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SEANC audit claims NC pension paying exorbitant management fees

Posted February 28

— The State Employees Association of North Carolina has accused the State Treasurer's Office of hiding millions of dollars paid to money managers handling the state's $86 billion pension for state employees, teachers and retirees.

The Treasurer's Office says it pays about $416 million a year to outside money managers to handle the pension's stakes in hedge funds and alternative investments. SEANC obtained thousands of pages of documents through a public records request and hired an auditor to crunch the numbers, and the auditor said in a Thursday letter to Treasurer Janet Cowell that "massive hidden fees" haven't been disclosed.

The auditor, Florida-based Benchmark Money Management Intelligence, cites Chapel Hill-based Franklin Street Partners as an example. The Treasurer's Office says it paid the firm $2.6 million in 2013, but Benchmark argues that Franklin Street acts as a middle man and contracts with other money managers, and none of those fees are reported.

Benchmark estimates that Franklin Street is actually paid $16 million a year, and that the unreported fees to the firm since 2002 could top $120 million.

Franklin Street said Benchmark's "claims are terribly inaccurate and misleading."

Schorr Johnson, a spokesman for the Treasurer's Office, said a recent review of North Carolina's pension management fees found they are lower than industry standards.

The uncertainty frustrates state employees.

"There's no way we should be spending millions of taxpayer and member money and not have any idea who's getting paid," said Charles Johnson, who works at Central Prison.

"They're hiring other people to manage it and then everybody gets a cut. Everybody's getting rich off this except the state employees and retirees," said Ardis Watkins, SEANC's legislative affairs director.

22 Comments

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  • westernwake1 Mar 3, 6:12 p.m.

    Are fees not based upon returns?

    — Posted by stymieindurham

    For most hedge funds (alternative investments), the fee is 2% of the capital under management and 20% of the returns generated over the year (paid quarterly).

    The reality is that most alternative investments under-perform the S&P 500 but they generate significant amounts in fees for hedge fund managers.

    Also there are many "fund of funds" firms that simply take money in to invest in other alternative investment funds - these basically create a large pyramid of fees that can easily extend to towards a 4% total management fee and 35% total performance fee.

  • stymieindurham Mar 3, 5:22 p.m.

    Are fees not based upon returns?

  • JustOneGodLesThanU Mar 3, 1:57 p.m.

    "Franklin Street said Benchmark's "claims are terribly inaccurate and misleading."

    Go on, I'm listening...

  • westernwake1 Mar 3, 1:25 p.m.

    Here is an earlier Forbes article on the NC pension investigation.

    North Carolina State Employees Union Hires SEC Expert For $83 Billion Pension Forensic Investigation

    http://www.forbes.com/sites/edwardsiedle/2014/01/06/north-carolina-state-employees-union-hires-sec-expert-for-83-billion-pension-forensic-investigation/?commentId=comment_blogAndPostId/blog/comment/1066-3429-120

  • westernwake1 Mar 3, 1:22 p.m.

    Edward Siedle and Benchmark Financial Services are pretty well known for pension fraud investigations. The firm is small but primarily focused on public (government) pension funds. You can get a sense of their work at his twitter feed.

    https://twitter.com/EdwardSiedle

  • GoHeelsGo Mar 3, 12:59 p.m.

    btw..."Benchmark Money Management Intelligence" sounds pretty sketchy to me. That's an auditing... View More

    http://www.benchmarkalert.com/index.php

  • Wake1 Mar 3, 12:58 p.m.

    The more complicated they make these investments seem, the more fees they can generate!!! State Employees are being ripped off!!!

  • rtb Mar 3, 12:42 p.m.

    Mr. Browder - Did performance of the investments improve? Did it improve to more than cover the cost of the increased fees? Yes and yes. Then, why sir is this a story? Throw out a large number like $416 million and get your public reaction. But less than 0.5% is very small. Would you rather put the money in the bank and earn less than 1% gross interest revenue? You have to spend some money to make money. The question should be, why is the SEANC wasting money on an audit when performance in the fund has improved dramatically since Secretary Cowell made these changes. btw..."Benchmark Money Management Intelligence" sounds pretty sketchy to me. That's an auditing firm? The only thing that came up when I googled them was this story, not a company website.

  • goldenosprey Mar 3, 12:13 p.m.

    This isn't about partisan politics. Ms. Cowell was wrong when she asked to risk even more of the fund with risky, expensive investments. One of the few remaining benefits of state employment is a dependable retirement fund (unlike 401Ks that can half-vanish in a month like mine did in '08). State employees don't get competitive salaries, or raises and are lambasted as "seatwarmers" by their executive. Do they have to be soaked by the private for profit non-job creating middleman too?

  • dollibug Mar 3, 12:13 p.m.

    CORRUPTION AND COVER UP IS ALIVE AND KICKING ALL OVER NC. It is sad to know that NO ONE keeps up with what is going on and reporting what they find. Lack of communication, training and interpretation of the laws or rules or regulations. NC IS A MESS, A BIG MESS.

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