Guest MINDSETTER™ Tom Sgouros: What Kind of Job is General Treasurer?

Tuesday, July 29, 2014

Guest MINDSETTER™ Tom Sgouros

 

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Tom Sgouros

Mike Riley has strong opinions about the state Treasurer's race, though in his column, he seems most interested in asserting that he knows more about finance than anyone else around. Maybe it's even true, who knows? But if the goal is to impress the rest of us, it's probably worth trying a tiny bit harder to avoid the boners that undercut one's reputation for having the facts.

I learned from Riley's article and slide show, for example, that Frank Caprio was Treasurer for seven years. Presumably this would have been before four-year terms became the norm. In reality, Caprio served just one term of four years and has been a manager at Chatham Capital, a finance firm, starting in 2011, after he was Treasurer. He had worked in corporate law before then, doing deals of one kind or another, but had no financial management experience before becoming Treasurer in 2007. I don't hold that against him, though, and he had been chair of the Finance Committee for two years when he was in the state Senate, which is a relatively important policy job. He was a leader there in expanding funds for affordable housing, and for cutting the capital gains tax, a component of the income tax mainly paid by the very rich.

Seth Magaziner, on the other hand, was an actual financial manager at an actual financial management company, called Trillium, for about twice as much time as Riley says, four years in total. Inquiries to Trillium produced a statement from the company that doesn't imply that being a VP and member of the investment committee was a lark, as Riley implies. Magaziner was responsible for a $100 million portfolio of banking and energy securities, and appears to have done well with it.

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Which also brings up the question of financial performance that Riley is so keen on. So what about it? Was the performance of the state's investments so thrilling under Caprio's keen eye?  Well, maybe.

As General Treasurer, Frank Caprio was a very conservative investor and had the luck to be in office during a period when being a very conservative investor was a very smart thing to be. Of course he was also treasurer during a period when it wasn't that smart to be so conservative, and the results suffered accordingly. That is, in 2007, being conservative put the performance of RI's pension fund nicely ahead of the median of comparable pension funds around the country (using data from the Wilshire group) but in 2009 and 2010, it was considerably behind. (In 2008 everyone lost a ton of money, RI's fund a little more than the median, but barely enough to matter.) Though it is perhaps correct to claim that the RI pension fund's performance beat some theoretical benchmarks over that period, it was also beaten by the actual performance of more than half of similar peer funds in three of four years of Caprio's term. For a multi-billion dollar fund, the difference between our performance and the median is a lot of money, at least two to three hundred million dollars.

Riley also has a lot of kind words for Ernie Almonte, the independent in the race. Almonte is an accountant, and was the auditor for the legislature for many years. By all accounts, Almonte is thorough and honest, but let's be clear. Reconciling state accounts is not the same as making good financial policy, even if they both have to do with money. Asserting that an accountant would make a good treasurer is a lot like claiming that the guy in charge of the engine room knows a lot about ships, so we should trust him to steer. Of course there are engineers who have managed to become captains of ships, but did any of them claim a knowledge of engine gaskets qualified them to handle dirty weather?

It's worth considering exactly what each candidate has been up to over the past few years. Almonte was running for Governor, until he decided that Treasurer was more easily attainable. Caprio worked for Chatham Capital, corporate financiers who are a source of "mezzanine" funds. This is money loaned, in fairly big chunks, usually for expansion or acquisitions. Chatham was involved when Mood Media purchased Muzak and when Crimzon Rose, the RI-based jewelry company, purchased Erica Lyons.

During that same period, Magaziner was at Trillium, a socially-responsible investment firm that tries to do well by its investors at the same time it avoids investments in military contractors, firearms, nuclear power, and gambling, among other criteria. Despite its restrictions (or maybe because of them), Trillium posts better-than-respectable returns, and Magaziner also found opportunities through that work to try to rein in big banks like Citibank and to offer testimony to the CFPB in Washington against the payday lenders who charge outrageous rates of interest for short-term loans.

This is the kind of activism that Rhode Island deserves in a Treasurer- someone who will look out for both the financial interests of the state and its citizens, who will invest the state's assets wisely, where that means not only to maximize the return, but to maximize the benefit to our state, in all ways. We have come to think of finance as a world of people only out for themselves, but funds like Trillium and people like Magaziner show that much more than that is possible. That's who I want as Treasurer.  

 

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