Tag: asset management fees

Maryland is wasting its pensioners’ money

Mary Pat Campbell

Link:https://www.washingtonpost.com/opinions/2022/02/04/maryland-is-wasting-its-pensioners-money/

Excerpt:

Seven hundred and forty-four million dollars. That is the amount of Wall Street fees paid by the Maryland state pension plan for investment advice in fiscal 2021.

Over the past 10 years, the fees totaled roughly $4.5 billion, or about 15 percent of the plan’s earnings. For that kind of money, you would think the state gets only the prime stock and bond picks from its advisers, but, during that time, Maryland, as with most other states, failed to beat the returns of a simple 60 percent stocks/40 percent bonds index. Many large institutional investors, including public pension plans, use this 60/40 index as a barometer to gauge their portfolios’ results. They structure their portfolios to avoid a 100 percent exposure to the sometimes volatile stock market. If their results are better than the index for a given year, they claim success. Many mutual funds attract smaller individual retail and 401(k) retirement accounts by copying the index and charging low fees for passive management.

….

This drainage damages the financial security of public workers in Maryland and other states, and it forces greater taxpayer contributions to the plans. The ongoing situation has a secondary effect as well: The massive wealth transfer — from public workers and average taxpayers — to a small coterie of Wall Street money managers fosters a new plutocracy, successful at obscuring the problem and blocking reform.

The obvious fix for public plans is to shift from expensive fee investments to low-fee indexing, a tactic endorsed by none other than Warren Buffett, the noted value investor and philanthropist. For large public plans, including Maryland’s, this shift, if implemented, would be gradual. Extricating the fund from its long-term contractual commitments and replacing them with passive investments is going to take time.

Author(s): Jeff Hooke

Publication Date: 4 Feb 2022

Publication Site: Washington Post

A Group of Midwestern Retirees Are Trying to Stop Wall Street’s Abuse of Retirement Funds

Mary Pat Campbell

Link:https://jacobinmag.com/2021/11/ohio-teacher-pensions-hedge-funds-private-equity-strs

Excerpt:

Due to an active group of retirees and the assistance of a former Ohio attorney general, both the Ohio state auditor and the Ohio Department of Securities have launched inquiries into the Ohio State Teachers Retirement System (STRS Ohio), a $100 billion pension that has launched billions of dollars of investments into the riskier corners of the market, namely private equity and hedge funds.

“Ohio could be the first place where the secrecy surrounding public pensions and their investments in risky, speculative, and high-fee investment vehicles could be looked at in a serious way,” said Ted Siedle, a former SEC attorney and longtime pension whistleblower.

Pointing out that pension funds across the country have routinely invoked “trade secrets” exemptions to deny the public information about investment performance and fees, Siedle said the actions taken by the state auditor and securities commissioner “could be the beginning of the end” of such secrecy — not just in Ohio, but nationwide.

Author(s): MATTHEW CUNNINGHAM-COOK

Publication Date: 30 Nov 2021

Publication Site: Jacobin magazine

Private equity investments continue to pose challenges for public pension plans

Mary Pat Campbell

Link:https://reason.org/commentary/private-equity-investments-continue-to-pose-challenges-for-public-pension-plans/

Excerpt:

Private equity investments lack transparency and are difficult to value. As opposed to publicly traded securities, limited partnerships used by private equity managers can’t provide frequent performance updates and, as a result, advise stakeholders after the end of each fiscal year. This leads to a lag in reporting important details. Moreover, shares of companies owned by private equity funds are not publicly traded, meaning that their values can only be estimated, which is subject to potential bias. Private equity firms are also not obligated by the law to publish their lists of assets in accordance with Securities and Exchange Commission rules. While this information can be found on Bloomberg Professional Terminal, it is not available to the general public. This lack of transparency should be concerning to employees and retirees who rely on these funds and taxpayers who contribute to them.    

For the Pennsylvania teacher system, the management fees associated with private equity investments that the plan had to pay over the past four years ($4.3 billion) are more than the total amount members paid into the plan during the same time ($4.2 billion). The pension plan recently announced that member contributions will have to be raised going forward because of long-term investment results below the plan’s benchmark. As a point of comparison, the New York State Teachers’ Retirement System, which has double the assets of PSERS, reported 36% less in total investment fees and expenses than PSERS.

