MOSERS thought money was in cash, not Madoff fund
There’s a lot of difference between a cash investment — essentially short-term, liquid securities that you could sell at any time to pay your bills — and a Ponzi scheme. But cash is exactly where the Missouri State Employees Retirement System thought it had the $3.5 million that turned out to be invested with Bernie Madoff, MOSERS Executive Director Gary Findlay said this afternoon.
In a phone interview, Findlay said he only learned of the exposure to Madoff this week. The $3.5 million was part of an investment that MOSERS made through Silver Creek Capital Management, a fund-of-funds manager. Silver Creek invested in another fund, which in turn placed the money with Madoff. Findlay would not identify the second fund, citing possible litigation.
He made clear, though, that he thinks that fund manager was guilty of fraud for failing to disclose the Madoff investment. “We’re still in the process of discovery, trying to determine where the party would be that would be most clearly responsible,” Findlay said.
Findlay also said he doesn’t mind the questions that Clint Zweifel, the new state treasurer is asking about MOSERS’ investment process. Here’s his response to Zweifel’s news release, which we summarized in a previous post:
These are policy issues for the board to take a look at, to determine whether the procedures we have in place are adequate or need to be reviewed. … It’s a fair question for a new trustee, and something he should have the opportunity to discuss with the board.
Meanwhile, MOSERS has posted a brief note on its website, emphasizing that the loss amounts to just 0.06 percent of the pension fund’s assets.
(No Ratings Yet)
Loading ...
David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
If a portfolio — whether of a pension fund or an individual — is extensively diversified, then it is bound to have some investments in it that will perform very poorly through various combinations of bad luck, poor judgment, and even fraud. Regulatory agencies at the federal and state level generally suppress the amount of outright fraud, but can never be 100% effective at it considering the huge rewards that will always be available to sleazeballs who can pull it off successfully.
One thing that this case illustrates, however, is the financial naivete involved in “layered” investing, whereby one slick-talking money manager earns fees for his “expertise” at investing with another money manager, who thereupon charges more fees for an alleged ability to “beat the market” with various obscure investments.
All of these fees are, naturally, passed on to the owners of the portfolio. In the case of pension funds, these “outside management fees” added onto the salaries of the managers of the funds. This constitutes another type of “pyramid scheme” that smart investors should avoid, even though it is perfectly legal, because it only enriches so-called “financial professionals” at their expense. An important element of doing so is to either invest in low-cost index funds or to buy and hold an assortment of stocks and bonds.
MOSERS’ exec Findley posts earlier mid year ‘08 with annual summary at: http://www.mosers.org/assets/pdfs/2008_annual_report/MOSERS_summary_annual_report_2008.pdf
The report shows on p.4 “Investment income - investing activities” 92% LOSS since previous report mid year ‘07. The amount was reported as $1,188,821,296. So whatever MOSER lost to Madoff is not much compared to what Findley & Co. pulloff. The “Investment expense payable” increased from $0 to $35,094,903 the annual report states. P.4 of the report shows other figures, noteably I’m sure it is not fair of me to simply point out one or two figures and then make a layman’s pot shot conclusion. But then, the economy is failing fast and shooting fish in a barrel is just part of the circus.
MOSERS’ investment exec Dahl, last posted pressrelease at: http://www.mosers.org/news/investment_returns.asp shows a handy PIECHART of various investments at midyear ‘08 hearlding great overall success during the last 8 yrs, eventho this midyear report was slightly off pace.
Where is the MOSERS’ current report, stating some obvious losses due to the world economic meltdown? I’m not nearly as worried about a “MADOFF 0.06% loss” as I am concerned about the MOSERS’ current exposure to the markets.
wild;)
Wild, be careful about the numbers you throw around. The investment income figure you cite from the annual report is NOT a 92 percent loss. It simply means that investment income was still positive in fiscal ‘08 (which ended June 30) but that it was 92 percent smaller than in fiscal ‘07. That’s not surprising, given what happened in financial markets. The key figure in that annual report was the funding ratio, which stood at 83.4 percent.
To MOSERS’ credit, they’ve been responsive whenever we have asked questions about the market’s impact on the fund. A midyear report for them would be as of 12/31, and I would think we’ll be able to get that figure in the next couple of weeks.
LOSS was a terrible way for me to describe the $1,188,821,296 (92%), I should of said CHANGE, just as the MOSERS report published. I’m very sorry for my misstatement.
wild;)