RI Loses Money on Point Judith Investment, Raimondo Continues to Make Money

Thursday, April 28, 2016

 

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Governor Gina Raimondo

The Rhode Island pension system has lost 1.1 percent of its investment into a venture capital fund that Governor Gina Raimondo helped create -- and while the state has been losing money, Raimondo continues to earn hundreds of thousands in fees. Regardless of the fund's performance, Raimondo and others in the fund earn 2.5 percent annually.

"Gina Raimondo redefines venture capital 'success.' If doing well for yourself is the definition of success, then Raimondo meets and exceeds the benchmark," said former SEC lawyer and Forbes columnist Edward Siedle, who penned a column under the same verbiage on Wednesday for Forbes. 

"As of September 30, the fund performance was .3% positive, which is dismal. I knew we were at the critical moment it would slip into the negative," said Siedle.  "That proved correct with these latest numbers released."

About the Fund

The actual fund named "Point Judith Venture Fund II" raised $74,910,000 in 2006 according to SEC documents. Raimondo owns some substantial interest and continues to derive income from the fund. The State of Rhode Island invested $5 million in 2006, according to State Investment Commission.

According to Rhode Island Financial disclosure forms, Raimondo continues to have ownership in the fund and earns her portion of the management fee. And according to a report released this week by the Rhode Island State Investment Commission, the fund's internal rate of return as of December 31, 2015 is -1.1%.

"Is she a successful venture capitalist?  No," said Siedle.  "Had Rhode Island invested that money in the stock market during that time, they would have gotten close to 7%  T-bills would have even been 1.2%."

 

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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