How Wall Street Loots Public Pensions and Blames Shortfalls on the Government

Would you invest your money with someone who said that he would find some hedge fund managers and private equity partnerships to manage it but that the terms of the agreement to manage your money would be a secret?  No rational person would and that should have been the first clue that something was wrong with the way public employees’ pension funds were being managed.

The GOP loves blaming public employee pensions for budget shortfalls. But Wall Street hedge funds control, and profit from, $3 trillion in N.C. alone.

When Ted Siedle a former investigator for the Securities and Exchange Commission was hired to look into the North Carolina Teachers’ and State Employees’ Retirement System, the seventh largest public pension fund in the country he found that it was not the government which was directly responsible for the under-performance of the fund, it was the Wall Street money managers who had brokered a sweet deal for themselves at the expense of the hard-working state employees who were depending on that fund to be there for them in retirement.

Siedle’s report found that:

“Today, TSERS assets are directly invested in approximately 300 funds and indirectly in hundreds more underlying funds, the names, investment practices, portfolio holdings, investment performances, fees, expenses, regulation, trading and custodian banking arrangements of which are largely unknown to stakeholders, the State Auditor and, indeed, to even the (State) Treasurer and her staff.  As a result of the lack of transparency and accountability at TSERS, it is virtually impossible for stakeholders to know the answers to questions as fundamental as who is managing the money, what is it invested in and where is it?”

The terms of these agreements are designed to be a win/win for the managers handling them and because they are guaranteed their very lucrative fees have little incentive to avoid risky investments of other people’s money.

The TSERS pension fund is not alone, public pension funds across the nation are in similar situations, while those managing them are reaping huge fees the funds lose money or make minimal gains.  Since 2000 fees for managing these funds have rocketed upward by over 1,000%, nearly doubling since 2008 from $217 million to $416 million.

This is a fight over the control of $3 trillion and as long as the Wall Street operatives are able to continue to reap the profits while hiding behind the secrecy built into these agreements we may never know the whole story.