Who Exactly Are Rhode Island Retirement Fund’s Partners?
Tuesday, October 12, 2021
Efforts mounting to force disclosure of the limited partners in private equity funds RI's pension fund has invested in.
Nearly 11% of the fund is invested in private equity funds and while the names of those funds are disclosed, who the investors are in those funds -- the limited partners -- is a secret.
As of September, the pension fund now has a balance of $10.42 billion. And, approximately $1 billion of those funds have been invested by Rhode General Treasurer Seth Magaziner and the ERSRI board in private equity.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTNow, a Washington, D.C. law firm is seeking to unveil who are the investors in these funds.
Who Are the Pension Fund's Partners?
The pension fund has invested in more than 100 funds and those funds have multiple limited partners (LPs) who have invested in those funds.
According to the audit report of ERSRI, "These 104 limited partnership funds provide the portfolio exposure to private companies through equity and/or debt investments. Private equity fund managers invest in private companies with the goal of enhancing their value over the long-term."
"The fair values of the investments in this type have been determined using the NAV per share of the investments as reported by the general partner at June 30, 2020. Private equity – the investments cannot be redeemed. The nature of these investments provides for distributions through the liquidation of the underlying assets or net operating cash flows," states the report.
What's Not Transparent? Who These LPs Are
"Since my first forensic investigation of the pension in 2013 of behalf of AFSCME Rhode Island Council 94 and later in connection with our crowdfunded investigations in 2015 and 2016, General Treasurer Gina Raimondo and then Seth Magaziner have steadfastly refused to disclose to the public documents related to 'private,' i.e., secret alternative investments," said Ted Siedle, of one America's most successful whistleblowers.
"The SEC has warned investors that the majority of these high-cost, high-risk investments charge bogus fees. Rhode Island pension stakeholders deserve to know how their money is being invested. Public pensions should be the most transparent pensions of all. When denied documents in the past by Raimondo and Magaziner, I took no legal action due to the costs. Now I have a legal team that's prepared to sue for the records, restoring transparency as well as exposing whether Magaziner has been diligently investing the assets," said Siedle.
Andrew Engel, Director of Litigation at the Washington, D.C. law firm Advocate Attorneys LLP, has filed a comprehensive Access to Public Records Act request with ERSRI on behalf of Siedle.
Private equity claims that disclosing the LPs would be giving up confidential information. The Tax Justice Network writes, "For decades, private equity (PE) firms have asserted that limited partnership agreements (LPAs), the contracts between themselves and investors, should be treated in their entirety as trade secrets, and therefore not subject to disclosure under Freedom of Information Act laws in any jurisdiction. These private equity general partners argued that the information in their contracts was so sensitive that it needed to be shielded from competitors’ eyes, otherwise their unique, critically important know-how would be appropriated and used against them.”
"Claiming this statement is a trade secret is analogous to the U.S. Navy claiming classified status for the fact that it operates ships on oceans,” it adds.
SEE THE APRA REQUEST BELOW
Magaziner Then, Magaziner Now
Previously, Magaziner sought greater transparency for private equity funds as it relates to fees and disclosure, but now he is refusing to answer questions about disclosure of LPs.
In 2015, Magaziner was a member of a coalition of State and City Treasurers and Comptrollers sent a letter to Securities and Exchange Commission (SEC) Chairwoman Mary Jo White asking the Commission to adopt new rules requiring greater transparency from private equity managers when disclosing fees and expenses to limited partners.
Magaziner said in 2015, “As fiduciaries of public funds, we must have the information necessary to give us confidence that we are not being improperly overcharged by our private equity managers. Strong national standards for private equity fee and expense disclosure are in the best interest of workers, retirees and taxpayers in Rhode Island and nationally.”
This issue track back years and even prior to Magaziner's term as Treasurer.
In 2013, Common Cause Rhode Island, the state’s chapter of the American Civil Liberties Union, the Rhode Island Press Association, and the League of Women Voters of Rhode Island iissued a letter to then-Treasurer Gina Raimondo voicing their concerns regarding that office's policy of withholding hedge-fund records.
Magaziner refused to respond to questions about disclosure of limited partners for this article.
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