mykeystrokes.com

"Do or Do not. There is no try."

“The Most Opaque Investment Schemes Ever Devised”: Cities And States Paying Massive Secret Fees To Wall Street

California’s report said $440 million. New Jersey’s said $600 million. In Pennsylvania, the tally is $700 million. Those Wall Street fees paid by public workers’ pension systems have kicked off an intensifying debate over whether such expenses are necessary. Now, a report from an industry-friendly source says those huge levies represent only a fraction of the true amounts being raked in by Wall Street firms from state and local governments.

“Less than one-half of the very substantial [private equity] costs incurred by U.S. pension funds are currently being disclosed,” says the report from CEM, whose website says the financial analysis firm “serve(s) over 350 blue-chip corporate and government clients worldwide.”

Currently, about 9 percent — or $270 billion — of America’s $3 trillion public pension fund assets are invested in private equity firms. With the financial industry’s standard 2 percent management fee, that quarter-trillion dollars generates roughly $5.4 billion in annual management fees for the private equity industry — and that’s not including additional “performance” fees paid on investment returns. If CEM’s calculations are applied uniformly, it could mean taxpayers and retirees may actually be paying double — more than $10 billion a year.

Public officials are overseeing this massive payout to Wall Street at the very moment many of those same officials are demanding big cuts to retirees’ promised pension benefits.

“With billions of public worker and taxpayer dollars put at risk in the highest-cost, most opaque investment schemes ever devised by Wall Street for a decade now, investigations that hold Wall Street profiteers accountable are long, long overdue,” said former Securities and Exchange Commission attorney Ted Siedle.

Private equity firms have argued that their fees are worth the expense, because they supposedly deliver returns for investors that beat low-fee index funds, which track the broader stock market. But those private equity returns are typically self-reported by the firms over the life of those longer-term investments, meaning there are few ways to verify whether the returns are real. Indeed, a recent study from George Washington University argued that private equity firms are using their self-reporting authority to mislead investors into believing their returns are smoother and more consistent than they actually are.

In a 2014 speech, the SEC’s top examiner, Andrew Bowden, sounded the alarm about undisclosed fees in the private equity industry, saying the agency had discovered “violations of law or material weaknesses in controls over 50 percent of the time” at firms it had evaluated.

To date, however, the SEC has taken few actions to crack down on the practices, but some states are starting to step up their oversight.

In New Jersey, for instance, pension trustees announced a formal investigation of Gov. Chris Christie’s administration after evidence surfaced suggesting that the Republican administration has not been disclosing all state pension fees paid to financial firms.

In Rhode Island, the new state treasurer, Seth Magaziner, a Democrat, recently published a review of all the fees that state’s beleaguered pension fund has paid. The analysis revealed that the former financial firm of Democratic Governor Gina Raimondo is charging the state’s pension fund the highest fee rate of any firm in its asset class.

In Pennsylvania, the new Democratic governor, Tom Wolf used his first budget address to call for the state “to stop excessive fees to Wall Street managers.”

These moves are shining a spotlight on one of the most lucrative yet little-noticed Wall Street schemes. With so much money at issue – and with pensioners retirement income on the line — that scrutiny is long overdue.

 

By: David Sirota, Senior Writer at the International Business Times; The National Memo, April 24, 2015

April 24, 2015 Posted by | Pension Plans, Public Employees, Wall Street | , , , , , , | Leave a comment

“Christie’s New Jersey Faces Yet Another Downgrade”: The State’s Structural Finances Are In A Very Precarious Condition

It was about a year ago when New Jersey’s debt was downgraded for the sixth time since Gov. Chris Christie (R) took office in 2010. The announcement came soon after the Republican governor scrapped his state pension-reform plan.

Four months later, the Garden State was hit with another downgrade. Then another. Late yesterday, it happened yet again.

Moody’s Investors Service has downgraded New Jersey’s debt rating, dealing the Garden State its record ninth ratings cut since Gov. Chris Christie took office.

The ratings drop by one notch, from A1 to A2, on $32.2 billion worth of bonds underscores the state’s “weak financial position and large structural imbalance, primarily related to continued pension contribution shortfalls,” Moody’s said in a statement Thursday…. Credit downgrades make it more expensive for the state to borrow money to pay for things like road improvements and school construction.

The agency warned that the state’s structural finances are in a precarious enough condition that future downgrades may be necessary.

Christie not only holds the state record for the governor with the most downgrades, he holds a comfortable lead in this ignominious competition against his next closest rival.

In the larger context, I don’t doubt that the governor will kick off his presidential campaign soon, but I’m honestly not sure what he’ll say.

State pension reform, the “landmark achievement” of Christie’s first term, is no more. He’s still getting slammed, repeatedly, for the bridge scandal, which isn’t yet resolved. Job creation in New Jersey has been slower than most of the country, and its unemployment rate is still above the national average.

The Republican can’t point to his management skills, or his presidential temperament, or his legislative accomplishments. He can’t point to his standing in the polls, or his electability, or his major donors who’ve started to embrace different candidates.

Unpredictable things happen during a race for national office, but in a crowded, competitive field, it’s tough to see Christie’s road to success.

 

By: Steve Benen, The Maddow Blog, April 17, 2015

April 18, 2015 Posted by | Chris Christie, New Jersey, Pension Plans | , , , , , | Leave a comment

   

%d bloggers like this: