EDISON INVESTMENT IS RISKY BUSINESS FOR RETIREES

GOV. BUSH’S STAFF KNEW THAT FLA. MONEY MANAGER
USED UNSOUND PRACTICES

Florida Public Employees Rally in New York to Protest Deal
 

New York —Retirees and public employees from Florida are in New York to protest the purchase of the majority of Edison Schools, Inc. by Liberty Partners, a money manager with a history of taking excessive risk whose sole client is the Florida state retirement system. The participants and retirees assailed the decision to invest as much as $182 million from the Florida Retirement System in Edison, which has been plagued by continuing contract terminations, lawsuits from dissatisfied investors, losses topping $350 million, scrutiny from the Securities and Exchange Commission, and red ink in every quarter of its existence save one.

Scores of teachers, school employees, healthcare professionals, building service workers, and other union members from New York rallied in support of Florida public employees outside the Edison shareholder meeting convened to approve the Liberty Partners buyout.

"Edison is on the outs with school districts and investment experts," said Trudi Stevenson, a school employee from Lake County, Florida. "Such a risky investment has no place in my retirement fund."

A delegation of active and retired workers covered by the Florida Retirement System traveled to New York to voice their dismay and concern about the use of their retirement savings to buy a troubled company that privatizes public services. All are union members, representing AFSCME, AFT, FEA, NEA, SEIU, and the Teamsters.

Kenneth Wood, president of the Georgia-Florida Conference of Teamsters, expressed concern that Gov. Jeb Bush and his fellow pension trustees had failed to question or investigate the decision to invest in Edison Schools.

"How many red flags are they going to ignore?" pleaded Wood. "Edison is clearly a high-risk investment, and we can’t afford any more Enrons."

The Florida State Board of Administration (FSBA), which administers Florida’s public pension plan, lost more than $428 million in the Enron and WorldCom debacles.

"Buying a failing corporation like Edison defies common sense both for the retirees who depend on the Florida retirement fund and for the hardworking public servants whom Edison wishes to replace," said AFSCME Council 79 President Jeannette D. Wynn. "We need employee representatives on the FSBA to provide the proper oversight of our members’ retirement funds."

The use of Florida pension funds to buy Edison Schools "is a good deal – for Chris Whittle and high rollers in New York," said Christina Brownlow, a teacher from Dade County. "But for the average person whose pension is on the line, it stinks."

Indeed, Edison founder and CEO Chris Whittle will get a 42 percent raise, a loan of $1.68 million, and become eligible for a bonus of 245 percent of his base salary if Edison goes private. Fortune estimates that Whittle could make as much as $21 million from this deal.

Protesters were equally concerned about the track record and qualifications of Liberty Partners, the firm orchestrating the investment of Florida’s pension money in Edison Schools. An analysis of Liberty by an outside consultant hired by the State of Florida (and obtained through a Freedom of Information request) raised troubling questions about Liberty’s judgment and performance. The analysis found that, although Liberty has produced a higher return than the S&P 500, most of the excess return has been the result of just two investments and that without those investments, Liberty’s returns would have "substantially underperformed" the S&P 500.

The report added that "dependence on just one or two investments to carry an entire portfolio is evidence of the high risk" and that Liberty appeared to take "far too much risk for the returns involved." On a risk-adjusted basis, the analysis determined that Liberty "has not performed nearly as well as it should have." The report further stated that Liberty’s reporting records were in a "shocking state of disarray and inconsistency, evidence of a remarkable degree of administrative laxity."

A separate analysis of Liberty Partners by the same consultant in July, 2003 determined that the transaction and monitoring fees charged by Liberty are "particularly egregious given the exclusive relationship that Liberty has with the FSBA." The analysis pointed out fee structures beneficial to Liberty have cost the FSBA $82 million dollars. According to the consultant, the structure of FSBA’s arrangement with Liberty also "rewards Liberty for success but results in no penalty for failure," providing "an economic incentive to Liberty to take more risk than appropriate." The consultant’s analysis carries the recommendation that, "if it is not possible to engage the Liberty principals in negotiations for current market terms, terminate the relationship as soon as possible."

"It is outrageous that the members of the retirement system – more than half of whom are teachers and education personnel – have no voice on the retirement board, yet their livelihoods are being put at terrible risk," said Joan King, a recently retired teacher from Orlando. "What kind of message is it to public education employees that their years of service and precious retirement dollars are going to be part of a giant gamble? We might as well take our retirement and go to Las Vegas."

Unions representing public employees in Florida are asking Gov. Jeb Bush to order a public review of the decision to purchase a majority stake in Edison Schools. They also requested an examination of the terms of Liberty Partners’ arrangement with the Florida SBA. The concerned unions want Florida public employees to have a voice in representation, and, they call on Liberty to walk away from their investment in Edison Schools.

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The AFT represents more than 1.3 million pre-K through 12th-grade teachers, paraprofessionals and other school support employees, higher education faculty, nurses and other healthcare workers, and state and local government employees.