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AFT Report Highlights Hedge Fund Managers Who Secretely Work to Undermine Pensions

AFT President Randi Weingarten

A new report from the American Federation of Teachers (AFT) lists 34 executives at hedge funds and investment firms who help make contributions to or are leaders of organizations with a negative view on traditional pensions. In naming these executives the union is hoping to persuade other unions to stop investing the flow of pension funds to groups with close ties to those who want to radically change pensions.

Among the more notable figures listed is “financial whiz” Dan Loeb. Loeb is currently being accused of playing both sides of the teacher pensions game, courting pension systems while simultaneously being involved with Students First, an extreme anti-union group. Now, unions want action in stopping this vicious cycle of greed.

Michael Powell, an assistant to AFT President Randi Weingarten told the Wall Street Journal:

“Does the American Federation of Teachers think they should divest [from firms named in the report?] The answer would be yes.”

The combined assets of the American Federation of Teachers nationwide is around $800 billion. Pension systems have looked to outside help from hedge funds in recent years in hopes of bigger returns. Now, they are facing the reality that they are investing with people who would like to put an end to pensions as we know them:

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

The report has already put pressure on some of the 34 executives listed. One of those is Daniel Loeb of Third Point, LLC. Loeb cancelled his speaking engagement Thursday at the Council of Institutional Investors Conference in Washington DC. According to the Wall Street Journal, he did so citing “false reports” about his involvement with Students First New York. He wrote a letter to the CII which can be read here (but probably not believed). WSJ’s Michael Corkery provides context:

In a letter, Mr. Loeb cited “false” media reports about his affiliation with an education group.

Mr. Loeb is a trustee of the Manhattan Institute and a director of Students First New York.

In February, the Manhattan Institute released a paper that recommends switching government workers to 401(k) accounts.

In a statement, a spokeswoman for Students First New York said, “teachers should be empowered to choose between a properly funded portable defined contribution plan and a properly funded defined benefit plan for their retirement.”

In a letter announcing that he wouldn’t speak at the conference, Mr. Loeb said he has never taken “a position against” defined-benefit plans, “nor has any philanthropic organization I lead.”

Mr. Loeb added that he shows his “support” for traditional pension plans “by maximizing returns for union members who rely on us to deliver their pensions’ goals.”

A spokeswoman for the Manhattan Institute said it “doesn’t take institutional positions” but “stands behind the work that it publishes.”

The previous week, Rolling Stone’s Matt Taibbi wrote an article on this very matter titled, “Dan Loeb Simultaneously Solicits, Betrays Pension Funds.” He touches on the hypocrisy of the April 18th speaking engagement that Loeb eventually cancelled:

On April 18, Loeb will speak before the Council of Institutional Investors, a nonprofit association of pension funds, endowments, employee benefit funds, and foundations with collective assets of over $3 trillion. The CII is an umbrella group that represents the institutions who manage the retirement and benefit funds of public and corporate employees all over America – from bricklayers to Teamsters to teachers to employees of Colgate, the Gap and Johnson and Johnson.

Loeb is going to be, in essence, pitching his services to these institutional investors. He already manages the money for several public funds, including the Ohio Public Employees’ Retirement System, the New Jersey State Investment Council, the Sacramento County Employees’ Retirement System, and the City of Danbury Retirement System. To give you an idea of the scale, New Jersey alone has $100 million invested with one of Loeb’s funds.

When he comes to speak at CII, Lobe will almost certainly be seeking new clients. There will be some serious whales in these waters: For instance, CalSTRS, the California State Teachers’ Retirement System, will definitely be represented (Anne Sheehan, the director of corporate governance for CalSTRS, will be moderating Loeb’s panel).

But here’s the catch. Dan Loeb, who isn’t known as the biggest hedge-fund asshole still working on Wall Street (only because Stevie Cohen hasn’t been arrested yet), is on the board and co-founder of a group called Students First New York. And Students First has been one of the leading advocates pushing for states to abandon defined benefit plans – packages which guarantee certain retirement benefits for public workers like teachers – in favor of defined contribution plans, where the benefits are not guaranteed.

In other words, Loeb has been soliciting the retirement money of public workers, then turning right around and lobbying for those same workers to lose their benefits. He’s essentially asking workers to pay for their own disenfranchisement (with Loeb getting his two-and-twenty cut, or whatever obscene percentage of their retirement monies he will charge as a fee). If that isn’t the very definition of balls, I don’t know what is.

Leave it to the amazing Matt Taibbi to tell it exactly how it is. Loeb’s underhandedness has also been highlighted by Crooks and Liars which broke out the Gordon Gecko references to describe Loeb:

If this isn’t Gordon Gecko writ large, I don’t know what is. “Hello, teachers. Invest with me, and I’ll make sure your pensions make a lot of money by eliminating your jobs! And your pensions, too — even after they’re entrusted with me for maximum investment return.”

Crooks and Liars also points to a 2010 investor letter from Loeb that earned the scorn of RJ Eskrow as another example of Loeb’s unparalleled greed.

A hedge-fund manager’s “investor letter” — really more of a staged, theatrical tantrum — has been getting a lot of attention lately. Daniel S. Loeb’s diatribe demonstrates that banker greed is still out of control, and that it’s as shortsighted and destructive as ever. The fact that Loeb is a registered Democrat and former Obama supporter doesn’t matter as much as some people think. It’s the same old story: Politics is just a means to an end, and the end in this case is self-enrichment.

If Loeb’s pose as Hedge-Fund Revolutionary seems like a ridiculous form of populism, remember: The Tea Party began with an angry outburst on the Chicago Board of Trade, from traders who were outraged that homeowners might be given a fraction of the aid bankers received. Loeb’s letter is mostly a marketing ploy, but if he can become the Robespierre of the Hedge-Fund Revolution I’m sure that would be fine with him, too.After all, that would be good for business.

In other words, Dan Loeb is only looking out for Dan Loeb and teachers pensions are far too important to leave in the hands of Wall Street players with bad reputations.

The AFT report also shows that such investments don’t always yield the best results for pension systems:

“For the fourth consecutive year, most hedge funds failed to beat the market. The average hedge fund gained 6.4 percent last year, according to a composite index that tracks 2,200 portfolios compiled by Hedge Fund Research. By comparison, the Standard & Poor’s 500-stock index climbed 16 percent when factoring in dividends. In 2011, the average hedge fund lost more than 5 percent, versus a 2 percent gain for the S&P 500. Despite those returns, investors put nearly $25 billion into hedge funds, bringing the industry’s total assets managed at $2.6 trillion, according to the eVestment research firm.”

The AFT also provides background on Students First, the anti-union scumbag organizations that Loeb is allegedly involved with:

StudentsFirst has repeatedly attacked defined benefit pension plans. StudentsFirst’s policy position on pensions explicitly notes that states should move away from defined benefit plans. A recent StudentsFirst report card evaluated states based on their pension policies, giving highest marks to states that required participation in cash balance or defined contribution plans, and lowest marks to states offering only defined benefit plans. This was an “anchor policy” for the report card, meaning that it was weighted three times as much as other policies.

It will be interesting to witness the impact of this report. Will unions cease the investment of their funds with those who are helping to chisel away at their very pension structure? The AFT’s position of divestment provides some hope that those who push for the corporate education model will soon feel the only kind of displeasure they respond to — financial.


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