Thursday, June 19, 2014

Buy Lottery Tickets Instead Of Relying on a Poorly Constructed Report

Buy Lottery Tickets Instead Of Relying on a Poorly Constructed Report

What began as a poorly crafted and incendiary report has now turned into a lottery ticket.  Edward Siedle, author of the report on the North Carolina pension system, told Dan Way of the Carolina Journal Online that SEANC would share in any award if the SEC investigates the North Carolina pension system and if they determine that North Carolina engaged in fraudulent or other improper behavior.[1]  Mr. Day reports that Benchmark “found, among other things, $6.8 billion in investment losses, and $1 billion in fees paid to Wall Street money managers and political insiders, though only half that much was reported.”  Benchmark found very little.  Rather it made allegations, many of which are pretty wild.  However, Mr. Day satisfies his journalistic responsibility by citing the Treasurer’s refutations.

He then goes on to give Mr. Siedle and Ardis Watkins, SEANC director of legislative affairs, free reign to make inaccurate statements.  Mr. Siedle claims, “You’ve got half of Wall Street managing North Carolina money. Contrary to what the treasurer says, there are hundreds more money managers involved in managing the pension than she’s disclosed.”  Both these statements are mathematically wrong.  North Carolina’s fund-of-fund relationships aren’t nearly large enough to involve hundreds of additional managers.

Ms. Day reports that Ms. Watkins told him, “Cowell has invested $1 billion in pension fund money with Credit-Suisse. The international banking giant recently pleaded guilty to one reduced count of bilking the U.S. government out of taxes owed on investments and agreed to pay $2.6 billion in penalties.  There are two problems with this statement.  First, the Treasurer hired Credit-Suisse many years before the investment bank was convicted or charged.  Second, those funds are managed by Grosvenor Capital Management.

Mr. Day isn’t the only one giving unwarranted credence to Benchmark’s report.  Naked Capitalism, which does some excellent work, also gives Benchmark’s report unjustified credibility by stating, “North Carolina Treasurer Janet Cowell is embroiled in a corruption scandal, and is accused of oversight failures that cost taxpayers $6.8 billion.[2]
David Sirota of Pando also cites the Benchmark uncritically, while critiquing the Treasurer’s recent legislative proposal.[3]  I suppose if enough people favorably cite the Benchmark report, it will eventually turn fiction into fact.

Unfortunately, the Treasurer’s office isn’t doing itself any favors.  The decision to postpone a decision on retaining or abandoning the sole fiduciary model and the poor construction of the Treasurer’s transparency initiatives is only fueling the critics.  Moreover, the department’s failure to challenge the manager’s claims to confidentiality and trade secret protection is disappointing Meanwhile, the commitment to alternative investments continues to rise, and the alternative managers are winning while the critics and the Treasurer duke it out.  It’s a depressing situation.

On a positive note, I have a recommendation for SEANC.  My proposal offers better economic prospects than hoping for a whistleblower award from the SEC.  Using “Benchmarkian” analysis, I have concluded that SEANC should buy a raft of Powerball tickets.  Assuming that they paid Benchmark $50,000, and assuming the SEC might award them $10 million as a whistleblower, then their members, who paid for the Benchmark study, would have been better off if they had purchased 25,000 Powerball tickets.   The chances of hitting it big are much improved by relying on Powerball rather than relying on Benchmark.  At least they might provide an ancillary benefit to school teachers if the North Carolina house budget is enacted.   The house budget would increase salaries through the sale of lottery tickets (another dubious piece of legislation).


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