A Group of Midwestern Retirees Are Trying to Stop Wall Street’s Abuse of Retirement Funds

Link:https://jacobinmag.com/2021/11/ohio-teacher-pensions-hedge-funds-private-equity-strs

Excerpt:

Due to an active group of retirees and the assistance of a former Ohio attorney general, both the Ohio state auditor and the Ohio Department of Securities have launched inquiries into the Ohio State Teachers Retirement System (STRS Ohio), a $100 billion pension that has launched billions of dollars of investments into the riskier corners of the market, namely private equity and hedge funds.

“Ohio could be the first place where the secrecy surrounding public pensions and their investments in risky, speculative, and high-fee investment vehicles could be looked at in a serious way,” said Ted Siedle, a former SEC attorney and longtime pension whistleblower.

Pointing out that pension funds across the country have routinely invoked “trade secrets” exemptions to deny the public information about investment performance and fees, Siedle said the actions taken by the state auditor and securities commissioner “could be the beginning of the end” of such secrecy — not just in Ohio, but nationwide.

Author(s): MATTHEW CUNNINGHAM-COOK

Publication Date: 30 Nov 2021

Publication Site: Jacobin magazine

The Curious Case Against Hedge Funds in Kentucky

Link: https://www.ai-cio.com/news/the-curious-case-against-hedge-funds-in-kentucky/

Excerpt:

The lawsuit notes the difficult position the retirement system was in, saying that “there was no prudent investment strategy that would allow KRS to invest its way to significantly improved funded status,” and that “the trustees were trapped in a demographic/financial vise.” However, while acknowledging there was no prudent investment strategy for KRS to get out of the hole it was in, the plaintiffs are simultaneously critical of Carlson and the other defendants for taking what they consider to be “longshot imprudent risks.”

The lawsuit also criticizes the hedge funds of funds for not providing high enough returns for the entire KRS portfolio to meet or exceed its 7.75% assumed rate of return. However, the same could be said for fixed income and many other assets in the KRS portfolio. Broad hedge fund portfolios are generally created to reduce risk, not beat equity markets.

“The Black Boxes did not provide the investment returns trustees needed for KRS to return to or exceed on the average its AARIR [assumed annual rate of investment return] of 7.75%,” says the lawsuit, which is targeting approximately 3% of KRS’ overall investments, while saying they should carry the entire portfolio to meet or outperform a rate of return the state acknowledged as “unrealistic and unachievable.”

The lawsuit also claims the investments “lost millions of dollars in 2015 to 2016,” which was more than two years after Carlson left, and which was a particularly bad time period for the entire hedge fund industry. The lawsuit criticized one of the investments, known as the Henry Clay Fund, for providing “exceptionally large fees for Blackstone”; however, the suit also states that “the amount of the fees could not be calculated and were not disclosed.”

Author(s): Michael Katz

Publication Date: 15 Oct 2021

Publication Site: AI-CIO

Decisions Finally Coming in Long-Running Battle with Hedge Fund Titans in Kentucky Pension Case, Mayberry v. KKR

Graphic:

Excerpt:

You can find all the major filings at Kentucky Pension Case. The two below are over the most heated current issue: whether the Tier 3 Plaintiffs can move forward. Judge Shepherd said effectively that he needed to see what the attorney general planned to do before he decided that.

Given that the justification for the attorney general repeated extension requests was to wrap his mind around the case, and the Calcaterra report looked like Kentucky Retirement Systems hiring an outside firm to brief the attorney general, the new filing is entirely old hat. It has not only has no new arguments, it is even more openly cribbed from older plaintiff filings that the original attorney general intervention, where his office at least re-wrote a fair bit of the material into white shoe tall building lawyer style. Here, nearly all of the filing is a cut and paste, including the charts.

Author(s): Yves Smith

Publication Date: 4 June 2021

Publication Site: naked capitalism

Pending bill opens door to pension corruption at CalPERS

Link: https://calmatters.org/commentary/2021/05/california-pension-calpers-corruption-legislation/

Excerpt:

Assembly Bill 386 sailed through the Assembly Judiciary Committee last week on a unanimous vote with virtually no discussion about its provisions.

….

Potentially it opens the door to insider dealing and corruption in an agency that’s already experienced too many scandals, including a huge one that sent CalPERS’ top administrator to prison for accepting bribes.

