INVESTIGATION: Raimondo Investment Program's Fees Exceed Gains
GoLocalProv
INVESTIGATION: Raimondo Investment Program's Fees Exceed Gains
Known as the Ocean State Investment Pool, the program was launched in the spring of 2012. Two years later, just three municipalities have signed up: Bristol, Cranston, and Lincoln. The remaining six governmental members are all state entities and include the state pension fund and the Rhode Island Student Loan Authority, for which the treasurer is a board member. Money from the state general fund also accounts for more than half of the assets in the fund.
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Half of interest income went to bank fees
The investment pool is being run by Pyramis Global Advisors, LLC, a company owned by Fidelity Investments. The firm was paid a fee of $757,701 for fiscal year 2013 to manage what was by the end of the year $545.1 million in assets, according to the annual report for that year. After the fee, the pool generated a net investment income of $698,263, according to the report. (The pool earned a total of $1,450,050 in interest income that year.)
For the first three months of the pool’s existence—from March to June 2012—Fidelity Investments fetched a fee of $199,690, almost as much as the $448,680 in interest earned by the pool, according to the last annual report.
In November 2011, the Treasurer’s office announced that Fidelity Investments had been awarded the contract as the vendor for the pool. GoLocalProv has previously reported that Raimondo’s now-former chief of staff, Joseph Pratt, was a former official at Fidelity Investments. He left his position with her office in January 2014 a month after Raimondo announced her run for Governor. (Pratt’s new job is with the Boys and Girls Clubs of Newport County.)
Fidelity Investment employees also account for $4,400 in contributions to Raimondo’s campaign account, most of that coming before her current run for Governor.
Smaller fund is more expensive to manage
Pyramis’ fee ranges from .138 percent to .148 percent of the average net assets. The rates for the fiscal years 2012 and 2013 were on the higher end of that range, at .147 and .148 percent, respectively. The rates decrease as assets increase, meaning that the more money that’s in the pool, the lower the cost.
So far most of the money in the pool is coming from state, not municipal sources.
The bulk of the money in what was a $545.1 million at the end of the last fiscal year was from the state: $300.5 million from the state government and $200.2 million from the state pension fund. Most of the remaining funds are split among the University of Rhode Island, the Narragansett Bay Commission, the Rhode Island Health and Educational Building Corporation, and the Rhode Island Student Loan Authority.
3 out of 39 communities in fund
Of the three towns that have invested with the pool, Bristol has chipped in the most, with $1.7 million, followed by Cranston at about $1 million. The town of Lincoln has less than half that, with about $480,000. For the month of June 2013, those investments paid a combined total of $260.87 in dividends, according to documents provided in response to a public records request.
The investment pool exceeded returns by .06 percentage points in 2013, according to the annual report. (The annualized return on investments that year was .14 percent.)
When asked why more cities and towns haven’t signed up, Peder Schaeffer, the associate director of the Rhode Island League of Cities and Towns, suggested that the program isn’t meeting any needs for cities and towns. “Interest rates are so low, it doesn’t make any difference, Schaeffer said.
“It could make a difference in a high interest environment,” he added.
But Tom Sgouros, a progressive blogger and policy expert, faults the treasurer’s office for failing to convince cities and towns to sign up. The issue, he suggested, is her team is more experienced in finance than policy.
“A big pool, well-managed, gets better rates than a little pool; that’s the way the money market crumbles. But it has to be enough bigger to make a difference, and getting to that threshold involves getting over the suspicion that the state inspires in town halls around here. If you can’t do that, then it won’t be bigger enough to make a difference and no one will see the need,” he wrote in an e-mail.
A spokeswoman for the treasurer’s office expressed confidence that the program would attract new cities and towns. “The Ocean State Investment Pool is a fairly new program that has been successful and we expect that as market conditions and municipalities’ needs evolve over time, we will see even better program growth,” said Ashley Gingerella O’Shea.
Some finance directors know little about fund
GoLocalProv reached out to several cities and towns, asking why they had not signed up.
Answers varied. In Warwick, a city official said the investment pool does not meet all the city’s criteria for its liquid investments. William DePasquale, the acting chief of staff for Mayor Scott Avedisian, said that after the 2008 recession the city had a adopted a policy of only making liquid investments that were FDIC-backed. For that reason, he said the investment pool was not considered by the city.
In Narragansett, the new finance director, Laura Kenyon, said she wasn’t sure why the town hadn’t joined. “I don’t know why we haven’t joined and I just got started,” Kenyon said. Six months into her new job, she said she is focused on finishing the budget for the upcoming fiscal year and going through the audit for the previous fiscal year. She said the investment pool is on her “list of things to look at.”
At least one municipal finance director hadn’t even heard of the Ocean State Investment Pool.
