Goldrick: Greenwich Pension Fund Performance is a Scandal

Letter to the editor submitted by Sean Goldrick, who served two terms as a Democratic member of the Greenwich Board of Estimate and Taxation.  He lives in Riverside.

During Tuesday’s forum featuring the seven Republican candidates for the Board of Estimate and Taxation, Greenwich’s finance board, challenger Karen Fassuliotis referred to the poor performance of the town’s pension fund as “a crime.”

Whether the fund’s chronically poor performance constitutes a crime is not clear. It is certain, however, that it is a scandal.

Indeed, the Retirement Board’s more than decade-long mismanagement of the pension fund management, and the failure of the BET to push for reforms, is revealing of the deep-seated cronyism of Greenwich town government.

When I joined the BET in early 2012, I was appointed the Democratic liaison to the Retirement Board.  Greg Bedrosian was appointed as my Republican counterpart.  Both of us quickly realized that the pension fund was being mismanaged.  A report from the pension fund’s investment advisor, New England Pension Consulting (NEPC), revealed that for years the fund had underperformed more than 90% of similarly sized municipal pension funds.

Though not reflected in the poor performance figures, because the Retirement Board refused to present its performance “net of fees,” it was clear that the fund was paying very high fees on its  investments.  When I pointed that out to the RB members, instead of attempting to reform the portfolio, the board acted to conceal those fees from the public.

We urged the RB to calculate relative performance on a net-of-fees basis to show actual performance, and reveal how much those fees were eating into actual returns.  Yet the RB adamantly refused to do so.  To this day, we still do not know how bad Greenwich pension fund’s real performance was because of that refusal to show performance net of fees.

The Retirement Board attempted to make up for previous years of underperformance by investing heavily in private investment vehicles, including private equity and debt funds.  But those investments also went badly.  When it was pointed out that the funds were underperforming the broad-based private equity and debt funds indices, instead of reevaluating the investments, the board reacted by eliminating the indices from their reports, preventing the public and the BET from knowing just how badly their investments were performing on a relative basis.

Another problem clearly was the low exposure to equities.  A bizarre legal opinion by the town’s in-house counsel interpreted state statues as requiring the pension fund to limit equities to 60% of assets.  I initiated the effort to get that percentage increased.  Ultimately, the RTM agreed to a relatively low, yet higher, exposure of 75%.

Early on, Bedrosian and I, joined by municipal finance expert and BET member Randy Huffman, worked to alert the BET to the problems with the pension fund.  We repeatedly urged BET chair Mike Mason to take action, which we believed should include outsourcing of the pension fund.  Both Bedrosian and I alerted our respective caucuses about the problems.  Yet instead of taking action to implement needed reforms, our calls were ignored by both caucuses.  When we lined up a municipal pension consulting firm to talk with us about potential reforms, Mason repeatedly refused to attend.

Despite our efforts, or perhaps because of our efforts, after two years, BET chair Mike Mason and the majority Republicans removed me from my position as Democratic liaison to the Retirement Board.  Bedrosian left the BET and was replaced by Bill Drake.  I was replaced by John Blankley, who the Republicans believed would not continue to advocate for pension fund reform; they were right.  Indeed, over the next two years, the BET liaisons made no effort to reform the pension fund.  (Ironically, Blankley, who refused to support our efforts to reform the pension fund, is now running for the position of state treasurer, which is responsible for managing the state’s teachers and state employee pension funds.)

The pension fund continued to make poor investment decisions, investing in an energy fund not long before the price of oil collapsed.  The board purchased mutual funds that carried high front-end loads and back-end loads, in addition to high annual fees.  An investment in emerging markets debt suffered a heavy loss, as did another private vehicle that invested heavily in shipping firms.

Through it all, the BET did nothing.  It is important to keep in mind that it was the BET itself that demanded that the Retirement Board bring management of the pension fund in-house over a decade ago, claiming that fees paid to the outside manager were too high.  Yet once managed in-house, the BET made no effort to keep expenses low, nor to act to improve performance.

In 2015, Randy Huffman and I authored a white paper on the pension fund for the BET, detailing its failings.  The white paper was referred to the Investment Committee of the BET, which was chaired by Bill Drake, for consideration.  Yet Drake refused to bring it up for discussion.

In 2016, NEPC’s contract as the pension fund’s sole investment advisor came up for renewal before the BET.  I had argued strenuously that the pension fund’s miserable performance under NEPC’s guidance should require Greenwich to change advisors.  Yet the Retirement Board recommended that NEPC be rehired.  During the debate on NEPC’s contract extension, I argued that “if even one BET member votes for this new contract, Greenwich taxpayers should be outraged.”  Yet when the vote was taken, only Randy Huffman and I voted against a new contract for NEPC.  Despite miserable investment performance, ten BET members voted for the contract, including Mike Mason, Leslie Tarkington, Nancy Weissler, and Bill Drake, all of whom are seeking re-election this year.

Let’s be clear that the Democrats on the BET share the blame for both the poor performance of the pension fund, and their failure to back sorely needed reforms.  Despite repeated urgings, Jeff Ramer, the longest-serving Democratic BET member, and current chair of the Greenwich Democratic Party, remained silent, and refused to provide any support for the reforms we advocated.

The Retirement Board finally voted this year (barely, in a 3-2 vote) to outsource the fund to investment management firm Neuberger Berman.  Yet town taxpayers and voters deserve an explanation as to why these BET members, including several seeking re-election, looked the other way while the fund, year after year, for well over a decade, registered investment returns that lagged that vast majority of comparable municipal pension funds.  I believe that the failure to achieve even median performance over the past decade cost town taxpayers millions of dollars.  And if the true impact of the high-fees paid by the pension fund were calculated, I believe that we would see that fund’s performance was even worse than reported.

While the Retirement Board is directly responsible for its chronic mismanagement, the BET is also culpable for wasting millions of taxpayer dollars by refusing to advocate for reforms.  Mike Mason, the chair of the BET, should take particular responsibility for his refusal, despite repeated calls for action, to do anything to push for reform, and for giving multiple contract renewals to NEPC despite the fund’s extremely poor performance under its tutelage.

The Greenwich pension fund’s mismanagement has been a scandal for years.  But the bigger scandal is the the extent to which our system of government has let down the voters and the taxpayers by failing to take action for reform.  While the fund is now in the process of being outsourced, our town government requires serious reforms so that this sort of chronic failure does not recur.  Voters and taxpayers deserve no less.