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April 15, 2013 10:00 AM The Man Who Wants to Protect (and Eliminate) Teachers’ Pensions

By Daniel Luzer

DanLoeb

This week Dan Loeb (right), the head of a firm called Third Point Capital, will be soliciting some new business. Third Point, an $11.6 billion New York-based hedge fund, appears eager to grab new some clients, particularly teachers unions. This would be a very, very risky decision for teachers.

The retirement packages available to American teachers are one of the more attractive aspects of the profession, one that doesn’t pay particularly well and is rather demanding. As most corporations shed pension plans in favor of 401(k)s, which essentially leave people responsible for their own retirement, teachers have held on to this major benefit. Good for them.

And now Loeb wants to help them? Well, that’s where this gets tricky. On April 18, according to a piece in Rolling Stone by Matt Taibbi:

Loeb will speak before the Council of Institutional Investors, a nonprofit association of pension funds, endowments, employee benefit funds, and foundations with collective assets of over $3 trillion. The CII is an umbrella group that represents the institutions who manage the retirement and benefit funds of public and corporate employees all over America - from bricklayers to Teamsters to teachers to employees of Colgate, the Gap and Johnson and Johnson.
Loeb will almost certainly be seeking new clients. There will be some serious whales in these waters: For instance, CalSTRS, the California State Teachers’ Retirement System, will definitely be represented (Anne Sheehan, the director of corporate governance for CalSTRS, will be moderating Loeb’s panel).

Loeb is something of a financial whiz kid, responsible for an average 25 percent return and his strange habit of writing public letters expressing disapproval of the performance of financial executives, largely for not making their companies enough money. He is, of course, not a teacher or public employee.

But that doesn’t mean he has no experience in education. As Taibbi reveals, Loeb is a co-founder and board member of Students First, political lobbying organization dedicated to public school reform.

Right, that group. You know, the advocacy organization founded by former Washington, DC schools chancellor Michelle Rhee and closely affiliated with all sort of conservative polices like eliminating collective bargaining and helping more students attend private schools with government money.

Another Students First policy is the elimination of publically supported pension funds.

That’s right, the guy potentially interested in getting a contract to manage and ensure the security of teachers’ pension funds is on the board of an organization that recommends eliminating those funds.

This is the sort of thing we might call a potential conflict of interest. Or as we might also say holy shit, what?

This is sort of like having someone on the board of Phillip Morris lobbying to manage the finances of an organization devoted to reducing teen smoking.

Finances are complicated, of course. One might argue that, after all, lots of businessmen and financiers have personal and public policy agendas that appear potentially complicated but don’t actually impact their ability to successfully do their jobs. Mitt Romney was vaguely opposed to abortion. That didn’t stop his company from investing in a medical waste corporation that disposed of aborted fetuses. But no, the motivations of Students First aren’t really that complicated. Vice President for Fiscal Strategy at Students First Rebecca Sibilia recently tweeted this to her followers:

Outdated & underfunded #pension systems like CALSTERS break promises to #teachers#edreform #thinkED http://huff.to/15vdALJ via @HuffPostEdu

And now Loeb wants to work with CalSTRS, really?

Maybe the smoking analogy is wrong. Maybe it’s more like this: Having Loeb have anything to do with CalSTRS or any other teacher retirement fund is sort of like if someone like social security privatization advocate Maya MacGuineas tried to get a contract to do accounting for the United States Social Security Administration. Yea, she’s good at crunching numbers and analyzing policy, but come on. I’m sure Loeb doesn’t want to fail with regard to teachers’ pensions, but he doesn’t really have the inclination to do go above and beyond the call of duty to do a good job and keep the system sustainable, does he?

It’s not all that farfetched to imagine a scenario in which Loeb concludes something like “oh yea, sure I wanted to help save teacher’s pensions but guess what, I’ve run the numbers and it’s just not going to work. It’s not sustainable. So guess it looks like we’re going to have to end defined benefits.” Sorry guys. [Image via]

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer

Comments

  • Andrew on April 16, 2013 6:39 AM:

    I want to protect teacher pensions fiercely too, given how many teachers are among my close friends and family, but this article reads like a joke. Pension funds invest partly in hedge funds to earn a return. Those hedge funds typically get a 20% cut of the client's earnings in years when the return is positive, plus a 2% management fee each year. Meaning that the fund manager has incentives both to earn maximum profits for his clients and also for those clients' available capital to stay large. Gutting the pension fund would be a clear bad thing from the manager's perspective. What gives, Dan?

  • Ron Mexico on April 16, 2013 9:45 AM:

    In Illinois financial services companies made a big push in the mid-aughts to get the state to rewrite its pension fund regulations to allow the retirement systems to invest in riskier investments. The fund managers pushed back, and the regs. did not change. So the financial services companies used their pull in nonprofit organizations (Civic Federation, City Club) and the media (Tribune) to manufacture a pension crisis.

    I'm not exactly sure what Andrew's point is, but risker investments give in higher returns exactly what they take in steeper losses. If the primary cause of Illinois pension underfunding is failure of the state to contribute what it promised, a secondary cause was the financial crisis which eroded the value of the state's portfolio. This would undoubtedly have been worse if we were up to our ya-yas in high-risk investments.