“First I’m hearing of it—thanks for letting me know, said Robert Thibeault, who became finance director in Coventry in November 2013. He said he would “definitely” call the treasurer’s office to find out more. But when asked if he thought his town might enter the pool, he was non-committal: “We’d have to look at the specifics.”
In Cumberland, Finance Director Brian Silvia had heard of the investment pool. “I really don’t know much about it now,” he added. He said the treasurer’s office had not reached out to him about the program.
10 Questions Gina Raimondo Has to Answer When Running for Governor
10. Money
Can she explain the amount of out of state money?
Most of the candidates for Governor need to answer the question, can they raise enough to be competitive? That is not a problem for Raimondo. She has proven to be the most skilled fundraiser, but her issue is justifying that the vast majority of the money is coming from out-of-state.
Raimondo will face a number of questions regarding who is really behind her campaign - the amount of out-of-state dollars is just one of the questions.
9. Pension Reform
Did she only reform certain pensions?
Raimondo rose to celebrity status because of her leadership on pension reform. Her efforts helped to stabilize the pension system, but the reform was hardly democratic.
Teachers took the vast majority of the hit, while major groups of pensioners escaped reform including the judges, state police and disability pensioners. Raimondo has some explaining to do.
8. Lack of Transparency
If she lacks transparency as Treasurer, what will it be like as Governor?
From her deepest critics to the media and even members of the retirement board, many have questioned her and her office's willingness to share information and provide the public insights into her management of the investment commission and the performance of the fund under her leadership.
Data which historically was easily accessed by the public and media is now locked behind the Raimondo wall. Often this raises serious questions and forces the media to seek the simplest information via FOIA requests.
7. Wall Street
Why is Wall Street spending so much money supporting Raimondo?
Raimondo is the queen of fundraising and so much of it derives from the major players on Wall Street.
6. Performance
Has Raimondo managed the pension fund competently?
The most important job of the General Treasurer might be the management of the state's retirement fund. The blockbuster investigative piece by Stephen Beale unveiled that the pension system under Raimondo lost $200 million.
While she may be able to blitz the airwaves with positive messages about her bio and her leadership in pension reform, her Democratic primary competitors and/or her GOP opponent in the General Election may be able to destroy her credibility by playing up her "mismanagement of the pension system."
5. Hedge Funds
Will Raimondo pay the price for shifting so much of the assets into Hedge Funds?
For the past six months, Raimondo has been under constant critique for shifting more than 20% of the State's retirement dollars into unregulated Hedge Funds. The critics has included forensic auditor/Forbes contributor Ted Siedle, Rolling Stones magazine's star reporter Matt Taibbi, former General Treasurer and candidate again, Frank Caprio, as well as many of the public unions. The combination of where she gets her campaign dollars, coupled with the shift in investment strategy and the under performance of the fund may all build into a snowball effect.
4. Connect to RIers
Educated at Yale and Harvard, a Rhode Scholar and a millionaire, can she connect to the average RIer?
Raimondo is a born and bred Rhode Islander, but for her adult life she has been educated at the best colleges in the world and living a professional life aligned with many of America's super rich associated with Wall Street. In her announcement she mentioned a number of times she was a mother, but did not mention that her husband is a partner at Mckinsey - and according to Forbes magazine probably takes home $2 million or so per year.
Raimondo talks a lot about her father losing his job when she was a child, but she has come a long way since then. She could come across as the ultimate RI success story or be perceived as an out of touch venture capitalist.
3. Siedle and Taibbi
Neither Ted Siedle or Matt Taibbi are going away - can she deflect their questions and charges?
In the past two months, both forensic auditor/Forbes columnist Ted Siedle and Rolling Stone's star reporter Matt Taibbi have raised serious issues about Raimondo's motivation and judgment.
As Taibbi wrote, "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."
Read more: http://www.rollingstone.com/politics/news/looting-the-pension-funds-20130926#ixzz2o2bLhqKW
2. Is she a Democrat?
Will Taveras and Pell paint her to be too conservative?
Raimondo is simply hated by the teachers unions and others - big blocks of voters in the Democratic primary. Both Clay Pell and Providence Mayor Angel Taveras will tack to the left and may compete for the same voters allowing her to sneak through to the general. However, progressives and unions may decide to pick Pell over Taveras (who is struggling to raise money and whose track record in Providence may come under fire) and then Pell can take the left leaning primary.
1. SEC Investigation
Can Raimondo survive an SEC investigation?
Both Siedle and a state senator have written to the SEC calling for an investigation into the investment practices of Raimondo. A federal investigation would be at a minimum a black eye to the General Treasurer and an enforcement action might end a credible campaign. Timing may prove to be everything.
