4 Things You Need to Know About the Plot to Sell Your Pensions to Wall Street
What your state legislators actually mean when they start throwing around the Orwellian phrase “pension reform."
- “A sinister pall of secrecy”: The report documents “a sinister pall of secrecy” about the pension fund’s new investments in hedge funds – a pall “orchestrated by state officials and aided by key investment services providers.” Siedle reports that “the overwhelming majority of the information … requested for this review (has) been withheld in apparent violation of state law.” As Rolling Stone’s Matt Taibbi and I noted in our recent San Francisco Chronicle report, such secrecy is now the norm in states, as “reformers” have changed the law to prevent retirees from even seeing how much of their money is being handed over to hedge fund billionaires.
- A transfer of retirement income to Wall Street, potentially costing taxpayers big money:The report documents a “staggering, almost 700 percent planned increase in (pension) investment expenses from $11 million to an estimated $70 million—fees paid to Wall Street hedge fund and other alternative managers” who control the so-called “alternative investments” in hedge funds. In total, Siedle estimates that “the projected cost to (the pension fund) of the Treasurer’s $2 billion alternative investments gamble over the next 20 years amounts to in excess of $3 billion.” That’s more than the total savings of the retirement benefit cuts, meaning those cuts aren’t saving taxpayer’s money – they are beingused to finance a new Wall Street handout.
- “Profiting at the expense of the state”:Raimondo came to the Treasurer’s office from a financial firm backed by billionaire hedge funder Paul Tudor Jones. According to the report, “A significant portion of (her) wealth and income relates to shares she owns in two illiquid, opaque venture capital partnerships she formerly managed” at that firm – “one of which she convinced the state (pension fund) to invest in.” Siedle notes that during Raimondo’s time in office running the state’s pension system, the fees Rhode Island is paying to the fund she has an ownership stake in “are significantly higher than the venture capital industry.” As the report concludes, all of this means that “the Treasurer may literally be profiting at the expense of the state.”
- Worse returns that damage the pension fund even further: If all this graft was delivering better returns to the state’s pension system, it might be written off as merely a necessary cost of doing business and protecting taxpayers. But as Siedle documents, at the very moment Raimondo has handed over more retiree money to her hedge fund pals, “The investment performance of the Fund has lagged behind its peers, earning a mere 11.07 percent versus 12.43 percent for the median public-sector pension.” In total, the New York Times notes that for all of Raimondo’s insistence that giving Wall Street more taxpayer cash will generate better returns, neither set of hedge funds she has put state money into beat the returns of simply investing the cash in a simple S&P index fund – one that doesn’t incur massive fees paid to the financial industry that bankrollsRaimondo’s election campaigns.