Florida's pension administrator touts transparency … with exceptions

Want to find out how the state of Florida invests your money?

Try.

Despite a professed goal of increased transparency, the people who manage $156 billion in pension funds and other public money have taken steps to get in line with a law that requires secrecy.

The result:

• Taxpayers are kept in the dark about many business decisions of the State Board of Administration, the agency that runs the nation's fourth-largest public pension system for about 1 million current and former public employees, including teachers, police officers and state and county workers. It also manages a fund that pools money from hundreds of Florida towns, counties and school districts.

• No ordinary retiree can monitor dozens of private investments bought with $20 billion of public money.

• The public can't track fees proposed by some law firms. They can't get information from contracts or reviews that could help them decide whether vendors are delivering on their promises.

Gov. Rick Scott, Chief Financial Officer Jeff Atwater and Attorney General Pam Bondi all ran for office last year vowing to bring more openness and accountability to the SBA board they now serve on as trustees. In recent years, the agency has come under criticism for risky investments and lax oversight.

Now SBA executive director Ash Williams wants to renew the state law that keeps secret most information about a growing number of private investments.

"A lot of that information needs to remain confidential, as is the norm throughout the investment world,'' Williams told a group that advises the state on investments.

Some state leaders and Wall Street firms have said disclosing more information could hurt the pension fund's profits and threaten financial relationships, and might even trigger lawsuits by vendors claiming the SBA violated contracts. All these things could ultimately harm retirees and taxpayers, they said.

But some local officials decry the lack of transparency.

"This is our county's money, and we should know how it's being spent and invested,'' said Pat Frank, clerk of the circuit court for Hillsborough County, which paid $75 million into the retirement system covering approximately 9,930 employees.

"If everything is okay, why would they have any worry about outsiders looking at the details?'' added Jim Moye, chief deputy comptroller of Orange County, which paid $71 million into the retirement system covering nearly 10,100 employees. ''They should in fact welcome it.''

Other critics say Florida's information restrictions are too broad, unevenly applied or not needed at all.

''If it's something the public can't be told about, then the state shouldn't be allowed to invest in it,'' said Edward Siedle, a former Securities and Exchange Commission lawyer who investigates pension abuses. Nondisclosure might be appropriate for a private pension fund, Siedle said, but not for public pensions that turn to taxpayers for bailouts if poor investments leave them underfunded.

The SBA says it's complying with the law, not trying to undermine the public's right to know.

"We are highly transparent in our activities,'' Williams recently told lawmakers.

• • •

During the stock market boom from 2005 to 2007, private-equity firms lobbied public pension funds to keep investment information under wraps. They said they needed to guard their strategies, competitive advantages and profits.

Top private-equity deal makers dangled the possibility of 30 percent returns and threatened to shut out investors who refused to sign a nondisclosure agreement. These were lightly regulated funds that tend to be riskier and have higher returns and fees than stocks and bonds.

Several states, including Florida, amended their open records laws to block public access to information about these private investments.

In Tallahassee, a broadly defined bill protecting "proprietary confidential business information'' passed in 2006 by votes of 120-0 in the House and 36-0 in the Senate. Not only did the law close the door on information after 2006, but it also provided a ''retro­active provision'' allowing the SBA to shield private deals made earlier.

Explained state Sen. Mike Fasano, R-New Port Richey: "When things are going well, you tend not to ask very many questions.''

• • •

The market meltdown brought the SBA heavy criticism for failing to disclose billions of dollars in risky investments.

The state's top officeholders at the time, Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum, promised more transparency.

They brought in Williams, a Tallahassee veteran who ran the SBA in the 1990s, to lead the agency again after a decade on Wall Street. Williams promised a "spirit of openness'' and quickly sought to provide more information to counties and cities invested in the local government pool. In December 2009, the agency announced an expansion of financial disclosure requirements for firms doing business with the SBA.

"Sunshine is the best disinfectant,'' Williams said, quoting late Supreme Court Justice Louis D. Brandeis.

But soon the SBA allowed several law firms bidding to represent the pension fund in lucrative securities lawsuits to redact information from their applications.

At a Senate committee meeting on April 5, Fasano questioned Williams about a blacked-out portion of an application from one of the firms, Pomerantz Haudek Grossman & Gross of New York. Details about a disciplinary action against a former partner were redacted.

"It's all blank,'' Fasano said. "Nothing. … Why can't they answer those questions so the public would know whether an individual and the law firm that you're ready to have a contract with has any disciplinary actions?''

"I wouldn't necessarily categorize that law firm as someone we were 'ready to do business with,' " Williams said.

Ready they were. An SBA selection panel had ranked the Pomerantz firm No. 2 among bidders. In March 2010, Williams approved a contract with them.

"All of this information should not be redacted,'' Fasano told Williams. "We're called the Sunshine State for many reasons, one in particular because we want to be transparent.''

• • •

In June 2010, Williams again promoted transparency when he asked his bosses — Crist, Sink and McCollum — to reduce investments in stocks and instead boost holdings in hedge funds and other private investments.

Williams said he would not invest in opaque hedge funds that refuse to disclose their strategies and lead "you to people like Bernie Madoff."

The transparency, it turns out, does not extend to the public.

"Don't confuse the transparency and knowledge the SBA staff has at the portfolio level and the level of detail that statute provides for us to share in order to protect the value of the investment for the benefit of our participants," SBA spokesman Dennis MacKee said last year.

