New Jersey and Ohio Embroiled in Scandal?

Andrew Perez and David Sirota wrote an article that was co-published in MapLight, Capital & Main and Fast Company: Ohio, N.J. pension funds invested $625M in hedge fund that controls “National Enquirer” parent:
Taxpayers in New Jersey and Ohio have a large financial stake in the owner of the media company that allegedly helped the Trump campaign bury negative stories, according to documents reviewed by Capital & Main and MapLight.

Under Republican governors, the two states committed at least $625 million of pension cash into Chatham Asset Management, a high-risk hedge fund that has taken control of the National Enquirer‘s parent company, American Media Inc., which is at the center of the federal investigation into President Donald Trump’s 2016 campaign. California’s pension fund also has a $235 million stake in a Chatham fund.

The hedge fund is run by Anthony Melchiorre, a GOP donor who reportedly met with the president and AMI CEO David Pecker at the White House soon after Trump took office. Melchiorre and his wife have donated more than $100,000 to Republican candidates and party committees since 2010.

Trump’s former attorney, Michael Cohen, recently pleaded guilty to breaking campaign finance laws stemming from payments he made to women to hide affairs with the former reality TV star and real estate magnate. AMI executives helped Cohen purchase stories that could have hurt Trump’s presidential bid, according to the Wall Street Journal.

AMI has denied it helped Trump’s campaign, although Pecker was recently granted immunity as part of the Cohen probe. Former FEC commissioner Trevor Potter, the head of the nonprofit Campaign Legal Center, last week said the situation “presents a serious legal problem for AMI.” If those legal troubles end up depressing the market value of AMI, teachers, firefighters, cops and other public employees also could potentially suffer losses at a time when their pension funds are already facing shortfalls.

A New Jersey Treasury Department spokesperson said in an email that its Division of Investment “is in regular contact with its investment partners regarding underlying portfolio companies and provides feedback when appropriate. While DOI plays no role in the management of a fund’s portfolio companies, it expects the funds to invest in good businesses with strong management teams that follow all applicable laws.”

“I am personally appalled by the Enquirer being an accessory to Cohen’s criminal behavior on behalf of the candidate,” said Tom Bruno, a state union representative who is the chairman of the pension’s board of trustees and serves on New Jersey’s State Investment Council, which oversees the pension system’s investments.

“If asked to vote, I can assure you I will be voting for us to divest,” he said. “I cannot talk on behalf of the entire SIC, but I will be doing everything in my power to convince a majority to vote the same way.”

Chatham did not respond to questions about how exposed taxpayers and pension systems might be to AMI and any financial consequences of its legal entanglements. The Ohio pension system did not respond to questions about whether it will seek to divest assets from Chatham.

“State officials are well-positioned and duty-bound to investigate allegations of potential wrongdoing in hedge fund portfolios,” said former Securities and Exchange Commission attorney Edward Siedle.

In 2013, former New Jersey Gov. Chris Christie’s administration moved $300 million of pension cash into the Chatham Fund, LP, which has owned a stake in AMI, according to SEC records. Last year, barely three months before Christie left office, his administration steered another $200 million to another Chatham vehicle. AMI gave $10,000 to a super PAC supporting Christie’s 2016 presidential bid, and Mother Jones reported that Christie placed Pecker on his campaign leadership team.

In 2013 and 2014, an Ohio pension system partially controlled by Gov. John Kasich’s appointees committed $125 million to Chatham. The hedge fund finalized its deal to buy an ownership stake in AMI in the summer of 2014.

The Christie administration’s shift of $500 million into Chatham makes New Jersey retirees a substantial investor in the hedge fund, which manages $3.2 billion in assets, according to state records. Those records show the original $500 million investments are now worth as much as $692 million.

Best known for its lurid Enquirer headlines (“Aliens Are Living in My Toilet“), AMI has been beset by a difficult environment for print publications. Chatham has warned that its investments are risky and that a client “may lose its entire investment in a troubled company.” In early 2018, private equity giant Blackstone removed Chatham from one of its major investment funds.

Along with the public pension funds, four other private pension funds—including those for Ford and Toyota Motors employees—have had investments with Chatham, according to financial research firm Preqin.

AMI represents a large portion of Chatham’s portfolio. Internal hedge fund records from late 2017 show that AMI investments comprised 23 percent of the Chatham Asset Partners High Yield Fund’s portfolio. The hedge fund also has officials who serve as directors at AMI.

Jay Youngdahl, a Harvard researcher who has served as a steelworkers pension trustee, said state officials may be able to take action to try to protect retiree investments.

