11 January 2016

No, the FBI Won't Investigate Questionable Pension Fund Deals

It appears that pensioners have finally begun to realize private equity and its ilk are robbing their funds blind while underperforming the market, but I predict that their calls for an investigation of private equity and hedge fund  practices will go largely unanswered:
Diane Bucci and her fellow retired Rhode Island schoolteachers were angry about a deal last year to cut their promised retirement benefits. For 28 years, the elementary school teacher devoted between 7 and 9 percent of her paycheck to the state’s pension system. In return, the 72-year-old had been promised a consistent cost-of-living increase to make sure her retirement stipend kept pace with inflation. Now, though, state officials were trimming her check in the name of replenishing the depleted pension fund.

There was, however, a sliver of hope — or so it seemed: If the pension system could generate better investment returns and amass 80 percent of the money needed to pay current and future retirees, the annual cost-of-living increases would return.

“There was a lot of unrest and anger among teachers, but at that point we buckled down and focused on how we could get to solvency,” said Bucci, who is on the board of the 700-member Rhode Island Retired Teachers Association. “So even though we aren’t Wall Street experts, we just started to ask questions about how the pension fund was managed, and what it was invested in. That’s when we realized the fees we’ve been paying to the investment companies were the problem.”

Those levies — which hit $79 million last year — were the product of the state’s recent investment strategy. Following a controversial national trend, Rhode Island pension officials led by then-General Treasurer Gina Raimondo shifted roughly a quarter of the state’s pension portfolio into high-fee hedge funds, private equity firms and other so-called “alternative investments.”

The shift by Raimondo, a Democrat who is now governor, has generated big revenues for Wall Street firms, but only middling returns for a $7.6 billion pension fund on which more than 58,000 current and future retirees rely.

When Bucci and the members of her organization began asking questions about those results, they learned of a federal review showing that roughly half of all private equity firms are charging hidden fees, and they saw a hedge fund industry whose returns have failed to keep pace with the stock market. When they dug deeper, they stumbled onto an even more disturbing revelation. What they found, they say, is evidence that some investors can obtain special rights that may let them secretly siphon money from the state pensioners’ retirement savings.

The retirees are now petitioning federal law enforcement officials to investigate whether the widely used provisions are violating laws designed to make sure all investors are treated fairly. In a letter sent last month to the Securities and Exchange Commission and the FBI, the retirees’ adviser — former SEC investigator Edward Siedle — pointed out that some of the firms managing Rhode Island pension money claim the right to offer different fee rates, inside information and cash-out rights to some investors but not to others.
Raimondo f%$#ed her pension fund, and she did so knowingly, both because they are "people like her" (Ivy league graduates) who are supposed to be "exceptional", and because she knows that this behavior gets her a 7 figure payday at the end of the rainbow.

It's corrupt tribalism, and it's harming our country.


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