Author(s): Jen Sidorova

Publication Date: 12 Oct 2021

Publication Site: Reason

Everyone Is Urging SEC To Stop Public Pension Mismanagement, Looting By Wall Street

Mary Pat Campbell

Link:https://www.forbes.com/sites/edwardsiedle/2021/10/07/everyone-is-urging-sec-to-stop-public-pension-mismanagement–looting-by-wall-street/

Excerpt:

An investigation of the Chicago Policemen Annuity and Benefit Fund was funded by members of the Chicago Police Department Pension Board Accountability Group. According to the report, the CPABF is one of the worst funded public pension plans in the U.S. today with a funding ratio at year-end of only 23%. According to the report, “The toxic mix of defunding the police pension, conflicted and high-risk investments, and poor management of the pension cry out for greater transparency and accountability.”

As Arthur Levitt, Chairman of the SEC stated back in 1999 in connection with the Commission’s review of pay-to-play practices at public pensions, “Today, public funds hold more than $2 trillion of assets. These assets do not belong to the elected officials, and they do not belong to the trustees. They belong to the tens of thousands of firefighters, ambulance drivers, city clerks, bus drivers and other public employees who make our communities work. “Their interests,” as my father said twenty years ago, “must be paramount in investment of that money.”

The tremendous importance of public funds demands that they be managed with complete honesty and integrity and for the sole benefit of their beneficiaries.”

Author(s): Edward Siedle

Publication Date: 7 October 2021

Publication Site: Forbes

Which Public Pension Funds Have the Highest Holdings of Alternative Assets? 2021 Edition

Mary Pat Campbell

Link: https://marypatcampbell.substack.com/p/which-public-pension-funds-have-the

Graphic:

All the data for alternative allocation 2001-2020, with key percentiles plotted as lines

Excerpt:

What you see in that graph is a data point for each of the plans I know their asset allocation for, with the median, 25th percentile, and 75th percentiles marked out so you can see the allocations increasing.

That pattern does not make me feel good.

Allocating more to alternatives doesn’t seem to get asset managers higher returns. But the group is generally sliding upwards in their allocations, and I’m very unhappy about this.

Author(s): Mary Pat Campbell

Publication Date: 11 May 2021

Publication Site: STUMP at substack

Private Equity Returns Stumbled in 2020, Hurting Public Pension Plans

Mary Pat Campbell
Private Equity Returns Stumbled in 2020, Hurting Public Pension Plans

Excerpt:

Private equity investments underperformed broad US stock indexes for the fiscal year that ended June 30, 2020.  Importantly for taxpayers and governments, this underperformance of private equity weighed down public pension system asset returns during a particularly difficult year for investments.

These investment results may mark the beginning of the end of superior private equity returns that have characterized early 21st century institutional investing. If private equity returns have now fallen “back to earth,” many public pension systems can expect heightened scrutiny over their allocations to this asset class and the high investment costs that go with it.

Author(s): Marc Joffe

Publication Date: 27 April 2021

Publication Site: Reason

Your Pension Board Thinks It’s Smarter Than Warren Buffett—It’s Not

Mary Pat Campbell

Link: https://www.forbes.com/sites/edwardsiedle/2021/05/01/your-pension-board-thinks-its-smarter-than-warren-buffett-its-not/?sh=b3fdc2611302

Excerpt:

Buffett has a consistent history of blasting Wall Street firms for charging high fees for actively managed investments and has recommended pensions invest in low-cost passively managed index funds.

You might think that underfunded pensions struggling to pay benefits would heed Buffett’s advice and seek to cut the fees they pay Wall Street.

Embrace austerity. Tighten their belts. Trim the fat. 

In fact, every forensic investigation I’ve ever undertaken has exposed that the nearer a pension is to insolvency, the higher the fees and the greater the risks the pension takes on.

Author(s): Ted Siedle

Publication Date: 1 May 2021

Publication Site: Forbes

Expose at Pennsylvania’s Biggest Public Pension Fund Reveals Lavish Private Equity Travel, But Misses How It Serves as a Bribe

Mary Pat Campbell
Expose at Pennsylvania’s Biggest Public Pension Fund Reveals Lavish Private Equity Travel, But Misses How It Serves as a Bribe

Graphic:

Excerpt:

The article points out that the PSERS investment office regularly violates state travel policies, which require employees on Commonwealth business to hew to Federal guidelines for airfare and lodging. Eight PSERS officers have been granted waivers from this policy.

