NORTH PROVIDENCE ‚ÄĒ Rhode Island‚Äôs much-vaunted pension reform law amounts to a ‚ÄúWall Street wealth transfer scheme‚ÄĚ that General Treasurer Gina Raimondo knowingly participated in, according to the author of a report commissioned by the state‚Äôs largest public employee union and written by an acknowledged foe of hedge funds who has feuded with Raimondo for much of this year.
‚ÄúDollar for dollar, workers‚Äô retirement savings are going to hedge fund billionaires; there is no pension reform going on here,‚ÄĚ asserted the report‚Äôs author, Ted Siedle, president of Benchmark Financial Services, and a blogger for the Forbes magazine website.
The 104-page report, titled ‚ÄúRhode Island Public Pension Reform: Wall Street‚Äôs License to Steal,‚ÄĚ attacks the treasurer professionally and personally, lambasting her for alleged conflicts of interest and refusing to disclose information about the pension fund‚Äôs investments and who benefits financially from them. It was issued Thursday at the headquarters of Council 94 AFSCME. The full report can be downloaded at www.ricouncil94.org.
A written statement from Raimondo spokeswoman Joy Fox blasts the report as ‚Äúclearly another political propaganda piece aimed at discrediting the treasurer and the state‚Äôs pension reforms.
‚ÄúThe biggest innuendo,‚ÄĚ Fox added, ‚Äúis the false accusation that the treasurer is using her position to enrich herself or that the state pension fund is not well-managed. These false personal and political attacks are red herrings intended to undermine pension reform.
‚ÄúThe hypocrisy of this political attack is overwhelming,‚ÄĚ Fox continued. ‚ÄúThe City of Providence, the state‚Äôs second largest public pension fund, has also suspended cost-of-living-adjustments, has a higher percentage of its pension fund invested in hedge funds and publishes less information than the state about the fees, investment portfolio, and investment commission actions.
‚ÄúDespite all this, Ted Siedle is not being paid tens of thousands of dollars to criticize the City of Providence‚Äôs fund. The reason for this is clear: this isn‚Äôt about investment strategies, it‚Äôs about attacking the treasurer and pension reform.‚ÄĚ
‚ÄúIt is time to stop using pensions as a political football and instead put the best interests of our valuable state employees and teachers first,‚ÄĚ she said. ‚ÄúThe political temptation is to go backwards, but let‚Äôs move forward to avoid hurting people, just as they were hurt in Central Falls when pension checks were cut in half.‚ÄĚ
Fox said it is important to remember that:
‚ÄĘ The treasurer fought to always keep a defined benefit pension, and always respected collective bargaining.
‚ÄĘ Reform passed overwhelmingly in a Democrat-controlled General Assembly.
‚ÄĘ All but one vote to approve the hedge funds were unanimous. The only vote to approve hedge funds that was not unanimous was due to one abstention ‚ÄĒ ‚Äúagain, showing strong SIC support to execute this investment strategy.‚ÄĚ
The ‚Äúlicenses to steal,‚ÄĚ Siedle told a roomful of reporters, are ‚Äúsecret deals‚ÄĚ that Raimondo has entered into with ‚Äúhedge fund major investors, allowing them to profit at the expense of the state pension fund.‚ÄĚ
Siedle and Council 94 President J. Michael Downey said AFSCME will ask the U.S. Securities and Exchange Commission for a formal investigation into the report‚Äôs charges.
Among the things they want investigated, Siedle said, are, ‚ÄúWho are these mystery investors who are being allowed to profit off the state pension fund and are they in any way connected to public officials?‚ÄĚ
The report cites ‚Äúa sinister pall of secrecy regarding fundamental investment information related to the (pension fund) such as the level of investment advisory, performance and other fees paid for money management, the risks related to hedge, private equity and venture capital strategies‚ÄĚ that Siedle claims made this ‚Äúone of the most difficult investigations I have done.‚ÄĚ
The report opens with the provocative statement that: ‚ÄúTwo years ago, Rhode Island‚Äôs state pension fund fell victim to a Wall Street coup. It happened when Gina Raimondo, a venture capital manager with an uncertain investment track record of only a few years ‚Ä¶ got herself elected as the General Treasurer of the State of Rhode Island with the financial backing of out-of-state hedge fund managers.‚ÄĚ
The major bone of contention the unions have with the pension reform law passed in 2011 is that it eliminates annual cost of living adjustments (COLA) until various state pension funds reach an 80 percent level of funding. Several public employee unions challenged the law in court, and now the unions, Raimondo and the Chafee administration are engaged in mediation in an effort to resolve the dispute.
With fees and other expenses paid to hedge fund and other alternative managers now estimated at $70 million annually, the report states, a lagging investment performance by the fund and plans to lower for the second time the estimated rate of return for the fund, ‚Äúthe likelihood that any meaningful COLA will ever be paid in the future under the new statutory scheme is remote ‚Äď a fact which has not been shared with workers and retirees.‚ÄĚ
The report says that the projected cost to the fund of Raimondo‚Äôs ‚Äú$2 billion alternative investment gamble‚ÄĚ over the next 20 years could be ‚Äúin excess of $3 billion and far exceeds the COLA savings the treasurer has projected ‚Äď another inconvenient truth that, to date, has been withheld from the public.‚ÄĚ
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