Tuesday, March 07, 2017

Kasich Sleeps As Hedge Fund Fees Gobble Up Pension Fund Bucks

It's a story that's been buried so deep for so long by Ohio media that the hedge fund burglars at the heart of milking and bilking Ohio's retirement pension funds can operate in the shadows without fear of the sun shining on them.

The degree of in-plain-sight theft of state pension funds going to hedgefund investment adviser fees is off the charts. But for reporting by Plunderbund and a former statehouse reporter who has no fear of taking on Ohio Gov. John Kasich and state lawmakers for their help in siphoning off mountains of money that should be going to retirees but are instead going to high-paid brokers who deliver poor results, media has largely been blind to the robbery taking place for all to see.

Bilking The Pension Cow

John Damschroder, a Fremont resident who worked in Gov. George Voinovich’s administration and now writes about business and economic development in Sandusky County, has been the thought leader of the robbery of pension fund bucks that grew and come to full bloom under the nose of Ohio's now term-limited CEO. Before John Kasich was elected governor in 2010, he had worked for Lehman Brothers on Wall Street for six years, during which time he was a central figure in case of his employer losing about $400 million in bad investments that happened because he was a door-opener or rainmaker, as the industry calls former lawmakers who turn to lobbying.

In one of his opinion pieces about how off-kilter pension fund investing has been since Mr. Kasich took the state reigns, Damschroder notes the State Teachers Retirement System of Ohio announced plans to cut its investment return assumptions from the 7.75 percent annual projection currently used. The teachers, he said, now join the Ohio Public Employee Retirement System and the Ohio School Employees Retirement System in trimming a half percent from investment return assumptions. 

"The combined holdings of these Ohio public pension funds is $170 billion, so the half-percent adjustment means the state acknowledges an $850 million additional annual increase to the unfunded liability of the retirement systems."

Pushing back on the crafted narrative that people living longer lives is the underlying problem with contributions and disbursements over time, research by Damschroder shows that Ohio has become the largest source of alternative investment funding, a fact, he says, that "has made Wall Street wizards rich on annual fees that totaled $734 million last year alone." Based on his reporting at the News-Messenger in Fremont, STRS and OPERS both earned less than 1 percent last year and ended the year with less money than they started with. "To compound the irresponsibility, leadership of both retirement systems wrote to this newspaper professing financial strength, while these sub-par results were known to them but still unknown to us."

Last fall Plunderbund also sounded the siren on what hedge fund managers are doing to bilk pension funds. A month later, Christopher Mabe, a Corrections Sergeant at the Lorain Correctional Institution and President of the Ohio Civil Service Employees Association, was recently elected to fill one of four seats on the Board of Trustees for the Ohio Public Employee Retirement System. 

In a statement on his role on the OPERS board, Mr. Mabe said, "Rest assured, as a 25-year employee with the Ohio Dept. of Rehabilitation and Correction, I will fight night and day to protect our pensions so that you, me and the generations that follow us, can retire with dignity and security, too! Thank you for having the faith in me to be your voice."

Ohio’s retirement investment expenses are exponentially larger than either of the options that were once the standards proscribed by state law, Damschroder from Fremont wrote. "The bitter irony to this story is that self-described conservatives presided over the change in law that opened the door to reckless retirement investing and who acted upon the power to plunge into illiquid high cost investments despite the lesson from the BWC Coingate fiasco."

Damschroder's concern is simple, something conservatives, especially Republican conservatives should know after decades of preaching about government excess. "The current silence on this true state government outrage is as shocking and as troubling as the blunders that caused the problem and denials when the issue is raised," he wrote, adding, "It’s as if Ohio pensioners, media and voters no longer expect basic competence and candor from state government. If that doesn’t change, this is just the start of our problems in Ohio."

Kasich's High Note

Gov. Kasich is taking bows for expanding Medicaid, a federal-state program for the poor that he would limit access to if he had his way. Because he's one of the handful of Republican governor who opted to take billions from Washington when most other Republican governors said no, Mr. Kasich is enjoying the plaudits of Democrats for being principled. None of these Democrats so far have taken him to the woodshed on his turning a blind eye to the rapacious methods used by Wall Street bankers to hoodwink state pension funds, at the expense of state pension retirees.

If Gov. Kasich was a real conservative out to ferret out wasteful government spending, he could mount an attack on hedge fund managers and their exorbitant fees that produce lower returns than traditional investments, and on the tens of billions he's spent in failing for-profit schools. He could end his legacy on a high note instead of the low note he's destined to leave office with.

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