Siedle: FBI & SEC Should Investigate Raimondo & Magaziner’s Billion-Plus Losing Hedge Fund Gamble
Thursday, September 29, 2016
Do Governor Gina Raimondo and General Treasurer Seth Magaziner really believe they are smarter than Warren Buffett, considered to be one of the most successful investors in the world?
Of course not.
How could they?
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe wreckage related to Raimondo’s failed stint as a small-time venture capitalist is finally out in the open for Rhode Islanders to see. The Point Judith II fund she pitched to ERSRI (and in which the pension risked $5 million almost ten years ago) has returned a pathetic -1.1 percent to date—after paying her rich fees of 2.5 percent. If making money off of your investors defines success, then Raimondo’s a shining star.
Magaziner, on the other hand, can boast a summer internship at Raimondo’s Point Judith Capital and two years as a portfolio associate, then research analyst at a small money management firm in Boston. Is this 31-year old qualified to manage $7.7 billion in state pension assets? Hardly.
Ignoring Warren Buffett & Other Questions
So why did Raimondo ignore Warren Buffett’s warning that public pensions should not gamble on hedge funds?
(As I advised Rhode Islanders approximately 4 years ago, Buffett made a million-dollar bet at the start of 2008 that a low-cost S&P 500 index fund would beat hedge funds over the next ten years. After eight years, as Buffett gloated at his company’s recent annual meeting in Omaha, the S&P 500 is crushing it. The fund Buffett picked, Vanguard 500 Index Fund Admiral Shares is up 65.67%; the high-cost, high-risk hedge funds are up, on average, a dismal 21.87%.)
Worse still, why has Kid Magaziner stuck with Raimondo’s billion dollar-plus losing hedge fund bet and only today announced plans to dump half the pension’s hedge fund investments for lower-cost, more traditional assets?
Why is it going to take Magaziner two years to exit hedge funds, even now?
The Answer
The answer to this longstanding mystery: Gambling ERSRI pension assets in hedge funds has never been about investing or prudent pension practices. It’s always been about politics.
These Rhode Island elected officials blatantly ignored credible warnings (Buffett and, yes, me) and used public pension assets for their own political objectives. Steering public monies to Wall Street has dramatically increased their campaign coffers. On the other hand, according to the Treasurer’s office, the pension has lost 10% or approximately $100 million a year by investing in hedge funds. Over five years, that amounts to $500 million.
Any “savings” related to cutting workers’ Cost of Living Adjustment benefits over the past five years have been squandered.
Half a billion in workers’ wealth was transferred to Wall Street, in exchange for a few million in political contributions. Talk about a deal with the devil. Was this foreseeable and indeed foreseen sleight of hand worth it?
That’s a question the SEC, FBI (and, for that matter, Rhode Island Attorney General Kilmartin) should be investigating.
Simply, Raimondo's pension fix didn't work.
Related Slideshow: 2016 Raimondo’s Staff Salaries
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