Teachers union report exposes pension double dealing by hedge funds

The American Federation of Teachers on April 19 released a report identifying hedge fund and private equity firms and their managers who appear to be working both sides of the divide between those who want to maintain and strengthen traditional public pension plans and those who want to destroy them.

These asset managers solicit business from public pensions and at the same time contribute to and actively support groups seeking to eliminate public pensions and replace them with individual savings plans such as 401(k) plans.

Randi Weingarten, president of AFT, said that the purpose of the report is to provide information to trustees of public pension plans that they can use when deciding who will assist them in making investment decisions.

“This is about transparency—a right to know,” said Weingarten. “America’s workers and pension trustees deserve to know if the asset managers with whom they are investing their hard-earned retirement savings are also aligned with organizations advocating for the elimination of those same pension plans. With transparency and disclosure,trustees can make informed decisions about the risks their plans face.”

“I have an issue with people thinking they can play both sides,” said Jay Rehak, president of the Chicago Teachers’ Pension Fund to the Wall Street Journal. “They come to us with their hand out, and then they are stabbing us in the back.”

The report, entitled Ranking Asset Managers, lists more than 30 hedge fund and private equity firms with ties to three groups–StudentsFirst, the Show-Me Institute, and the Manhattan Institute–that advocate eliminating public pensions. It also describes the anti-public pension activity of the three named groups.

According to the report, public pension plans have been repeatedly attacked by right-wing think tanks and political committees that receive much of their funding from hedge fund and private equity managers. Some of the same asset managers actively “seek investments from the deferred wages of teachers, firefighters, and other public servants, while attacking their economic interests.”

The report also says that over the last few years, the track record of hedge fund managers has been “uneven” and quotes a passage from the New York Times DealBook blog, which notes that over the last four years, hedge funds have underperformed in relation to the market. “The average hedge fund,” reads DealBook. “gained 6.4 percent last year. . . . By comparison, the Standard & Poors 500 stock index climbed 16 percent when factoring in dividends.”

According to Ranking Asset Managers, the companies on its watch list, which will be updated regularly, have directors or executives who contribute to or sit on the boards of the three anti-pension groups.

In a recent blog post, Matt Taibbi, who writes for Rolling Stone, provides more detail on one of the hedge fund operators identified by Ranking Asset Managers. According to Taibbi, Dan Loeb, founder and CEO of Third Point Capital, is on the board of StudentsFirst New York, “one of the leading advocates pushing for states to abandon defined benefit plans–in favor of defined contribution plans, where benefits are not guaranteed.”

At the same time, Loeb currently manages assets for the Ohio Public Employees Retirement System, the New Jersey State Investment Council, and other public pension plans.

Loeb was scheduled to speak at a recent meeting of the Council of Institutional Investors, a non-profit association of public pension plans, endowments, employee benefit plans, and foundations, where he was presumably going to pitch his services to potential customers.

Loeb, however, canceled his engagement after the teachers union made public his relationship with the anti-public pension group in New York.

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