Massachusetts Pension Waited a Year to Disclose Hedge Fund Troubles


For more than a year, the Massachusetts Bay Transportation Authority (MBTA) Retirement Fund didn’t publicly disclose the problems plaguing a hedge fund that held MBTA money.

Those problems included civil fraud charges filed against the firm, Weston Capital Asset Management, which is now shutting down.

From the Boston Globe:

In its annual report, released Dec. 10, the $1.6 billion pension fund for transit workers said that it removed its money from Weston Capital Asset Management in September 2013. Nine months later, Weston Capital unraveled as federal securities regulators filed civil fraud charges against the firm and its top executives for allegedly draining $17 million from one of its hedge funds to other accounts and to themselves.


With Weston Capital, the T fund appears to have escaped unharmed. But investment specialists said changes in leadership and ownership at the firm at the time the agency was investing should have raised suspicions.

For instance, the firm’s chief investment officer left just months before the MBTA pension committed money to it. And five months after the T invested, Weston Capital’s founder and chief executive, Albert Hallac, agreed to sell the firm to a financially troubled company — a deal that would ultimately fall apart.

“Turnover is never good in that kind of a situation. You’re [investing] based on their record and their proven results,’’ said Timothy Vaill, the former chief executive of Boston Private Financial Holdings Inc., a banking and investment firm. “If you’re going to be hiring third-party managers, you’ve got to deeply dive into their world.”

A spokesman for the pension fund, Steve Crawford, said in an e-mailed statement that officials did not learn of the Securities and Exchange Commission’s investigation of Weston Capital until this year. But sometime in 2013, he said, the pension fund “initiated discussions with other” investors in the same hedge fund to withdraw their money.

It’s not the first time the MBTA fund has invested money with a troubled hedge fund. From the Boston Globe:

The T’s pension fund said it did not lose money on its 2009 Weston Capital investment. But this is the second time in a year the secretive MBTA retirement fund has belatedly acknowledged problems with its investments.

Last December, the Globe reported that the pension fund had lost $25 million on a hedge fund run by Fletcher Asset Management in New York — an investment recommended by the T fund’s former executive director, Karl White.

In that case, too, the pension fund did not keep close tabs on a risky investment. White had persuaded the trustees in 2007 to commit $25 million to Fletcher, his new employer. White left Fletcher the next year without telling the T. By 2011, the pension fund could not get its money out of Fletcher, which filed for bankruptcy protection in 2012. It was another year before the pension fund disclosed the loss to the public.

The MBTA Retirement Fund manages $1.6 billion in assets.


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A Step Toward Pension Transparency in Boston

Two silhouetted men shaking hands in front of an American flag

As part of recent contract negotiations, the Massachusetts Bay Transportation Authority (MBTA) has agreed to disclose more of its pension data to the public.

The MBTA retirement fund is among the most tight-lipped public pension funds in the country, due to laws that exempt it from following public records laws.

The MBTA will now release its members’ monthly pension benefits to the public. It will also improve its annual financial reports to include more information.

Reported by the Boston Globe:

Under the contract, the Boston Carmen’s Union adopted language to require the $1.6 billion T retirement fund to disclose members’ pension benefits to the MBTA at least monthly. The MBTA in turn will post them on the state website that discloses all public employee pensions, Open Checkbook.

In addition, the union agreed that fund trustees will improve the annual report to meet the standards of the Government Finance Officers Association.

The fund’s annual report for years has left out essential elements, prompting warnings from auditors. The fund also failed to disclose a $25 million loss on a hedge fund investment in 2012, until the matter was reported by the Globe last year. Currently, the loss is posted on the pension fund’s website.

The union, which also won a 10 percent pay increase over the next four years, approved the pension and work agreements last weekend. The Massachusetts Department of Transportation affirmed the $94 million accord Wednesday.

The T pension fund, partially supported by taxpayers, is organized as a trust and not required to follow public records laws. That position was upheld by the state Supreme Judicial Court in 1993.

Transparency advocates didn’t get everything they wanted, however. The fund is still refusing to disclose documents related to investment losses associated with certain hedge funds.


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