Rhode Island Treasurer Defends Alternative Investments Amid Attacks

(June 12, 2013) – Gina Raimondo, elected treasurer of Rhode Island in 2010, might not agree with the adage “there is no such thing as bad publicity.”

The former venture capitalist and current chair of the state’s investment commission has been the subject of six scathing op-eds by Forbes columnist Ted Siedle. His title for one piece on her aggressive push into alternatives: “Rhode Island public pension ‘reform’ looks more like Wall Street feeding frenzy.”

Raimondo’s spokesperson Joy Fox has countered that she is simply working to establish a more diverse and sophisticated portfolio for the retirees of the state, which includes an extensive analysis of risk and return potential.

But here, the story gets more complicated. The treasurer’s office has decided to go on the record with aiCIO after one of the country’s largest trade unions hired Siedle (a former SEC attorney) to conduct a forensic investigation of the system’s investment strategy. The American Federation of State, County and Municipal Employees (AFSCME) represents roughly 1.5 million workers, and thus far, according to Siedle and the treasury, the state has cooperated and will continue to do so.

In a statement to aiCIO, Seidle said he his investigation would focus on “the pay-to-play system and the conflict of interest” which he believed had embedded itself within the governance of the plan.

Spokesperson Fox expressed her doubts as to Seidle’s trustworthiness as a Forbes columnist, and whether he also harbors political motivations.

“The news that Rhode Island Council 94, AFSCME has retained Ted Siedle raises questions about the credibility and motives of Siedle’s previous columns. This was a bait and switch. He sold himself as a journalist while pitching a local union for business,” said Fox. Neither Siedle nor AFSCME would disclose the amount he would receive for his investigation.

The financial crisis of 2008 hit Rhode Island’s portfolio hard. Between June 2008 and February 2009, its market value fell from nearly $8.5 billion to less the $5.5 billion. Since taking office, Raimondo has moved much of the fund’s cash holdings into increased alternative investments. As of the end of April, the portfolio was valued at $7.9 billion.

“There’s no prudent, disciplined investment program at work here—just a blatant Wall Street gorging, while simultaneously pruning state workers’ pension benefits,” wrote  Siedle in his blistering first op-ed about the new investment strategy. 

Raimondo has defended these aggressive investment strategies as a diversifier and source of alpha to help remedy the fund’s significant unfunded liabilities.

But Siedle also takes issue with what he described as “dramatically increasing investment management fees.” Raimondo’s spokesperson responded in a statement: “Everything we’re investing in are brand-name firms with a proven track record—and we always get the best fees. In consultation with our investment advisers, we negotiate wherever possible to make sure that the state of Rhode Island receives among the best fees of other investors.” 

Raimondo did initially misreport the performance of a  she previously managed fund saying it gained 22%, when in fact she later corrected herself saying it was only 12%. Siedle chastised her for this miscue. “Prudent practice requires fiduciaries to be especially careful to accurately disclose information related to self-dealing or conflict of interest scenarios,” he said.

Siedle has said that his investigation is “unstoppable,” and he will get to the bottom of what he deems as fiduciary recklessness and irresponsibility.

The treasurer’s spokesperson said Raimondo is not worried about potential findings because all investment decisions are already public and minutes of board meetings are posted online.

“The State Investment Commission has a fiduciary duty to put first the interests of the members of the retirement system, and to pursue the best investment portfolio available,” she said.