RI Divests From 7 of Raimondo’s Hedge Funds, Including Och-Ziff Which Was Hit By SEC with $400M Fine

Thursday, October 27, 2016

 

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The state has divested from 7 hedge fund investments, including Och-Ziff, which was favored by then-Treasurer Gina Raimondo.

The Rhode Island State Investment Commission voted Wednesday to terminate its investment in seven hedge funds, including Och-Ziff, who recently pleaded guilty to federal bribery charge and agreed to a $400 million settlement. 

As GoLocal reported last month

According to reports, the favorite hedge-fund of the Gina Raimondo term as General Treasurer will imminently admit to federal corruption charges. 

“The admission of guilt...is part of a settlement with the Justice Department and the Securities and Exchange Commission after a complex five-year investigation into graft worth hundreds of millions of dollars, shell companies, oil and diamonds,” reports Bloomberg.

Former SEC lawyer and Forbes columnist Edward Siedle, who has been a staunch critic of Raimondo and Rhode Island's hedge fund investments, said Wednesday that the state should be seeking additional moneys. 

"A prudent fiduciary under the circumstances might consider whether to seek to recover for any losses due to miss management or malfeasance," said Siedle. 

In 2014, when Och-ZIff came under investigation while Raimondo was Treasurer, GoLocal reported:

The firm Och-Ziff has received millions in fees from the Employee Retirement System of Rhode Island - the board selecting Och-Ziff is chaired by Raimondo.

Treasurer's Announcement

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Forbes' columnist Edward Siedle is asking if the state will try and seek additional moneys stemming from Och-ZIff's "malfeasance."

General Treasurer Seth Magaziner's office announced that the SIC unanimously voted to terminate its investment in seven hedge funds.

The state will "fully redeem" positions with Ascend Capital, Brevan Howard, Brigade Capital Management, Emerging Sovereign Group (formerly Carlyle Group), Partner Fund Management, Samlyn Capital, and Och-Ziff Capital Management, said Magaziner's office, "for an estimated $585 million in the coming months."

The reduction in Rhode Island's hedge fund exposure comes following last month's adoption of Magaziner's 'Back to Basics" plan to "refocus Rhode Island's $7.7 billion retirement system on investments expected to provide growth, reduce volatility and strengthen retirement security."

The office announced that so far in the 2016 calendar year, the Rhode Island pension fund has returned 6.20% beating its benchmark by 43 basis points.
 

 

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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