Riley: AFSCME, Ted Siedle and Marcia Reback Hurt Rhode Island Retirees
Tuesday, November 03, 2015
Pension funds around the nation had horrible first quarter returns for fiscal 2016. Rhode Island was no exception. Rhode Island losses reached 4.69% at quarter's end and being over $1 billion behind target returns over the last 18 months is alarming.
These losses however are not the subject of today’s analysis and to be fair, last month, October 2015, was the best performing month in four years for the S&P 500. [The] Rhode Island portfolio should easily wipe out all its fiscal year to date losses and show a gain for the year once the Treasurer reports the October pension return numbers late this November. If not, then this complex and expensive portfolio is not working and needs a complete review.
Today’s article is about some union activists causing their own pension fund and retirees' great harm. Rhode Island is now severely underfunded and in crisis at only 55% funded. In 2011 Gina Raimondo moved to increase alternative investments by including $1.1 billion in equity and absolute return hedge funds. Somewhere along the way AFSCME and AFT decided to use their influence to wage war on hedge fund managers who donated to Charter Schools.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTAFT, AFSCME and Hedge Funds
This highlighted article about Danial Loeb and Third Point Partners gives an overview of AFT efforts (Rhode Island State Investment Commission Invested $50 million in Third Point Partners in late 2011 for the State pension plan.)
We all know how irrational and vicious unions can be especially when they are confused. Here is what they came up with in 2012 and 2013.
Marcia Reback, Ted Siedle and AFSCME
At various points in 2013 Rhode Island and Raimondo were targeted in an organized campaign to attack John Arnold, the Manhattan Institute and Raimondo.
This campaign directly involvedd commission member Marcia Reback, Council 94 and blogger Ted Siedle. Marcia Reback first suggested in April 2013 that the State Investment Commission rid themselves of certain State Investments despite the fact they were the best performing assets. She originally voted for their allocations. But now saw a conflict with her personal views and the hedge fund managers. From April 30, 2013 minutes :
“Ms. Reback expressed concern over three hedge funds whose managers are involved on a personal basis in organizations that she saw as having anti-teacher-union agendas. She asked if the plan could divest of those funds.”
Ted Siedle, a blogger, got tons of union supported air time and made some really valid criticisms in his report after being hired by Council 94 later in 2013 but his lack of financial knowledge and logic made his reports snarky and weak. Matt Taibbi of Rolling Stone complied with the union campaign by further spreading misinformation and lies as well as some truth in his attack called “Looting the Pension Funds.”
Until now no one has taken the time and effort to see how Mr. Siedle's reports and Mrs. Rebacks actions affected the performance of state and teachers’ pension funds across the country and in Rhode Island. After all, presumably Siedle, Reback et al were concerned that the pension funds’ performance was being harmed by the high fees paid to risky and underperforming hedge fund managers who are out to destroy defined benefit pension plans.
One of those “anti-union” funds that Reback and Siedle attacked was Daniel Loeb's Third Point Partners LP. This investment was liquidated from Rhode Island's Pension Fund in February 2014, after then treasurer Raimondo caved to union pressure or as I call it “sold her soul for votes”.
She did this without regard to her fiduciary responsibility. When Raimondo caved to Siedle and AFT, Third Point Partners one year return was +20.82 % and since its inception (December 2011) had earned 21.42% annualized. It was the single best investment since Raimondo implemented her hedge fund portfolio in 2011. Yet she liquidated it. Why?
In its place Ms. Reback, Raimondo et al invested in Luxor Capital. Luxor Capital receives approximately the same fee structure as Third Point Partners did. So it wasn’t the fees. It was political. Surprise! Luxor’s one year return, as of reports released last week, was a negative 16% yes! -16% !! .. Luxor Capital annual return since it replaced Third Point in May 2014 is -13.55%. The pressure of Ms. Reback and AFT caused Rhode Island pension beneficiaries $10 million in losses and the state is locked in until March 2016.
RIP Claren Road April 2013 - October 2015
The State Investment Commission voted to redeem their investment in Claren Road a credit Strategies hedge fund grouped into the category of real return hedge funds. Claren Road's one year returns is negative -15.08% and since being added to the pension fund in April 2013 an annual return of – 5.50%. The Cliff-Water redemption recommendation comes very late and after $4 billion in redemptions had already occurred in this fund before Rhode Island got out. Ms. Reback apparently didn’t have any conflicts with the views of Claren Road's managers despite the high fees as she was first to move to commit $50,000,000 to this investment in April 2013. Total loss $6.6 million. Thanks again Marcia.
My purpose for writing this is twofold. First, our State Investment Commissioners are fiduciaries and cheerleaders second, they have no business pressing political agendas with retiree and taxpayer money. Marcia Reback is not putting the interests of pension beneficiaries first. Second, the State Portfolio is too complex and too expensive and it’s time to simplify without taking more risk. I will be watching very closely to see if the Pensions returns bounce back in October.
Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity, and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC.
Related Slideshow: Timeline - Rhode Island Pension Reform
GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform.
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