Former Teachers Union Head Blasts Raimondo’s Pension Investments
Friday, April 26, 2013
Following Wednesday's meeting of the State Investment Commission, former head of the Rhode Island American Federation of Teachers Marcia Reback continues to call into question the commission's current hedge fund strategy -- and as well as its fiduciary and social responsibilities.
"I voted for [hedge funds] initially because they were sold to us as not being volatile. What I want to know is, is the lack of volatility worth the investment management fees we're paying? I'd like to know our overall fee structure as it compares to what we paid four years ago....I was told they would have to get back to me on that," said Reback.
Questions have arisen as to whether the state's investment management fees are paying off with regard to fund performance, However, on Wednesday, Reback also raised concerns as to the fiduciary -- and social - obligations of the hedge funds the state is using.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTCiting the recent Rolling Stone article which looked into Third Point Capital founder Dan Loeb's management of public pension funds while "simultaneously campaigning against defined benefit plans," as well as the AFT report of over thirty hedge funds with "asset managers [that] have directly backed initiatives that harm the retirement security of plan participants, to whom trustees have fiduciary responsibilities," Reback called into question Rhode Island's use of Third Point -- and other funds identified -- as part of its strategy.
"I'm very, very disappointed that my concerns weren't taken seriously [on Wednesday]," said Reback. "[The Commission] had passed a policy regarding infrastructure investments, that we would make a point of having labor be an important factor we look at when deciding. I don't see this as being any different."
"To be told that [the Commission] simply can't be responsible for the activities of fund managers that are working to undermine public pensions...that's something that is deeply upsetting to me," said Reback. "And so is the fact that I raised this issue at meetings before, to no avail."
"What I was told was that we can't possibly monitor all the fund managers' political activities, nor can we hold them accountable," said Reback. "I don't believe you can separate your work from your personal activities -- or beliefs. Investment managers have a responsibility to their clients when they manage their money."
Reback concluded, "I think we've wrapped ourselves around hedge funds. Fifteen percent, out of twenty-five percent total in alternative investments...that concerns me."
Reilly Responds
State Investment Commission board member Andrew K. Reilly responded to Reback's concerns -- and the Commission's strategy as a whole.
"Marcia and I have agreed on many issues in the past, but we disagree on this one," said Reilly. "It just feasibly can't be done to look over every individual fund manager's activities outside of work. If a [hedge] fund's strategy itself is not in line with our social responsibility views, we would certainly revisit that."
"Look, our goal as an investment commission is to maximize our asset returns. It's not always an easy thing to do, but we're beating the indexes. We're doing a good job," said Reilly.
Addressing the state's use of Third Point Capital, Reilly said,"[Third Point] has performed particularly well for us. Dan Loeb could leave or retire tomorrow...we couldn't afford to miss out on the opportunity to do our job to the best of our ability, simply due to partisan politics. The reality is that the AFT isn't tasked with the same mission of the State Investment Commission."
Reilly also took the opportunity to address the Commission's investment strategy as whole. "It's absolutely how I'd invest that amount of money myself...right down to the 23 colors on the [investment portfolio] pinwheel. We've taken the risk out, and we're putting money to work."
"You need to seek out the best investment managers, which we've done. We vet a large number of candidates on a number of measures. Diversification of risk is important," said Reilly. "We've also fired two that weren't performing up to expectation. if Loeb and Third Point started underperforming, we'd hold them to the same scrutiny."
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