On the cover of the January 2013, Institutional Investor magazine that gratuitously appeared in my mailbox was a picture of the svelte figure of Rhode Island General Treasurer Gina Raimondo , perched like an underfed raven in black attire on bleached Capitol steps. Raimondo, heralded Institutional Investor, was “solving the nation’s retirement dilemma.” “Gina Raimondo shows how tough pension reforms can pay fiscal and political dividends.” The edition included a seemingly in-depth, yet fanciful meandering tale about Raimondo’s humble origins and charmed ascent to political power, “a venture-capitalist-turned-political-rising-star.” I was so blown away by the significant omissions and half-truths in the article that I felt compelled to politely call the reporter, whom I knew, for some answers.
On the cover of the January 2013, Institutional Investor magazine that gratuitously appeared in my mailbox was a picture of the svelte figure of Rhode Island General Treasurer Gina Raimondo, perched like an underfed raven in black attire on bleached Capitol steps. Raimondo, heralded Institutional Investor, was “solving the nation’s retirement dilemma.”
“Gina Raimondo shows how tough pension reforms can pay fiscal and political dividends.”
The edition included a seemingly in-depth, yet fanciful meandering tale about Raimondo’s humble origins and charmed ascent to political power, “a venture-capitalist-turned-political-rising-star.” I was so blown away by the significant omissions and half-truths in the article that I felt compelled to politely call the reporter, whom I knew, for some answers.
The glossy ($499 a year subscription) magazine, which claims to offer essential reading for the world’s leading financiers, corporate executives and government officials, might more aptly be named Institutional Money Manager in my opinion.
English: Rhode Island’s state house at sunset. (Photo credit: Wikipedia)
While the trade publication is highly regarded within the asset management industry, Institutional Investor is well-known to those of us in the business to be all about glorifying and promoting active stock-picking asset managers. Only industry outsiders, like the unsuspecting investing public, could believe it offers unbiased critiques of Wall Street.
As writer Julie Segal candidly confessed in her September 18, 2013 article, Beating the Market Has Become Nearly Impossible, “writing alpha’s obituary” (i.e., that institutional asset managers rarely beat the market) is “not good when your job is writing for a publication named Institutional Investor.”
The glowing article about Raimondo tellingly did not mention the investment performance track record of this small-time venture capitalist that succeeded in getting herself elected as state Treasurer and chief fiduciary of the $8 billion pension after only a few years of dabbling in the venture biz.
Surely, I reckoned, whether she was adept at managing institutional portfolios was more important than knowing she grew up in a middle class Italian-American family, got good grades and was valedictorian of her high school class. There was no clue about her investment capabilities in the 2013 article.
(To this day, no one knows for certain how the venture funds Raimondo formerly managed and sold to the state and city of Providence pensions have performed. She and her former employer refuse to disclose this key information claiming it is proprietary.)
As a seasoned forensic investigator, I knew that successful money managers shout about their performance and assets under management from the rooftops. They won’t shut up. I wasn’t sure Raimondo’s stats outright stunk but the secrecy surrounding them was a significant “red flag” to me—as was the fact that, up to that point in time, apparently no one had even bothered to ask.
I had more unanswered questions.
How was this political newbie able to raise four times more than her Republican rival in 2010 for her campaign? How much of the money came from out-of-state Wall Street donors?
Was it true that there was no history of regulatory concern regarding “pay to play” or corruption at the state pension? I had reason to believe otherwise.
Why did the Truth in Numbers report she miraculously pulled out of her hat after only months on the job fail to mention that the proposed cuts to workers’ benefits would be used to pay skyrocketing fees to Wall Street hedge funds she would hire? Why was there not a single mention of the escalating investment costs?
Who were the undisclosed investment firms backing Engage Rhode Island, a tax-exempt political organization that reportedly raised close to $1 million in support of Raimondo’s so-called pension reform?
How likely was it that loading up on high-cost, risky opaque investments would reduce risk and produce sustained outperformance? Not very—just ask Warren Buffett. He very publicly bet $1 million they wouldn’t. Why wasn’t anyone challenging Raimondo’s absurd gamble they would.
The local newspaper, the Providence Journal, like II, adored Raimondo. While the tiny state of Rhode Island has had more than its fair share of political corruption, no investigative journalist had focused upon her pension shenanigans. To be fair, the ProJo was the first to publish Raimondo’s recipe for meatloaf.
