not Provided: $10,400,000

Management Fee: 1.75%

Amount of Fee for Money Not Provided: $182,000

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5.

EnCap Energy Fund IX

Total Money Committed: $18,000,000

Money Provided: $3,407,917

Money Not Provided: $14,592,083

Management Fee: 1.50%

Amount of Fee for Money Not Provided: $218,881

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4.

CVC VI

Total Money Committed: $20,466,645

Money Provided: $20,466,645

Money Not Provided: $20,304,811

Management Fee: 1.50%

Amount of Fee for Money Not Provided: $304,572

Prev Next

3.

Providence Equity Partners VII

Total Money Committed: $25,000,000

Money Provided: $4,095,723

Money Not Provided: $20,904,277

Management Fee: 1.50%

Amount of Fee for Money Not Provided: $313,564

Prev Next

2.

Riverside VI

Total Money Committed: $20,000,000

Money Provided: $2,464,227

Money Not Provided: $17,535,773

Management Fee: 2.00%

Amount of Fee for Money Not Provided: $350,715

Prev Next

1.

Carlyle Asia Partners IV

Total Money Committed: $30,000,000

Money Provided: $3,453,921

Money Not Provided: $26,546,079

Management Fee: 1.50%

Amount of Fee for Money Not Provided: $398,191

 
 

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