by Amaury E. Nora
ePluribus Media
Also posted on Dailykos
The Republican Party is rarely considered a friend of affirmative action, but consider the case of Thomas Noe, the Lucas County Republican chairman, the chairman of President George W. Bush’s 2004 reelection campaign in northwest Ohio, and the subject of a scandal involving his dealings with one of that state’s pension funds.
A lawyer for Noe, who is also president of Vintage Coins and Collectibles, recently informed the Ohio Workers Compensation Bureau that Noe couldn’t account for as much as $13 million of the $50 million that the agency’s pension fund put into a coin-investment fund also controlled by Noe.
How did Noe obtain the $50 million in the first place? Through his participation in Ohio’s so-called “emerging managers” program, which is traditionally used to help firms controlled by black, Hispanic, Native American and other minorities qualify to manage government pension-fund assets. The fact that Noe is white didn’t appear to matter any more than the numbers did. As he was losing track of $13 million, he also charged over $3 million in money-management fees. At roughly two percent of assets under management per year, this was a very high fee even for a top tier operation, let alone one whose manager used the fund’s assets to make purchases from a business that he controlled.
The Noe scandal is one of a series of troubles that have plagued the Ohio Workers Compensation Bureau pension plan, and in particular its emerging managers program, which an independent watchdog criticized for “highly politicized” allocations of assets to questionable money managers.
Indeed, published reports suggest that political contributions and neopotism have been allowed to trump investment performance in the selection of managers of the Ohio agency’s assets.
By law (Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.S. § 1001 et seq.), a pension fund is required to act as a “fiduciary,” meaning that it must invest its assets solely for the benefit of the workers who will depend on the money for their retirement.
In a 2004 report — “The Politics of `Minority’ or `Emerging’ Manager Programs” — the Benchmark Companies, a pension fund oversight group, charged that “certain local politicians” had interfered. “Though not pension fudiciaries themselves,” the report said, political officials “felt qualified to tell the fiduciaries of pensions within the state how to select money money managers.”
What influenced their selection of money managers, even to the point of allowing Thomas Noe, a white male, to coin a new identity as a minority emerging manager? One clue might be published reports that “emerging” managers have contributed more than $1 million to various campaign funds in return for pension fund management contracts with the state of Ohio.
After looking into numerous emerging managers’ firms, Benchmark found that the employees of the emerging managers made substantial political contributions to candidates in statewide office after the firms were given their contracts. Minority managers were also told to contribute substantially to politicians in order to participate in certain programs. In one case (MDL, discussed below), the big winners were the Ohio Republican committees, which received $200,000; Republican Secretary of State Ken Blackwell, who received $67,000; and Republican Gov. Bob Taft, who received nearly $62,000.
One of the most outrageous blunders by an emerging manager doing business with the Ohio Workers Compensation Bureau was committed by MDL Capital Management, a Pittsburgh firm that has become the fourth-largest minority money manager in the United States. In 1998, MDL, whose initials correspond to the name of its founder, Mark D. Lay, received $355 million from the Ohio agency’s pension fund. MDL’s performance data for the Ohio agency were unavailable, but other information indicated that its record as a money manager was considerably less than stellar.
A Bermuda government agency fired the firm for poor performance and because of political contributions by a consultant connected to MDL; a pension board in Pennsylvania identified MDL as one of its worst money managers; and a performance-rating agency ranked MDL 501st of 549 funds in its category.
Yet in 2003 the Ohio Bureau of Workers’ Compensation was convinced to let MDL shift $225 million from a long-term bond fund into a risky MDL-created “Active Duration Fund,” which speculated on the direction of interest rates. Within six months, MDL had lost all but $9 million of the $225 million it had deployed in the speculative venture.
When MDL was sued for the loss, Lay’s lawyer dismissed the state’s complaint as “investor’s remorse.”
Shortly thereafter, one of the bureau’s oversight board members, George Forbes, resigned his position after The Toledo Blade revealed that his daugher, Mildred Forbes, was employed as MDL’s director for human resources and regulatory compliance.
The Benchmark report harshly criticized the emerging managers program for poor investment results, conflicts of interest, political contributions and the payment of excessive fees. It made no specific note of Thomas Noe but did mention that the term emerging managers had “elsewhere been broadly defined to include …firms owned by White males….”
“How aware the participants in the pension fund are of these highly politicized awards in unclear,” Benchmark’s report said, striking a tone of understatement bordering on sarcasm. “When the cost of this decision is finally revealed, we wonder whether the participants will feel it was justified.”
ePluribus Media Credits
Researchers/Contributors: XicanoPwr, avahome, Zan, luaptifer, RayneToday, Cho, Biblio, sawcielackey, wanderindiana, susie dow, DEFuning, NYBri, standingup, Penny Century, Sue in KY, SusanG, Charlie Wilson
Note: Please let us know of any contributor not listed.