The reality behind the Raimondo fairy tale was so obvious to me that I hastily penned an article in Forbes called Rhode Island Public Pension ‘Reform’ Looks More Like Wall Street Feeding Frenzy, telling a very different story.
“A look behind the curtain reveals her changes to the investment portfolio of the $7 billion Employee Retirement System of the State of Rhode Island will inevitably dramatically increase both risk and fees paid to alternative investment managers, such as hedge funds and private equity firms.
There’s no prudent, disciplined investment program at work here—just a blatant Wall Street gorging, while simultaneously pruning state workers’ pension benefits. It’s no surprise that some of Wall Street’s wildest gamblers have backed her so-called pension reform efforts in the state legislature.”
Thousands of readers read the article and many asked, why hadn’t this story been reported? Why did it take a mere blogger from Forbes (as Raimondo referred to me) to expose the pension subterfuge? Clearly, there was another side of the story to be told and no one had told it before.
I was stunned when the Treasurer hastily responded to my initial article embarrassingly admitting she didn’t know the amount of fees the pension paid to Wall Street. (Pension fiduciaries are supposed to keep track of little details like that.)
GOLOCAL Prov, an on-line intensely local media upstart, immediately seized the opportunity to write about the emerging pension controversy the local major media (Providence Journal) had ignored.
My first article was quickly followed by another on Forbes posing 22 questions for the Treasurer to answer about the pension (which she still hasn’t) and prompting Raimondo to admit, among other things, that fees had grown from $11 million to $70 million; the pension indeed had a history of “pay to play,” and to change the pension’s financial disclosures and reporting.
Thankfully, in September 2013, an unconventional voice from an unexpected media source came to the rescue. Matt Taibbi of Rolling Stone came storming in with a scathing article called Looting the Pension Funds revealing the broader motives behind Raimondo’s deceptive pension reform.
“What few people knew at the time was that Raimondo’s “tool kit” wasn’t just meant for local consumption. The dynamic young Rhodes scholar was allowing her state to be used as a test case for the rest of the country, at the behest of powerful out-of-state financiers with dreams of pushing pension reform down the throats of taxpayers and public workers from coast to coast. One of her key supporters was billionaire former Enron executive John Arnold – a dickishly ubiquitous young right-wing kingmaker with clear designs on becoming the next generation’s Koch brothers, and who for years had been funding a nationwide campaign to slash benefits for public workers.
Nor did anyone know that part of Raimondo’s strategy for saving money involved handing more than $1 billion – 14 percent of the state fund – to hedge funds, including a trio of well-known New York-based funds: Dan Loeb’s Third Point Capital was given $66 million, Ken Garschina’s Mason Capital got $64 million and $70 million went to Paul Singer’s Elliott Management. The funds now stood collectively to be paid tens of millions in fees every single year by the already overburdened taxpayers of her ostensibly flat-broke state. Felicitously, Loeb, Garschina and Singer serve on the board of the Manhattan Institute, a prominent conservative think tank with a history of supporting benefit-slashing reforms. The institute named Raimondo its 2011 “Urban Innovator” of the year.
The state’s workers, in other words, were being forced to subsidize their own political disenfranchisement, coughing up at least $200 million to members of a group that had supported anti-labor laws.”
In a colorful one-liner that says it all Taibbi wrote, “This is the third act in an improbable triple-f-ing (expletive deleted) of ordinary people that Wall Street is seeking to pull off as a shocker epilogue to the crisis era.”
To this day, our challenges to the Treasurer remain etched in Rhode Island history. The Treasurer maintains on her official state website her rebuttals of the findings of my investigation into the state pension and Taibbi’s Rolling Stone article, reminding Rhode Islanders of the ugly fight for disclosure.
Adding her shoulder to the cause, in October, Gretchen Morgenson of the New York Times– arguably the nation’s most credible financial reporter, in How to Pay Millions and Lag the Market, slammed Raimondo for paying hedge funds millions to lag the market.
In summary, believe what you want about the Rhode Island Treasurer—pension reformer or Wall Street darling.
It’s reassuring that the side of the Raimondo story Wall Street didn’t want told– the hidden agenda– got out to the public, albeit in an unexpected manner. While major media is in turmoil these days and particularly lacking in its reporting of pension and complex investment matters, it seems there are enough unconventional media sources to ensure the truth gets told.
Article originally posted in Forbes website.