Ted Siedle: Hedge Fund Industry Loves RI Pension—For Good Reason

Ted Siedle: Hedge Fund Industry Loves RI Pension—For Good Reason

The June 28, 2013 email from Anne-Marie Fink, CIO of the Employee Retirement System of Rhode Island to Treasurer Gina Raimondo indicated that ERSRI had won small public plan of the year from Institutional Investor. “The honor is a fitting recognition of all the work you have done in creating a well diversified portfolio that reflects state-of-the-art investment practices and can generate strong, long-term returns for our pension participants,” said Fink to the Treasurer. Was the award really granted to Rhode Island for establishing a well-diversified portfolio, state-of- the-art investment practices and generating strong, long term returns, as Fink indicated?

A press release issued that same day by the Treasurer’s Office heralded that the pension was “named the Small Public Plan of the Year for its innovations and achievement in managing its $7.7 billion pension investment portfolio by Institutional Investor magazine.”

The award Fink, the Treasurer’s PR flack Joy Fox and Raimondo were congratulating themselves over is the 11th Annual Hedge Fund Industry Award (emphasis added). On the back page of the May 2013 Institutional Investor, the magazine invited “hedge fund managers, investment consultants and other qualified individuals to demonstrate their support for our investor nominees.”

In other words, savvy hedge fund managers voted on which investors (pigeons) and promoters of hedge funds they liked the best. Not surprising, Rhode Island, with a state treasurer who has traveled around the country pitching hedge funds as the key to pension reform and a pension that recently loaded-up with high-cost, high risk hedge funds, won. Rhode Island’s Treasurer has emerged as the leading national advocate of alternative investments. The hedgies ought to love her.

Winning this award, in my opinion, is nothing to crow about. It’s like asking cat burglars to vote on their favorite home security company. The winner is, in reality, a loser—at least with respect to safeguarding assets.

Most troubling, to me, is the fact that the Treasurer’s office continues to misrepresent investment matters to pension participants and taxpayers, seemingly thinking the public won’t catch on. Hedge funds are safe; investment fees don’t matter, she (unbelievably) says.

Worse still, she regularly relies upon Wall Street to justify and defend her investment decisions. What’s good for Wall Street is rarely best for pensions and pension officials who enjoy broad Wall Street support are almost always too-close-for-comfort to the financial industry.

If you are a participant in the pension or a taxpayer, the fact that the pension won this award, in my opinion, should disturbing.

Edward "Ted" Siedle is President of Benchmark Financial Services, Inc.

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