The Pension Proctologist?

Jesse Burkhart of North Carolina's Triangle Business Journal reports, Here's how the SEC expert will dissect the N.C. pension fund:
If you were expecting quick answers as it relates to the recently launched forensic investigation into the $83 billion North Carolina state pension fund, don’t.

After speaking with Edward Siedle, the man leading the probe, he tells me that the investigation to be performed by his firm, Benchmark Financial Services, will take about three months to complete, although it could take an additional six months for the U.S. Securities and Exchange Commission to decide what to make of his findings once he presents them to the federal agency. Even then, the SEC may decide to investigate the matter itself, which could take a couple of years.

But for those eager to see what Siedle’s personal examination uncovers, get your popcorn ready.

On Friday, a public records request was made by the State Employees Association of North Carolina (SEANC) for Treasurer Janet Cowell’s office to furnish documents pertaining to investments made with money from the N.C. Retirement Systems pension fund. SEANC, the 55,000-member group committed to protecting the benefits conferred by the fund to the state’s 875,000 public workers, hired Siedle, a former SEC attorney, to identify violations of federal securities laws related to previous investment practices with pension fund money dating back to Richard Moore’s time as the state treasurer.

Once Siedle receives those documents, he will compile a 100-page report similar to the one he produced after his investigation of the $8 billion Rhode Island state pension fund, which he says revealed numerous violations of securities laws that he then reported to the SEC.

Siedle will follow the same protocol for the North Carolina fund.

“Forensic investigations of pensions are like 'CSI Miami,'” he said. “We go into a room, there’s a dead body, and the question is, did it die of natural causes, or was there foul play? Only the dead body we’re looking at is dead investments or investments that are faltering.”

The investigation will focus on identifying improprieties that include fraud, conflicts of interests, undisclosed payments or fees, excessive payments or fees, and other violations of securities laws.

To identify such improprieties, Siedle will rely on several sources of information.

The primary source will be the documents that SEANC has requested from Treasurer Cowell’s office. Beyond that, he will comb through information that he describes as being “hidden in plain view,” or information that any person can find on the internet, if that person knows what he or she is doing. And as one would expect any sleuth to have, he has “independent sources” he says he’ll tap along the way.

But for now, the process can only go as fast as Treasurer Cowell wants it to. Before Siedle can get the ball rolling, he first needs Cowell to pass it to him by supplying the documents that SEANC requested on his behalf. That’s when we can flip the hourglass on his 90-day investigation, which will offer an independent yet comprehensive view of how deep the relationship between North Carolina’s pension fund managers and Wall Street runs.
For those of you who don't know Edward "Ted" Siedle, he writes a column for Forbes and is the founder of Benchmark Financial Services. He has gone after Rhode Island's State Treasurer, Gina Raimondo, and produced a comprehensive 100-page report outlining excessive fees Rhode island paid to alternative investment managers, all part of the secret pension money grab and Wall Street's license to steal (you'll recall Ms. Raimondo is one of the heroes in Jim Leech and Jacquie McNish's book, The Third Rail, but not everyone is as enamored by her pension reforms).

I had a chance to speak to Edward Siedle last month. He immediately impressed me. He's a former Securities and Exchange Commission lawyer who investigates money managers on behalf of pension funds and he's seen it all. He also made me laugh hard when I asked him if he's a popular guy and he replied: "Let's just say in a world of cosmetic surgery, I'm a proctologist, l shine flashlights up people's asses."

Edward Siedle's latest column in Forbes, North Carolina State Workers Demand Treasurer Release Pension Records, is well worth reading:
Last week I disclosed in Forbes that the State Employees Association of North Carolina, a state workers association with 55,000 members had retained my firm to conduct a forensic investigation of the $83 billion North Carolina pension system. The good news, as reported by Jesse Burkhart in Triangle Business Journal, is that State Treasurer Janet Cowell’s office says it will cooperate with the investigation. We’ll soon find out just how forthcoming Treasurer Cowell is willing to be. Let’s hope for the best.

Public pensions are generally subject to state freedom of information statutes which should make these massive investment funds leaders in transparency. To-be-sure, I’ve never met a public pension official who didn’t claim to embrace open government. However, as public pensions swiftly moved to bail-out Wall Street post-2008 by dramatically increasing their holdings of the highest-cost, highest-risk investment products ever foisted upon unsuspecting workers, transparency has taken a body-blow.

Today public pensions have almost 25% of their assets tucked away in alternative investment funds the records as to which Wall Street and its public pension pigeons have agreed will never be disclosed to the public– including the workers who depend upon these funds for retirement security.

Wall Street, working hand-in-glove with public pensions, has thwarted public access to critical investment information by successfully arguing in state-after-state that–wait for it– copies of offering documents provided to thousands of prospective investors globally, i.e., members of the public and their financial advisors, contain top-secret proprietary business information that, if revealed to the public, would result in irreparable harm.

