Riley: AFSCME, Ted Siedle and Marcia Reback Hurt Rhode Island Retirees
Tuesday, November 03, 2015
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.
AFT, 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.
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.
Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:
1. An established minimum retirment age of 59 for all state and municipal employees.
2. Elimination of cost-of-living increases.
3. Conversion of new hires into a 401(k) style plan.
See WPRI's coverage of Carcieri's proposal here.
Rhode Island increased mandatory employee contributions for new and current employees. New Mexico was the only other state to mandate current employees to increase their contributions.
Read the NCSL report here
(Photo: FutUndBeidl, Flickr)
Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.
"This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo
Check out Wall Street Journal's coverage here.
Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot.
Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.
Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.
Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.
"Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)
Read GoLocalProv's analysis of the report here.
Read the Truth in Numbers report here.
Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.
“Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee
Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.
“You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)
Read more from the firefighters' battle with Raimondo here.
Check out the New York Times' take on RI's pension crisis here.
November 17, 2011
The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.
Read more from GoLocalProv here.
November 18, 2011
Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.
Read about how Rhode Islanders react to RIRSA here.
Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms. The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.
Read about the pension workshop here.
Read Raimondo's feature in Institutional Investor here.
March - April 2012
Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.
December 5, 2012
Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package. In response, Chafee issues a statement supporting the negotiations.
Read more about Raimondo's opposition here.
Read about Chafee's statement http://www.golocalprov.com/news/new-chafee-issues-statement-supporting-pension-negotiations/">here.
Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.
Read about Raimondo's discussion of distressed municipalities here.
The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.
"In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)
Read GoLocalProv's coverage of the State Pension Fund's losses here.
Read Ted Seidle's criticism of Raimondo in Forbes.
Reports show that the State’s retirement system increased in 2013 by $20 million despite the reforms being put into effect the previous year.
Read GoLocalProv's investigation into the rising pension costs here.
Matt Taibbi publishes an article in Rolling Stone detailing Raimondo’s use of hedge funds as a questionably ethical tool to aid with pension reform.
Read Taibbi's article in Rolling Stone.
Read GoLocalProv's response to Taibbi here.
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