As Rhode Island
considers whether Gina Raimondo is making a wise gamble with our money by
moving more of public sector retirees’ pension account into risky hedge
funds, the New York Times Dealbook
blog reports that the S&P 500 stock index outperformed
the average hedge fund for the fourth year in a row.
Swashbuckling bets and robust returns are exactly what investors are hoping for — and paying for in outsize fees — when they allocate money to hedge funds. But far too often in recent years, investors have paid hefty fees for lackluster returns.
And last year was no
different.
For the fourth
consecutive year, most hedge funds failed to beat the market. The average hedge
fund gained 6.4 percent last year, according to a composite index that tracks
2,200 portfolios compiled by Hedge Fund Research.
Dan Loeb |
The Dealbook post also
listed the 10 highest paid hedge fund managers, according to Institutional
Investor Alpha’s annual “Rich List. At least two of whom Rhode Island invests a considerable sum
of our pensioners retirement security with:
- David Shaw made $530 million last year. According to public documents on the Treasurer’s website, Rhode Island invested $61,453,935 with his hedge fund called DE Shaw Composite Fund LLC.
- Dan Loeb made $380 million last year. According to public documents on the Treasurer’s website, Rhode Island invested $62,998,187 with his hedge fund Third Point Partners Qualified L.P.
Loeb was featured in Rolling Stone
magazine on April 11 about
his crusade to take over more pension plans, and his lack of affinity for
defined benefit pension plans.
Dan Loeb, who
isn’t known as the biggest hedge-fund asshole still working on Wall Street
(only because Stevie Cohen hasn’t been arrested yet), is on the board and co-founder of a group called
Students First New York. And Students First has been one of the leading
advocates pushing for states to abandon defined benefit plans – packages which
guarantee certain retirement benefits for public workers like teachers – in
favor of defined contribution plans, where the benefits are not guaranteed.
In other words, Loeb
has been soliciting the retirement money of public workers, then turning right
around and lobbying for those same workers to lose their benefits. He’s
essentially asking workers to pay for their own disenfranchisement (with Loeb
getting his two-and-twenty cut, or whatever obscene percentage of their
retirement monies he will charge as a fee). If that isn’t the very definition
of balls, I don’t know what is.
There’s an interesting
connection here between hedge fund managers, public teacher pensions and the
so-called ed. reform movement; StudentsFirst was founded by Michelle Rhee and she
is also on the board with Loeb and other hedge fund managers.
But there’s another
interesting local connection too: David Boies, the high-price super lawyer who
is defending Raimondo and her pension plan at a great discount is also on the StudentsFirst board
with Loeb and Rhee.
According to a Ted Nesi post from November, Boies agreed to defend in court the pension
cuts to state workers and teachers for $50 an hour when he usually charges
$960.
Bob Plain is
the editor/publisher of Rhode Island's Future. Previously, he's worked as a
reporter for several different news organizations both in Rhode Island and
across the country.