CalPERS, which is sponsoring the bill with support from some unions and local governments, claims that the exemption is no big deal since the money it lends through “alternative investment vehicles” such as venture capital funds and hedge funds is already partially exempted from disclosure.

However, there is a big difference. Using outside entities to invest means they have skin in the game. Direct lending by CalPERS means that its board members, administrators and other insiders would be making lending decisions on their own without outside scrutiny.

Author(s): Dan Walters

Publication Date: 3 May 2021

Publication Site: CalMatters

Your Pension Board Thinks It’s Smarter Than Warren Buffett—It’s Not

Link: https://www.forbes.com/sites/edwardsiedle/2021/05/01/your-pension-board-thinks-its-smarter-than-warren-buffett-its-not/?sh=b3fdc2611302

Excerpt:

Buffett has a consistent history of blasting Wall Street firms for charging high fees for actively managed investments and has recommended pensions invest in low-cost passively managed index funds.

You might think that underfunded pensions struggling to pay benefits would heed Buffett’s advice and seek to cut the fees they pay Wall Street.

Embrace austerity. Tighten their belts. Trim the fat. 

In fact, every forensic investigation I’ve ever undertaken has exposed that the nearer a pension is to insolvency, the higher the fees and the greater the risks the pension takes on.

Author(s): Ted Siedle

Publication Date: 1 May 2021

Publication Site: Forbes

Private Equity and Hedge Funds Survived the 2008 Crisis. Now They’re Making a Killing Off COVID-19.

Link: https://jacobinmag.com/2021/04/private-equity-hedge-funds-covid-profits

Excerpt:

What is a shadow bank?

The term shadow bank refers to things like hedge funds, venture capital firms, and private equity, which all have relatively less oversight than traditional financial institutions. These are all lending intermediaries, or institutions that lend money that fall outside of the mainstream regulatory structure of finance. They’re either situated outside of investment banks, or they exist in less regulated arenas of investment banks, perhaps in offshore settings. One example you might be familiar with is the big private equity firm Blackstone. Another is the big hedge fund Bridgewater.

The “shadow” label implies a degree of opacity, because frequently they make investments that are harder to understand, often in private markets rather than public markets. But it also refers to the fact that they’re lending in the shadow of larger institutions. This partially because they’re deemed to have sophisticated investors by the Securities and Exchange Commission and are therefore designated as subject to less oversight.

Author(s): Megan Tobias Neely interviewed by Meagan Day

Publication Date: 8 April 2021

Publication Site: Jacobin Magazine

Still primed for public life, ex-Pa. Treasurer Torsella reflects on pensions and bipartisanship

Excerpt:

Torsella also was at the center of a burgeoning bloc of hedge fund and private equity skeptics on state pension boards. He has publicly criticized Wall Street firms for charging too many fees for too little gain.

Torsella also co-authored a bipartisan legislative report that estimated Wall Street firms had taken $5.5 billion from the state over the past 30 years.

Pension officials have countered that private equity investments pay off, and provide a way for the fund to grow its assets hurt by bad policy, underinvestment, and losses from the 2008 crash.

Author(s): Stephen Caruso

Publication Date: 3 February 2021

Publication Site: Pennsylvania Capital-Star

Hoist on His Own Petard? Kentucky Attorney General’s Apparent Plan to Settle Landmark Pension Case Mayberry v. KKR Likely to be Undermined by Discovery

Excerpt:

Cameron’s filing was almost entirely dependent on the original plantiffs’ documents. It’s become increasingly evident that Cameron never intended to litigate. The best guess is that Cameron needed a distraction from bad Brionna Taylor headlines, and also saw the Mayberry v. KKR case as an opportunity to engage in a little shakedown by making a potentially explosive case go away via a cost-of-doing-business settlement.

But Cameron appears to have badly underestimated his opponents, led by the formidable attorney Michelle Lerach and her husband, the disbarred but still very much feared Bill Lerach, who acts as a consultant. A quick and cheap settlement can occur only if the defendants can escape what they fear most, discovery. But the latest order from Judge Philip Shepherd shows he is moving forward with the reconfigured case, now involving “Tier 3” beneficiaries in a hybrid plan that does not have a state guarantee. That upsets Cameron’s plans to settle the case before the Tier 3 plaintiffs go going, which would allow his to go lowball based on public information and the limited discovery to date.

Author(s): Yves Smith

Publication Date: 19 February 2021

Publication Site: naked capitalism

Is the GameStop Saga Really an Army of Investing “Davids” vs Hedge Fund “Goliaths”?

