Transparency Times March 2018

Page 8

Edition 23

M a r c h 2 018 ...8

a piece on Wieck that said: “If you are a public-school teacher in Kentucky, the state has a message for you: You have no right to know the details of the investments being made with your retirement savings.”17 Bloomberg reported that “Kentucky high school history teacher Randy Wieck is on a lonely mission to discover the whereabouts of the 12% of each paycheck he and 74,800 other educators are putting into a state pension fund. He’s especially keen to unearth details on the $1.1 billion the badly underfunded Kentucky Teachers’ Retirement System has committed to private equity and hedge funds. The quest pits Wieck against billionaire fund managers, a white-shoe law firm, state pension officials, and even his own union. “It’s my money and taxpayer dollars they’re skimming,” he says. “And they refuse to say how much they’re charging”.18 Secret no-bid contracts are making Wall Street firms like Blackstone and KKR millions in excess fees. They have much incentive to kill legislation that threatens the secrecy of these contracts. In his North Carolina report, former SEC

attorney Siedle makes a mockery out of the industry claim that they are protecting ‘trade secrets’ like the Colonel Sanders secret recipe for chicken: “Perhaps most disturbing, in response to our specific requests, the Treasurer refused to disclose offering memorandum and other key documents (including information regarding millions in placement agent fees) related to TSERS’ costly, high-risk alternative investments, citing supposed “trade secret” concerns raised by the alternative managers. Viewed from a regulatory and public policy perspective, the Treasurer’s practice of withholding relevant information and intentionally providing incomplete or inaccurate disclosures regarding TSERS investments results in: (1) concealing potential violations of state and federal laws, such as those detailed throughout this

report; (2) misleading the public as to fundamental investment matters, such as the true costs, risks, practices and investment performance related to hedge, private equity, venture and real estate alternative investment funds; (3) understating the costs and risks related to TSERS investments specifically; (4) misrepresenting the investment performance and financial condition of the state pension to investors in state obligations.”19 Siedle dug into the documents further: “The documents we reviewed indicate the alternatives are high-risk, speculative investments; the funds’ investments are highly illiquid subject to enormous valuation uncertainty; the offerings involve serious conflicts of interest regarding valuation of portfolios by the managers themselves and calculations of fees, as well as opportunities for self-dealing between the funds, the managing partners and their affiliates that may, in our opinion, violate state and federal law.”20 It is fairly obvious, then, that contracts are kept secret in order to help hedge fund managers and private equity conceal their fiduciary breaches and excessive fees.


19. North Carolina Pension’s Secretive Alternative Investment Gamble: A Sole Fiduciary’s Failed “Experiment” By Edward Siedle

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20. North Carolina Pension’s Siedle


Chris Tobe, CFA, CAIA is a top expert on DC investing and stable value and is the founder of Stable Value Consultants. He provided written testimony on stable value to DOL’s ERISA advisory committee and testified in person at the joint SEC-DOL hearing on target date funds in summer of 2009. He has over 25 years of experience working with DC plans working as a consultant, money manager and regulator. He was a Trustee for the Kentucky Retirement Systems and served as a Sr. Consultant for BCAP and NEPC. He holds a BA in Economics from Tulane University, and an MBA in Finance from Indiana University – Bloomington.