Hedge Fund in RI Portfolio Reports First Ever Loss

Friday, January 09, 2015

GoLocal News Team

 

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Brevan Howard, one of Rhode Island's hedge fund investments harshly critiqued by Forbes' Edward Siedle in 2013, has reported its first annual investment loss since it began 11 years ago,

Siedle, the former Securities and Exchange Commission lawyer, conducted an investigation into then-General Treasurer Gina Raimondo's hedge fund strategy -- and pointed to Brevan Howard's practices on multiple occasions.  

The Financial Times reported this week that "since being founded in 2003 by billionaire British trader Alan Howard and four colleagues from Credit Suisse, the company has prided itself on the record of its Master Fund, which had never lost money for clients in any calendar year. However, last year, it recorded a loss of 0.8 per cent, according to people familiar with the fund."

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Earlier this week, the Wall Street Journal reported that  Zurich reinsurer Swiss Re is looking to sell its minority stake in Brevan Howard Asset Management LLP. Rhode Island had nearly $79 million in Brevan Howard as of December 2014. 

In the past year, Rhode Island has divested from its hedge fund investments in Third Point Capital, as most recently, Mason Capital -- two firms identified by then-Rolling Stone writer Matt Taibbi, when he wrote "Looting the Pension Funds" in September 2013.  

Brevan Howard Previously Blasted by Siedle 

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Edward Siedle

In a chapter of his report entitled, "ERSRI Agrees to be Kept in the Dark, Grants Mystery Investors Licenses to Steal and Consents to to Potential Nondisclosure Illegalities," Siedle noted that Brevan Howard stated in its investment materials that "as is common with other hedge funds...it intends to withhold from investors detailed disclosure of the composition of its investment portfolios."

"Even more deplorable, the hedge fund managers blandly state that they are not required to provide the same type or level of disclosure regarding investments and strategies to all investors," wrote Siedle.

According to Siedle's recap of Brevan Howard materials, the hedge fund had stated, "The General Partner may in its absolute discretion agree to provide certain strategic investors in the Partnership with information about the Partnership and its investments which is not available to investors generally" -- and Siedle noted, "In other words, ERSRI has grotesquely consented, for unimaginable reasons to the managers permitting other mystery investors in the hedge funds to profit at its expense."

"That Brevan Howard fund was one I discovered at length in my report, about secret provisions.  Now, Swiss Re wants to dump it -- the performance is way off," said Siedle this week.  

"As we're finding out about this when now [the General Treasurer] has to disclose the performance of all these funds in February," said Siedle, who said that he will be conducting a second investigation year into Raimondo.  "It's clear that this information is now leaking out."
 

 

Related Slideshow: RI Public Pension Reform: Wall Street’s License To Steal

See the key findings from Forbes' columnist Edward Siedle, who unveiled his investigative report into the RI pension system, "License to Steal," in October 2013.  

"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," said Siedle.  

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Treasurer’s Lack of Transparency

 
"There has been a sinister pall of secrecy regarding fundamental investment information orchestrated by state officials and aided by key investment services providers. "
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So-Called Pension Reform Scheme Permanently Reduces Benefits To Retirees

"Whether retirees receive any COLA will depend upon both ERSRI’s funding level and the Fund’s actual investment returns—both of which are volatile, unpredictable and subject to manipulation by elected officials and others. The manipulation of both of these key goalposts has already begun. "

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SEC Should Investigate ERSRI’s Failure to Disclose Skyrocketing Investment Expenses 

 
"The Treasurer has intentionally withheld information about soaring investment fees which is material in assessing both whether ERSRI should invest in costly alternative investments and whether benefit cuts are necessary to improve pension funding."
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Lose-Lose: Alternative Investments Both Reduce Returns and Increase Risk 

 
"The Treasurer’s representations regarding the level of risk related to ERSRI’s hedge fund investments are wholly inconsistent with the hedge fund managers’own words."
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ERSRI Agrees To Be Kept In The Dark, Grants Mystery Investors Licenses to Steal and Consents To Potential Nondisclosure Illegalities 

 
"The outrageous nondisclosure policies detailed in the hedge fund offering documents cause these investments to be, at a minimum, inherently impermissible for a public pension, such as ERSRI, if not illegal."
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Heightened Risks Related To Hedge Fund Offshore Regulation And Custody

 
"There is no evidence the State Investment Commission was aware of, or ever considered, the unique risks related to foreign regulation of hedge funds."
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SEC Should Investigate Questions Surrounding ERSRI’s Point Judith Venture Investment

 
"The Treasurer has made numerous public statements regarding the performance of the Point Judith II fund she formerly managed and sold to ERSRI, as well as released summary performance figures which are strikingly divergent. [...] In order to prevent any possible confusion or misleading of investors, the SEC should investigate Point Judith II performance claims."
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Rhode Island Ethics Commission Opinion And “Blind Trust” Fail to Address Conflicts Regarding Point Judith Investment

 
"The Treasurer notably failed to mention in her letter to the Ethics Commission that the state was a limited partner in the Point Judith fund and may have broad rights in the fund that conflict with hers. Further, she may have special rights that permit her to profit at the state’s expense."
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SEC Should Investigate ERSRI Investment Consultant Conflicts, Payments From Money Managers

 
"The investment consultant retained to provide objective advice regarding alternatives, Cliffwater LLC, has disclosed in its SEC filings that it receives compensation from investment managers it recommends or selects for its clients, including Brown Brothers Harriman which manages $272 million for ERSRI."
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“Pay To Play” Placement Agent Abuses at ERSRI

 
"Rather than undertake an independent investigation in response to an SEC inquiry, ERSRI relied upon its then investment consultant, PCG, for objective advice regarding controversial placement agent fees—at a time when PCG itself was embroiled in a national pay-to-play scandal."
 

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