My 2013 forensic investigation of the Rhode Island pension recommended the Securities and Exchange Commission examine the state’s investment in an opaque venture fund managed, and sold to the pension in 2006, by former General Treasurer, current Governor Gina Raimondo before she entered politics. Recently the pension was told it will have to remain in the floundering investment for a third year—well beyond the state’s 10-year commitment. Pension stakeholders don’t like unpleasant surprises.
In late 2018, The Providence Journal reported that Point Judith Capital, the Rhode Island venture capital-turned-Boston private equity firm co-founded by Governor Gina Raimondo before she entered politics, had informed the Rhode Island pension it was going to have to remain in the floundering investment for yet another year, even though the state’s initial $5 million, 10-year commitment had long expired.
The pension was scheduled to exit Raimondo’s venture or private equity fund two years ago in 2016 but the firm, supposedly exercising its discretion under a secret agreement the state supposedly signed, extended the life of the investment in 2017 and again in 2018—“at points in time when the investment was described as underperforming at best.”
Point Judith reportedly told the state pension it had no say regarding the 2019 extension and, worse still, according to the Providence Journal, the firm was unwilling to waive the fees it charges.
A spokesman for General Treasurer Seth Magaziner told The Journal that the 2006 Point Judith agreement stated that “80 percent of the fund’s investors were needed to secure such an extension and … more than 80 percent of other investors voted to extend.”
Just another day at the Employees’ Retirement System of Rhode Island.
In my opinion, the facts related to the ERSRI investment in the venture/private equity fund managed by then-investment amateur Raimondo and sold to the pension by Raimondo personally, rise to a level of outrageousness deserving of an expletive-laden rant by Cardi B.
For starters, the public has never been allowed—for thirteen years now—to see the agreements or other documentation related to the pension’s investment in the Point Judith fund.
We’ve just been told—for the first time—by Treasurer Magaziner that the secret agreement allows Raimondo’s fund to hold onto state money another year if 80 percent of investors agree. Why weren’t we told this earlier? Does the 2006 Point Judith agreement provide for further extensions of the life of the fund? Will the pension ever get its money back? Why would state pension fiduciaries ever sign an agreement permitting, to date, 3 years of extensions to a 10-year investment and possibly more?
As a result of the lack of virtually any public, verifiable information about the Point Judith firm, investments and performance, in 2013 I requested from then-Treasurer Raimondo any documents related to the Point Judith investment, including any marketing materials; consultant recommendations; annual reports; statements of portfolio holdings; valuations of portfolio assets; and performance summaries.
The response I received simply stated “Enclosed please find the Power Point presentation that was presented to the SIC and a synopsis of the quarterly returns. Pursuant to Rhode Island General Laws … annual financial audits, Cliffwater’s private equity analysis, and partnerships agreements are not considered public documents.”
In short, Treasurer Raimondo decreed I would not be allowed to investigate amateur fund manager Raimondo. (Perhaps not surprising, her successor Treasurer Seth Magaziner, has continued to withhold from public scrutiny Point Judith and other documents related to the pension’s investments in alternatives.)
This response to my 2013 records request was utterly inconsistent with then-Treasurer Raimondo’s prior public statements regarding the Point Judith documents.
In an April 5, 2013 interview, then-Treasurer Raimondo was asked, “What were the returns like at Point Judith, and are the pitchbooks, portfolio holdings and investment returns available publicly from Point Judith?”
Raimondo’s response was: “The returns, all that stuff is public (emphasis added), so whatever they submit, just like any other private equity firm, whatever they submit on a quarterly basis would be public (emphasis added). They submit quarterly reports on their investment performance, and we have that and that would be public (emphasis added).”
When the Providence Journal later requested the same information, it too was shot down. Most recently, in 2018, the paper said:
“The Journal has again requested, but not yet received, a copy of the investment agreement. The newspaper has also requested, and not yet received, any correspondence documenting the state treasury’s attempt to extricate the state’s remaining money unless the fund managers waive the fees.”
So much for transparency and accountability in Rhode Island.
Bad enough that the public cannot evaluate the merits or performance results of the Point Judith investment, stonewalling by the pension makes it impossible for taxpayers and pension participants to determine whether pension fiduciaries are themselves doing their jobs.
If you can’t see the terms of the investment agreements, you can’t possibly determine whether the pension should have agreed to them.
In my 2013 forensic investigative findings I noted that the Treasurer had made numerous public statements regarding the performance of the Point Judith fund, as well as released summary performance figures which were strikingly divergent: 22%, 12%, 10.9%, 6.2%. An expert commentator had calculated the four-year performance to be -16.7%.
As noted in the late 2018 Providence Journal article, the more recent performance results continue to widely diverge:
“A year ago at this time, the treasurer’s office reported that Point Judith had earned the pension fund 0.6 percent on average each year…
Flash forward to 2018: “The average annual return is 5.7 percent over the life of the fund,″ England (Treasurer Magaziner’s spokesman) said.”
Another concern I noted in my 2013 report was that the fees paid by the pension to Point Judith were significantly higher than the then venture capital industry standard fees of 2 percent and 20 percent. Further, since Point Judith Capital was a small, unproven manager at the time of the state’s investment there was no reason to believe the firm should have commanded a higher fee.
In my opinion, this most recent 2019 extension of the Point Judith fund raises additional questions, including:
When did the pension become aware of the most recent extension?
How do we know the 2006 Point Judith agreement, in fact, states that 80 percent of the fund’s investors are needed to secure such an extension?
How do we know more than 80 percent of other investors indeed voted to extend?
What concrete evidence does the pension possess documenting the voting?
Who are the other investors in the fund?
How many of the other investors are, like Raimondo, insiders of the fund?
For all I know, Raimondo’s Point Judith fund may turn out to be the best investment the state pension has ever made– a rip-roaring, spectacular success. I certainly hope so.
Someday, eventually, we’ll find out how well, or badly, it has performed.
In the meantime, this toxic brew of politics, secrecy, incomplete and inconsistent surprise disclosures involving pension assets should be intolerable to Rhode Islanders. Adding insult to injury is the fact that pensioners had their benefits cut to pay Raimondo’s “pension bonus”– fund fees to supplement her government service earnings over the past 13 years. This is no way to run a pension.