“There are often clauses in agreements between pension funds and hedge funds that give states certain rights and recourse if they believe retirees’ money has been invested in companies engaging in criminal activity,” he said.
I read this article and thought a few things. First, who in their right mind buys and reads the National Enquirer? I guess the same idiots who buy and read British tabloids but the Enquirer is so 1980s, such mindless drivel which is free and ubiquitous in the age of the internet.

The second thing that came to mind is the article makes some good points but it also makes a lot of unfounded allegations. For example, reading it, you'd think Chatham directed AMI CEO David Pecker to "catch and grab" all negative or sleazy articles that pertain to Trump.

Unless there is proof that Chatham did this, I can't see how any laws were broken on its part. Sure, it controls AMI but it doesn't necessarily control all the sleazy operations that take place there. It could be that David Pecker did all this without Chatham's consent or knowledge (we don't know).

The article also makes some other accusations. A layperson reading this will think Ohio Gov. John Kasich and former New Jersey Gov. Chris Christie directed hundreds of millions into Chatham to repay them for politcal favors. They didn't directly do this, they did it through appointees.

That could be true. In my previous comment, I went over America's broken retirement system, discussing some of the things hampering US public pensions. I discussed how undue political interference in the US has impacted public pensions in negative ways and this is one of them.

Political donors in the US aren't in the charity business, not when it comes to politics, that's not the way the game works. When Democratic or Republican donors give money to politicians, they always expect favors in return, so it's more than likely that Chatham did receive some preferential treatment because it donated to the campaigns of these two governors.

Still, the hedge fund universe is very competitive, Chatham can't solely rely on its campaign donations to get money from state pensions, it needs to deliver strong results.

As this 2016 document of Blackstone's subadvisors shows, Chatham was part of its hedge fund of funds portfolio that was managed by Tom Hill (click on image):

Why am I bringing this up? Because Blackstone Alternative Asset Management (“BAAM”) typically invests in world-class, elite hedge funds (it's made its share of world-class blunders too), so if Chatham passed the smell test there, including intense operational and investment due diligence, then you know it's a legitimate hedge fund which delivers exceptional results (New Jersey Investment Division's own records show the original $500 million investments are now worth as much as $692 million).

Of course, political conspiracy theorists will link Blackstone co-founded by Stephen Schwarzman with Chatham and AMI. Schwarzman is a close friend of President Trump, and has emerged as one of his most generous donors, as well as a key adviser with rare and regular access to the president.

Could it be that Schwarzman directed Chatham to take a controlling stake in AMI and then "catch and grab" all smut related to the president?

Inquiring (more like Enquirer) minds want to know but it's a large stretch to reach such a conclusion. Blackstone exited its investment from Chatham but we don't know why. It could be for all sorts of reasons like they found a more suitable investment but conspiracy theorists will claim Schwarzman wanted to distance himself from Chatham and AMI (again, I don't buy this rubbish).

Would I have invested in Chatham? I honestly don't know enough about it. I couldn't care less if the founder is a big donor to Republican candidates (so is Ken Griffin, Paul Singer and Steve Cohen and I wouldn't flinch to invest in their hedge funds).

The only serious concern I have is that Chatham took control of the National Enquirer and as such had a say it who runs it and how they run their operations. If they knew or directed David Pecker to run a sleazy operation to catch and grab any negative articles against Trump, then they broke the law. Plain and simple.

But again, these are just allegations, any wrongdoing on Chatham's part has to be proven in a court of law. It could very well be they had no clue of what David Pecker was doing on Trump's behalf.

We also don't know if Chatham is looking to sell its controlling stake in the National Enquirer (at a loss) now that these revelations have been made public or if it's going to shake things up in its leadership. Remember, Chatham is still a fiduciary and must act in the best interests of all its investors.

This is why I prefer that public sector unions and politicians stay the hell away from pension investments, they typically make things worse with their recommendations.

US public pensions need independent boards run by qualified professionals and they need to start compensating their pension fund managers a lot better to manage ever more assets internally.

Anyway, in the highly politicized environment in the US right now, it will be interesting to see how all this plays out.

Below, former vice president Joe Biden delivered an impassioned eulogy at a memorial service for the late Sen. John McCain on Thursday, crediting the former POW for living by a "timeless code."

It's sad but they don't make them like John McCain or Ted Kennedy anymore. These two lions of the Senate fought hard for principles they believed in but they always put the interests of their country ahead of their own party's interests. That's the way it's suppose to be.