In other words, no ordinary retiree or taxpayer can easily find out what they invested in, whether funds are succeeding or who's lobbying for new private pension deals.

What some of these private investments are really worth won't be publicly known until five to 10 years or more after the deal is made.

Take Liberty Partners, a private partnership in which the state has plowed more than $2.5 billion over 18 years. As of October, the pension fund had gotten back $2.4 billion. Liberty received $180 million in fees.

In most private equity deals, management fees are 1 percent to 2 percent of the annual investment. Liberty's are 7 percent of what the state invested.

When the Times asked for information about one of Liberty's deals, the SBA released a 124-page report.

And 115 pages were blacked out.

• • •

In September, the SBA revised its policy on confidential business information, bringing it more in line with state law.

Virtually any information submitted by companies doing business or seeking business with the SBA can enjoy secrecy. Businesses are essentially placed on the honor system to certify information is "proprietary,'' "confidential'' or a "trade secret.''

Once marked confidential, the information disappears from public view, unless an SBA lawyer determines it is public.

In March, the SBA denied release of 13 audit reports and three customer satisfaction surveys for Bank of New York Mellon at the bank's request. The Wall Street giant is responsible for safeguarding most of Florida's $156 billion in public money.

The attorney general's office is investigating allegations that BNY Mellon overcharged Florida's pension fund by $30 million for foreign currency trades. The bank denies wrongdoing.

A BNY Mellon spokesman said the audits and surveys contain "proprietary and confidential technology, operational and performance information that if disclosed would put us at a competitive disadvantage.''

Two months after the revised confidentiality policy, the SBA updated a Web course on "information security'' required of all employees.

The course curriculum directs them not to disclose "most information relating to alternative investments.''

Employees are cautioned about people who might try to use confidential records illegally and "Dumpster diving'' where someone rummages through documents in the trash. And the course says SBA workers should head off "shoulder surfing'' by third parties who try to "sneak a look at the contents of files.''

"Be aware of everyone around you … and what they are doing,'' the curriculum says. And also, "Do not hold the door for unidentified individuals.''

Williams told a Senate committee this month that anyone who thinks information is being wrongly withheld can go to court and sue.

"I would argue there's a tremendous amount of information about us out there,'' he said.

The revised policy and course came after the Times used e-mails and other public records to document questionable SBA investments and oversight failures.

• • •

The law makes overall pension fund performance numbers public, but postings on the Web of publicly traded stocks as well as reports on other holdings often lag by months. If you ask for information, be prepared for roadblocks.

Florida's public records law requires only that requests be processed in a "reasonable" period of time. But responses can take weeks or months.

Some SBA records are reviewed by multiple staffers who convert electronic records to paper before releasing them. The procedures can increase processing times and legally allowable duplication costs.

Spokesmen say that the agency isn't staffed to fulfill public records requests instantly and that their business partners need time to review and redact requested records.

"Requests for public records are processed in the most expeditious manner possible in light of the nature, volume and order of the request and consistent with the SBA's fiduciary and legal responsibilities," spokesman MacKee said.

In February, six months after a public records request by the Times, the agency released a consultant's report about the performance of 130 private partnerships with $18 billion in capital commitments.

Only 17 of 295 pages, primarily title pages and the table of contents, were free of redactions. Much of what was left were squiggly lines, white spots, blue asterisks and patterns that looked like Rorschach blotches.

Hamilton Lane, a longtime SBA consulting firm that wrote the report and requested the redactions, said through its general counsel that disclosing more investment information could cause competitive harm and threaten its ability to provide good advice to the state. Also, releasing criticial or negative information could hurt the firm's relationships with private money managers, the counsel said.

Barbara A. Petersen, president of the First Amendment Foundation, has asked the Legislature to conduct a "complete and thorough review'' of the SBA's public records exemption related to confidential information. The law is scheduled to sunset in October unless the Legislature renews it this session.

A comparison of records released by the agency raises questions about how the exemption is used.

An example: The agency produced different versions of the same document in response to open-records requests, one redacted, one not.

The redacted information included a comment that questioned a company's fees, a portion of an e-mail about that firm's mediocre performance and this seemingly innocuous sentence from one report: "As I often tell my 12-year-old son's basketball team (which I coach), 'don't take three-pointers when the defense is giving you layups.' ''

Fasano questions whether the confidentiality exemption is needed at all, or if it's applied too broadly.

"Every time they don't want to answer a question, it seems like they use the trade secrets excuse,'' he said in an interview.

• • •

Williams would not comment for this story. In December, he told a group that advises the SBA on investments that he and the staff were "working on getting those exemptions retained in some way."

His bosses — Gov. Scott, Chief Financial Officer Atwater and Attorney General Bondi — also would not be interviewed.

Atwater said in a statement that he's "committed to transparency,'' but "certain elements of financial documents'' are exempt from the public record for "very legitimate reasons.''

A spokeswoman for Bondi said only that the Attorney General's Office had not taken a position on the bill to renew the SBA public records exemption.

A spokesman for Scott said neither the governor nor his staff had authorized the SBA to pursue any Sunshine Law exemptions.

Times staff writer Kris Hundley and computer-assisted reporting specialist Connie Humburg contributed to this report. Sydney P. Freedberg can be reached at sfreedberg@sptimes.com.

Florida's pension administrator touts transparency … with exceptions 04/23/11 [Last modified: Monday, April 25, 2011 9:57am]

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