PSERS defends the travel costs by saying staff traveled business class and the fares were typically refundable and sometimes bought at the last minute.

My issue isn’t with the cost of the flights but their necessity, and with the hotel costs. Public servants should be staying in Westin/Marriott level rooms. These prices are consistent with five star hotels, like the Four Seasons or St. Regis in New York City.

Author(s): Yves Smith

Publication Date: 12 April 2021

Publication Site: naked capitalism

Pennsylvania pension system officials disclose federal probe

Mary Pat Campbell
Pennsylvania pension system officials disclose federal probe

Excerpt:

Officials atop Pennsylvania’s largest public pension system have received subpoenas from federal investigators, although the $64 billion Public School Employees’ Retirement System has yet to publicly discuss the nature or scope of the newly disclosed inquiry.

In addition to giving few details, pension system officials and board members — which includes state lawmakers, two members of Gov. Tom Wolf’s Cabinet and state Treasurer Stacy Garrity — have declined to answer questions publicly about what information federal investigators are seeking.

Garrity told lawmakers at a Senate Appropriations Committee hearing Tuesday that “federal subpoenas have been served on several PSERS management officials.”

Author(s): Marc Levy, Associated Press

Publication Date: 8 April 2021

Publication Site: WHYY PBS

From Hong Kong to Sydney, San Francisco to Zurich, the staff at Pennsylvania’s largest pension fund have run up big travel bills

Mary Pat Campbell

Link: https://www.inquirer.com/business/psers-pension-teachers-travel-expenses-sers-public-school-trips-cost-20210403.html

Graphic:

Excerpt:

The bills are high because PSERS for years has operated under a system in which it often never knew the true costs of travel. The fund repeatedly left the job of booking tickets, hotels, and meals to the outside money managers who invest the fund’s money. The charges were later buried in overall travel bills that the managers submitted to the fund to be paid by taxpayers and teachers.

In recent years, the fund has been roundly criticized for its lagging investment performance, especially given that the plan, underfunded by many governors and legislatures, is $44 billion short of the money to pay all future retirees

Author(s): Craig R. McCoy

Publication Date: 3 April 2021

Publication Site: The Philadelphia Inquirer

LACERS Board Member Lambastes Lousy Private Equity Returns as More Studies Confirm Poor Performance for Decades

Mary Pat Campbell
LACERS Board Member Lambastes Lousy Private Equity Returns as More Studies Confirm Poor Performance for Decades

Graphic:

Excerpt:

CEM, using a simple mix of small-cap indexes, found that even though private equity funds deliver what looks to be outsized raw returns, they fall short of CEM’s benchmark since 1996. However, as we’ve also said for some time, the big exception is investing in house, which CEM calls “internal direct”. And the worst, natch, is fund of funds, which have an extra layer of fees.

There are two additional reasons the CEM findings are deadly. First, the time period they look at, going back to 1996, includes a substantial portion of the 1994-1999 “glory years” where private equity firms were coming back from a period of disfavor after the late 1980s leveraged buyout crash. Less competition for deals meant better buying prices and better returns. Alan Greenspan dropping interest rates for a full nine quarters after the dot-com collapse was the first episode of the Fed driving money into high risk investment strategies by creating negative real returns for a sustained period, and the rush of money into private equity elevated deal prices.

Author(s): Yves Smith

Publication Date: 1 April 2021

Publication Site: naked capitalism

Australia gets a $156 billion pension merger as new laws spur consolidation

Mary Pat Campbell

Link: https://www.reuters.com/article/us-australia-pensions/australia-gets-a-156-billion-pension-merger-as-new-laws-spur-consolidation-idUSKBN2B70QC

Excerpt:

The mega-merger reflects the rapid consolidation of Australia’s A$3 trillion pension industry after a 2018 inquiry found fees charged by some managers were unjustified and eroded workers’ savings, and that many funds were not putting customers’ interests ahead of their own.

The government has since made it mandatory for funds to put member interests first, triggering a wave of mergers as fund boards determine that scaling up results in a better deal for people’s savings.

“The due diligence process we have undertaken demonstrates a strong business case for merging with achievable efficiencies and savings,” said QSuper Chair Don Luke and Sunsuper Chair Andrew Fraser in a statement.

Author(s): Reuters staff

Publication Date: 15 March 2021

Publication Site: Reuters