Link: https://legalinsurrection.com/2021/02/is-the-gamestop-saga-really-an-army-of-investing-davids-vs-hedge-fund-goliaths/

Excerpt:

Understandably, many Americans would like to push back against Wall Street and enjoy fiscal karma. I know I am and tempted to purchase one share.

However, there are likely to be real market consequences for participating in this “short squeeze.”

Author: Leslie Eastman

Publication Date: 1 February 2021

Publication Site: Legal Insurrection

NY Hedge Fund Founder Admits To Fraud In Connection With Neiman Marcus Bankruptcy

Link: https://dailyvoice.com/new-york/northsalem/news/ny-hedge-fund-founder-admits-to-fraud-in-connection-with-neiman-marcus-bankruptcy/802716/

Excerpt:

A hedge fund founder admitted to bankruptcy fraud for abusing his position on a Neiman Marcus Group Inc. bankruptcy committee to purchase securities at a deflated price.

Nassau County resident Daniel Kamensky, of Roslyn, the founder of the New York-based hedge fund Marble Ridge Capital pleaded guilty to pressuring a rival bidder to abandon its higher bid for assets in connection with Neiman Marcus’s bankruptcy proceedings.

U.S. Attorney Audrey Strauss said that Kamensky was the principal of Marble Ridgewhich had assets under management of more than $1 billion that invested in securities in distressed situations, including bankruptcies. Prior to opening Marble Ridge, Kamensky worked for many years as a bankruptcy attorney at a well-known international law firm, and as a distressed debt investor at prominent financial institutions.

Author(s): Zak Failla

Publication Date: 7 February 2021

Publication Site: Daily Voice

New York Lawmakers Float Crackdown on Hedge Funds’ Sovereign-Debt Tactics

Link: https://www.wsj.com/articles/new-york-lawmakers-float-crackdown-on-hedge-funds-sovereign-debt-tactics-11612780201

Excerpt:

Some New York lawmakers are planning legislation designed to blunt hedge funds’ ability to resist sovereign-debt restructurings, while easing financial settlements for government borrowers in distress.

New York state Sen. Gustavo Rivera and Assemblywoman Maritza Davila, both Democrats, plan to introduce legislation as soon as this week to allow a supermajority of a nation’s creditors to amend or restructure its debt contracts and bind any dissenters that could otherwise hold out.

Many sovereign bonds in Latin America, Africa, and other emerging markets contain collective-action clauses that require all creditors to honor agreements that a majority of them make with the borrower. But others lack such mechanisms, leaving no ready way for settlements made with majority support to become binding on all members of a creditor class.

…..

A risk of the legislation is that investors would sue to challenge it because it could retroactively change certain contracts already in place. Changing contract rights can be justified under certain circumstances, if doing so advances a compelling state interest.

Author(s): Alexander Gladstone

Publication Date: 9 February 2021

Publication Site: Wall Street Journal

“This is for you, Dad”: Interview with an Anonymous GameStop Investor

Link: https://taibbi.substack.com/p/this-is-for-you-dad-interview-with

Excerpt:

Since 2008, the tendency among mainstream commentators has been to shrug off reverberations from the crash that force their way into news, usually on the grounds that the millions who lost homes, careers, marriages, lifetimes of savings, health, and in thousands of cases, their lives, are not truly poor or “working class,” or are only “relatively low-wealth,” as New York magazine recently put it. In the case of GameStop, there’s been a parade of stories describing investors as dupes, dummies, financial Trumpists, irresponsible gamblers, even crooks, their trade pegged as almost everything but what on some level it surely was and is, an echo of a suppressed national disaster.

Was GameStop “recreational” investing gone haywire, or a climax to a story building for a generation? Here’s one person’s answer:


SP: I grew up watching my parents struggle with money. Money was discussed all the time. They fought all the time. The older I got, the more I felt I had to do anything to keep my own kids from going through the same thing.

My parents worried in different ways. With my mother, I regularly knew how much money was in her checking account because she would stress-yell the amount whenever I asked for anything. It was really difficult for her.

My dad was the opposite. He wanted you to think he had money, but you were looking around and thinking, “I’m pretty sure we don’t.” Because I don’t have a bed, and my brother is sleeping on a couch. So if you’ve got it, maybe we should use it, I don’t know. So they were different in that regard.

Author(s): Matt Taibbi

Publication Date: 6 February 2021

Publication Site: TK News