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“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

“Another Republican Gives Up Obamacare Fight”: Unfortunately For Corbett, It’s Probably Too Late To Save His Re-Election Campaign

Governor Tom Corbett of Pennsylvania is the latest Republican to retreat from the Obamacare wars.

On Thursday, the federal government approved Governor Corbett’s plan to expand Medicaid in the Keystone State, making it the 27th state in the nation to adopt the controversial provision of the Affordable Care Act. Corbett had initially opposed expanding Medicaid at all, but earlier this year he bowed to mounting political pressure by offering a plan that would expand Medicaid with a number of Republican-friendly conditions, such as a work requirement and the authority to charge premiums for recipients living below the poverty line. Those did not make it into the final deal.

The agreement should be a boon to Pennsylvania’s working poor; at least 500,000 Medicaid-eligible Pennsylvanians will now be able to sign up for coverage starting on January 1. It will also save the state $4.5 billion over the next eight years, according to Corbett (independent studies have pegged the savings to be even higher)

Corbett clearly hopes that the news will provide a political boost as well. The governor’s announcement of the agreement, which calls it “historic,” “innovative,” and “truly a Pennsylvania solution,” is just about the nicest thing that any elected Republican has ever said about the Affordable Care Act. Meanwhile, Medicaid expansion is wildly popular in Pennsylvania. And as of last week, the Republican governors on the ballot in 2014 who have adopted Medicaid expansion were polling an average of 8.5 percent better than those who hadn’t. It’s not hard to understand what prompted Corbett’s change of heart.

Unfortunately for Corbett, it’s probably too late to save his re-election campaign; the terminally gaffe-prone governor trails his Democratic challenger Tom Wolf by 16.6 percent according to the RealClearPolitics polling average. But plenty of other Republicans have also realized that it makes sense to buck the party line on Medicaid expansion. As The Washington Post’s Greg Sargent has documented, GOP senate candidates such as Scott Brown in New Hampshire, Tom Cotton in Arkansas, Joni Ernst in Iowa, Terri Lynn Land in Michigan, and Thom Tillis in North Carolina have tied themselves in knots trying to explain how they would repeal the Affordable Care Act without getting rid of any of the popular parts.

It’s almost as if voters would rather expand health care coverage than burn billions of dollars to thumb their noses at the White House.

Of course, this wasn’t supposed to happen. For over a year, Republicans have been promising that Obamacare would be the anchor that sinks every Democrat on the ballot and sparks a GOP wave in November. Instead, many Republicans are now either embracing sections of the law, or just ignoring it altogether. It appears that we can add this blown prediction to long list of Obamacare disasters that stubbornly refused to materialize.

 

By: Henry Decker, The National Memo, August 29, 2014

August 30, 2014 Posted by | Affordable Care Act, Obamacare, Tom Corbett | , , , , , , | Leave a comment

   

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