Last month, the United Kingdom saw the near-collapse of 90% of its pensions holding £1.5 trillion in assets. Now comes news that the German pension system will collapse without reform. Suddenly, the world is awakening to the fact that pensions globally are struggling.
The myriad reasons pensions fail are poorly understood—in part because failures are rarely forensically investigated—and systemic problems plaguing pensions differ from country to country. However, since America is the premier innovator of financial products sold to pensions worldwide—including the good, bad, ugly and even toxic—savvy foreigners have learned that a visit to America may be necessary to gain a more complete understanding of the costs, risks and performance histories related to pension investments in their own country.
The following is a true story from my book, Who Stole My Pension?, about Dutch investigators who came to America for answers about their country’s pension investments.
One bright sunny morning nearly ten years ago two tall thin men with sandy hair approached a landscaper busily trimming the green ficus hedge surrounding my beachfront home in Florida. One of the two men was carrying a large professional television video camera.
“Does Edward Siedle live here?” the other man asked with a heavy foreign accent.
“Yes,” said the landscaper, totally unconcerned that foreigners toting a television camera were asking about his employer.
Thankfully, it wasn’t an investigative team from CBS 60 Minutes showing up on my doorstep unannounced.
Instead, it was a scheduled interview with Dutch documentary filmmaker Cees Grimbergen who is best known for his 7-part Black Swans series about lack of transparency, perverse incentives, excessive risk-taking, and outlandish compensation related to the Dutch pension system.
The Dutch pension system at that time consisted of three “pillars” (including state pensions, private employee pensions and individual private pensions), and covered everyone who lived or worked in the Netherlands. Thus, it was far better designed to provide meaningful retirement security for the aging Dutch population than America’s and was considered one of the best, if not the best, in the world.
But even the world’s “best” pension systems can be dramatically improved by public scrutiny and input from participants.
So, participants should always get involved with improving their pension’s transparency, lowering the fees it pays to money managers and exposing gambling and illegalities. Doing so will improve the pension’s investment performance, as well as increase the likelihood that participants receive the full retirement benefits promised.
Cess came to America for his film because most of the highly-secretive alternative investments held in the Dutch pension were created right here in the USA and were registered with, and regulated by, our federal regulator, the Securities and Exchange Commission. Also, America’s pensions provide greater transparency regarding their investments—including alternative investments—than foreign pensions.
As illogical as it seems and is, he could learn more, in America, about secretive pension investments in the Netherlands than he could in his own country.
Before stepping onto the sands of my beach in Florida, Grimbergen had tried to interview JP Morgan and Blackstone
BX
, both then managers of Dutch pension assets, and had interviewed Dutch pension board members. He was getting nowhere—he had hit a wall of silence. The Wall Street money managers handling Dutch pensions were unwilling to talk to him, or any Dutch pensioners about their retirement assets, and Dutch pension overseers claimed they were prevented by Wall Street secrecy agreements from disclosing any information to him.
Cees needed to talk to an expert who was knowledgeable about Wall Street secrets but not bound to keep those secrets.
I told him on camera:
“Today the velvet throated hucksters on Wall Street are saying, “Give us your money, let us manage it in secret and this will be the best thing that ever happened to you.”
You should never have blind trust in Wall Street money managers. The secrecy breeds corruption and corruption results in lower investment returns. So the argument that more secrecy increases investment returns ultimately will fail. The Dutch workers should wake up and realize that their retirement safety is at risk.
If the people running the pension fund tell workers “we can’t tell you what’s happened with your money,” then the workers have no idea if the people running the pension even know. Through transparency the workers can evaluate whether the people running the pension know what they’re doing.
The workers should tell the pension fund board to refuse any secrecy agreements with investment firms. There is no justification ever for secrecy agreements.”
For Cees Grimbergen, traveling to America for his documentary project was well worth it. He learned more in New York and Florida about how Dutch pension monies were handled than he could learn in his native country.
If you are a participant in a foreign pension, you can learn a lot about your pension’s investments from American sources, including media reports, regulatory filings, pension websites, databases and, finally, experts familiar with Wall Street scheming.
America is a leader in financial innovation, including the creation of Weapons of Mass Financial Destruction sold to pensions globally. These toxic products, made in America, are typically sold here first and by the time they are marketed abroad—perhaps a decade later—the damage they cause to investors and pensions has already begun to surface. For example, while pensions in Japan and Australia only recently began investing in private equity, serious questions regarding private equity practices and performance have already surfaced here.
In scrutinizing and protecting your pension, do not assume that you are limited to the paltry information your pension and its overseers are willing to provide to you. If you are denied important information, look abroad and do not be discouraged. (Likewise, if you are an American pensioner and your pension is not forthcoming, look to other pensions in other cities, states or countries—anywhere—for the information you need.)
The truth is, through accessing information from any and all sources—globally related to your pension’s investments, including experts unaffiliated with your pension—you can probably become more knowledgeable about the secret investments in your pension’s portfolio than your pension’s overseers themselves.
When foreign pensions give in to Wall Street secrecy demands, they agree to be kept in the dark and stop asking important questions.
You don’t have to.