STUMP » Articles » Public Pensions Watch: Alternative Asset Classes, pt 7 of many, North Carolina » 8 September 2014, 02:07

As I mentioned in the last post, Ted Siedle has been a prominent source for me in learning about alternative assets in public pension portfolios, with a special focus on Rhode Island.

He has been involved beyond Rhode Island, most specifically North Carolina, where one of the public employee unions hired him to do a forensic audit of their pensions

Pension forensic investigator Edward Siedle says North Carolina state Treasurer Janet Cowell has entered into a number of secret Wall Street agreements in which $30 billion of state money is invested — an accusation marking the culmination of his months-long probe into the investment practices of the $87 billion state pension fund.

Siedle presented the findings of his investigation in a 145-page report Tuesday morning at a press conference held at the central office of the State Employees Association in Raleigh. SEANC hired Siedle and his firm, Benchmark Financial Services, in January to examine the fund for fraud, conflicts of interests, undisclosed and excessive Wall Street fees, and other violations of securities laws that date back to Richard Moore’s tenure as state treasurer.

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By not disclosing the $30 billion in deals to the General Assembly and the public, Siedle says that Cowell broke a law passed by the state legislature last year (Senate Bill 558) that mandates full disclosure of all direct and indirect investment management and placement agent fees.

Other principal findings from Siedle’s investigation include:
-Pension losses of $6.8 billion that are the result of Cowell’s “political manipulation of the state pension plan and self-described ‘experiment’ with high-risk alternative funds”
-Estimated Wall Street fees of $1 billion annually, at least half of which were not properly reported to the General Assembly

Btw, that public employee union filed an SEC whistleblower complaint about pay-to-play.

I want to note something about all the politicians involved in these dealings: they’re not from only one political party (unless you want to get cutesy-poo and call it the “Wall Street Party”.) The people calling out the alternative asset shenanigans are not from only one political point of view.

You can call this a convergence of Tea Party and Occupy thinking — politicians and well-connected financial firms getting a wee too cozy with each other.

It stinks no matter the party, because it is a conspiracy against everybody else outside the cozy circle, and everyone on the outside ends up paying for it — whether taxpayers having to see taxes go up or public employees seeing their pensions getting cut (or outright failing).

Back to Ted Siedle on the North Carolina treasurer

Take, for example, Janet Cowell, the North Carolina General Treasurer and sole trustee of the state pension system. Obviously, she is popular enough with voters to get herself elected and in exclusive control of the $90 billion pension despite her lack of investment experience and consistently poor investment decision-making. Her outrageous alternative investment gamble cost the pension at least $1.4 billion in underperformance in the past fiscal year. Prior years under her tenure add billions more in underperformance losses.

My advice is to offer Ms. Cowell, say $1 billion, to leave office. Whatever she does next in her storied career matters little—as long as she keeps her paws off the pension. A billion may seem like a lot of money but the strategy will save pension stakeholders exponentially more in the coming years.

Bite the bullet, Tar Heelers, give her the billion dollars she so clearly doesn’t deserve. You’ll still come out billions ahead.

And here is what David Sirota has had to say about the NC Treasurer and the pension funds

And yet, as the demands for transparency grow louder, a potentially precedent-setting push for even more secrecy is emerging. Pando has learned that legislators in North Carolina — whose $86 billion public pension fund is the 7th largest in America – are proposing to statutorily bar the public from seeing details of the state’s Wall Street transactions for at least a decade. That time frame is significant: according to experts, it would conceal the terms of the investment agreements for longer than the statute of limitations of various securities laws.

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If the North Carolina Retirement System and its sole trustee, Treasurer Janet Cowell (D), seem familiar to tech readers, that is because the NC system is one of the lead plaintiffs in the class action suit surrounding Facebook’s initial public offering. Additionally, as part of her career in the financial sector, Cowell was the marketing director for the tech-focused VC firm, SJF Ventures.

Like other states, North Carolina has been redacting and/or refusing to release the contractual terms of its pension fund’s massive Wall Street investments, even though the contracts involve public money and a public agency. In recent months, that practice exploded into a full-fledged political scandal when the State Employees Association of North Carolina released a 147-page report from former SEC investigator Ted Siedle.

The report asserted that under Cowell, up to $30 billion of state money is now being managed by high-risk, high-fee Wall Street firms, and that the state could soon be paying $1 billion a year in fees to those firms. The report also noted that the investment strategy “has underperformed the average public plan by $6.8 billion” and it alleged that Cowell has misled the public about how where exactly she is investing taxpayer dollars. The union has called for a federal investigation, while Cowell has publicly denied the allegations.

Following the report, (SEANC) is now pushing the legislature to adopt a simple two-page bill that would force the Treasurer to open up the state’s books so that taxpayers and public employees can at least see how their money is being invested. In response, Cowell sprung into action against the transparency initiative and on behalf of the financial and securities industries that have given her election campaign committee more than $250,000 since 2008.

Read the whole thing. It is substantial.

It will be interesting to see how all of these private equity/hedge fund complaints to the SEC will end up, given that the politicians being targeted in these specific whistleblower cases are Democrats. And there is fundraising that “needs” to be done! How can we hit at our big donors!

And as mentioned before, don’t think it’s only Democrats who are buddy-buddy with the hedge funds — plenty of money sloshing around for all sorts of politicians.