Across the nation public records requests related to public pension investments in hedge, venture, private equity and real estate investment have been denied. Even more ironic is the fact that the overwhelming majority of the disclosure in alternative investment documents is common boiler-plate. Trouble is, the boiler-plate toxic provisions pervasive in these agreements crafted by Wall Street are so blatantly unfair that, if revealed to the public, would spark outrage.

Secret agreements that allow mystery investors, aka hedge fund insiders, to profit at the expense of clueless state pensions? That’s precisely the type of violation of state law the documents permit.

It gets worse. In a 2012 lawsuit filed in California state court by Reuters America, Reuters argued that the state Public Records Act required disclosure of investment-return information for the university system’s $11.23 billion endowment fund. Last month, in a decision that could broadly affect how public-records laws are interpreted, the court ruled that the University of California is under no obligation to obtain and disclose information on the investment performance of venture capital funds in its portfolio.

Gotta love this: the frickin’ university claimed that it did not even have the return information in its possession. Ouch! You’d think someone at UC would wanna know whether they’re making or losing money for the endowment fund.

Never before in the history of this nation has 25% of public pension monies been sucked into a supermassive impenetrable black hole that the stakeholders, including pension participants and taxpayers, cannot possibly fathom.

In our first request for information last week, we asked Treasurer Cowell to provide the following information regarding the Teachers and State Employees’ Retirement Systems
of the State of North Carolina (“TSERS”).
  1. Please provide copies of the offering memorandum, prospectus, subscription agreement and/or investment advisory contract related to each investment (including real estate, hedge, private equity and venture capital funds) in which TSERS has invested since January 1, 2003, including any investment advisory fee waivers, “side-pockets,” or other documents amending or altering the applicable fees or terms.
  2. Please provide disclosure of the total annual fees applicable to each of TSERS’s investments since January 1, 2003, including any fund-of-fund and manager-of-manager multiple layers of fees; asset-based fees; operating fees and expenses; and performance fees by manager or fund, and disclosing each of the components of the applicable fees and expenses separately.
  3. Please provide copies of any documents related to the payment of any compensation paid to intermediaries, including but not limited to placement agents by TSERS or any of its investment managers for the period from January 1, 2003 through January 2014 and disclose with respect to each payment and arrangement, the party making the payment; the services provided in exchange for the payment; the party receiving the payment and the amount of the payment.
  4. Please provide copies of any documents related to any correspondence since January 1, 2008, between the Treasurer’s office and/or TSERS and the United States Securities and Exchange Commission; the Federal Bureau of Investigation; or any other securities regulator or law enforcement agency related to TSERS or its investments.
“We’re pleased that State Treasurer Janet Cowell has said publicly that she will cooperate with the investigation,” said SEANC Executive Director Dana Cope in a statement. “We’re taking her at her word and are ready to get started.”
As I stated above, I like Edward Siedle because he tells it like it is. I don't agree with all his views but we need more proctologists like him shining flashlights up people's asses, exposing the bullshit in hedge funds, private equity, real estate, stocks, bonds, commodities, and especially public pension funds that feed the monster aiding and abating Wall Street's license to steal.

By the way, every single pension fund I cover on my blog has dirty secrets they do not want you to know about, every single one of them (some are just better at hiding their skeletons than others). And when I get people contacting me from all over the United States telling me about shady or illegal activity at their public pension fund, I just tell them to contact Edward Siedle at Benchmark Financial Services (his email is He's always looking to sink his teeth into fraudulent or questionable activity.

As far as North and South Carolina, they and many other public pension funds are praying for an alternatives miracle that is unlikely to happen. CalPERS, the largest U.S. public pension fund, is desperately trying to revamp its private equity portfolio following the scandals that rocked their fund but Réal Desrochers and his team still have a lot of work ahead of them to clean up that mess.

Finally, one pension expert shared the following with me:
The problem is returns needed to make the pension math work are pretty hard to achieve over the long term, which lead to more complicated return generating ideas, and doing more complicated investments costs fees, or more internal costs, really the same thing. It costs a lot simply to try to generate superior returns, let alone actually succeeding in doing so.
If you want to end the search for high returns, double the contribution rates, half the benefits, and you can go back to simpler portfolios like the good old days. If workers/unions/pensions/Boards want the illusion of a free lunch from the market simply by taking risk and expecting returns, then don’t get mad at or blame the people and machinery that serves those desires.
It’s really all about governance, and in the instances of pensions, making promises one can actually keep. Bringing in the proctologist is fine, but a nutritionist to revisit what you should eat and why in the first place might be more productive.
Below, a March 2012 Bloomberg clip with Edward Siedle of Benchmark Financial Services. I hope to see his business flourish because there is a real need to investigate not only money managers but also public pension funds engaging in risky and shady activity.

And take the time to read my recent comment on the real wolves of Wall Street and how they dump structured crap in your pensions. I need to write my book, and hopefully Edward Siedle and a few others can contribute because too many people are clueless on the shenanigans going on in Wall Street and public pension funds that feed the monster.