NEW: Raimondo Addresses Supporters Following Pension Investigation

Monday, October 21, 2013


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Rhode Island General Treasurer Gina Raimondo

Rhode Island General Treasurer Gina Raimondo today issued a letter to supporters addressing last week's unveiling of an investigation into the Rhode Island pension system by former SEC lawyer Edward Siedle.

The e-mail began, "You might have seen the latest round of attacks against me by a “pension expert” who was paid tens of thousands of dollars by a Rhode Island special-interest group to criticize our work stabilizing our state's failing pension system. Make no mistake: These attacks were personal, recycled and an attempt to take down pension reform."

See investigation coverage here.

The communication, which was issued via e-mail, follows both local and national attention paid to the report and its findings, with the latest being a piece by New York Times Gretchen Morgenson, "How to Pay Millions and Lag Behind the Market", which ran this Sunday -- focusing on the Siedle report, and Rhode Island.  

Read Raimondo Letter Below

The folllowing was contained in an e-mail sent today from Raimondo's camp to supporters: 

"We made tough choices in 2011 to fix a pension system that was in crisis. Absent our reforms, the state would have had to make painful cuts to public services or unaffordable tax increases to pay the pension bill. Unlike previous generations of politicians, we decided to take action to solve the problem once and for all. Our comprehensive reform will save the state about $4 billion over the next 20 years and will allow us all to look at any young teacher or retired state worker and say with confidence that their pension will be there when they need it most.

Pension funds across the country, including the one in Detroit, continue to face bankruptcy. In Rhode Island we know what that feels like firsthand from when the City of Central Falls went bankrupt and city employees saw their pensions cut in half.

Thanks to our work together, we stabilized Rhode Island before disaster could strike – and no critic ever suggested another comprehensive way to get it done. Critics of the reform who cannot accept the math that the pension system was in crisis are like the climate change deniers who dispute basic scientific facts.

It’s important to remember:

  • I fought to keep a defined benefit pension and always respected collective bargaining
  • There were countless hours of pension advisory group meetings, legislative hearings and town hall-style meetings with the governor and me
  • The Democratic legislature overwhelmingly passed pension reform and Governor Chafee signed it
  • An independent audit found the state pension numbers to be reasonable and reliable
  • Because of efforts we've made in my term, Rhode Island’s pension investment portfolio is among the most transparent in the country
  • Prior to my term, in 2009, the pension fund lost more than $2 billion. To combat this, we increased the pension fund's use of "alternative investments" including hedge funds, a common practice for pension funds, university endowments and foundations. While increased fees were a downside, the funds are exceeding our targets with less risk -- meaning our pension system isn't totally dependent on the whims of the stock market, protecting retirees in case of another downturn
  • All but one vote to approve the hedge funds were unanimous. The only vote to approve hedge funds that was not unanimous was due to one abstention – again, showing strong State Investment Commission support to execute this investment strategy
  • Providence has more of its pension fund invested in hedge funds and is less transparent – and yet isn’t included in the report because this is about attacking one individual and a comprehensive reform

In addition to scaring people about pension reform, critics are attacking me personally. I didn’t enter public service to enrich myself. I ran for Treasurer because the same old politics are getting us nowhere fast and people in Rhode Island are struggling.

Prior to taking office, I proactively asked the State Ethics Commission how to best handle my interest in Point Judith Capital, my old company. They voted and gave an opinion after careful consideration stating that I took all necessary steps to avoid a conflict of interest. These steps included recusing myself from any votes involving Point Judith and putting my residual interest into a trust over which I had no control.

I’m proud of the work I did at Point Judith Capital to help small businesses grow and create jobs, but I left to run for Treasurer because protecting people's retirement is personal to me.

My father worked at the Bulova Watch Factory down on Dexter Street in Providence for more than 20 years. When I was in middle school, they announced it was closing and moving the jobs overseas. That was a hard time for my family and it was a time where I learned a lot about stretching a dollar.

My father had to retire without his full pension and our family had to make do with less. People used to say that my mom could make a quarter out of two nickels, and my brother, sister and I learned how to make a lunch sack last for a full week.

Every single day when I walk into my office I think about the lessons I learned as a child.

I’m proud of what we’ve accomplished together and think we have much more work to do to move our state forward. I hope you will join me in spreading the word about our work and belief that Rhode Island can do better. Thank you for your support."


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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