Rhode Island plans to reward union members at the expense of their students, according to the Wall Street Journal.
State Treasurer Gina Raimondo caved to union demands that the state forgo potential investment gains which are needed to fund burgeoning retirement costs by divesting the state from a pro-school choice hedge fund. WSJ says politics drove the decision, since Raimondo, a Democrat, alienated Big Labor supporters by implementing pension reforms that saved the state millions.
In 2011 Ms. Raimondo led a successful fight to reform the Ocean State’s broken pension funds, including a shift to a hybrid plan with a defined-contribution component. But now she is running for Governor, and her Democratic opponents are courting unions that want desperately to beat the apostate reformer. And, lo, last week the Rhode Island State Investment Commission she leads voted to divest state and local pension funds from Daniel Loeb‘s Third Point LLC.
The decision is curious because Third Point happens to be the state’s top-performing hedge fund. Two years ago, the commission shuttled $50 million to Third Point in a broader push to meet the commission’s target of a 7.5 percent return on investment. Public pension funds nationwide have been pouring into private-equity and hedge-fund investments as they chase higher yields.
Not only will decision to withdraw from a profitable fund hurt taxpayers, who are on the hook for pension costs, but children are unlikely to benefit from the close relationship between a potential future governor and teachers unions.
The larger and sadder irony is that Rhode Island’s investment is chump change in Third Point’s $14 billion portfolio. Mr. Loeb doesn’t need Rhode Island’s money, but poor students in New York and teachers in Rhode Island need his. The teachers and public employees will now lose the benefit of the higher returns that Third Point provides for their retirement. And the poor kids will lose if other private-equity or hedge-fund owners lack Mr. Loeb’s fortitude and decide to stop contributing to charter schools or reform outfits.