The Florida agency that oversees the state’s investments put $200 million into a private equity firm just one week after the firm’s CEO donated $500,000 to Governor Rick Scott’s super PAC, according to The Intercept.
> The transactions came in the run-up to the 2016 presidential election. Scott, a Republican, ran the pro-Trump Super PAC at the same time he served as a trustee of the Florida agency, the State Board of Administration. The SBA manages the state’s investments, about 80 percent of which are for the state pension fund’s 1 million members and retirees.
> On September 26 of that year, Stephen Feinberg, the CEO of the sprawling private-equity firm Cerberus, donated $500,000 to Rebuilding America Now, Scott’s pro-Trump Super PAC. In early October, one week later, the SBA made a $200 million commitment to a high-fee, high-risk Cerberus fund, Cerberus FSBA Levered Loan Opportunities Fund LP, according to a statement from the SBA.
One month later, Feinberg tossed Scott’s super PAC another $975,000 donation, making the executive its fifth-largest donor, The Intercept reported.
> Scott is one of three trustees of the SBA, but neither the SBA investments nor the Cerberus donations appear to violate any state or federal rules. And the Cerberus investments represent a small fraction of the Florida pension fund’s more than $150 billion in assets.
> Scott’s office referred inquiries to his campaign, which did not respond to an emailed request for comment. A Cerberus spokesperson emailed a statement that said, “Cerberus Capital Management adheres to the strongest compliance and ethical standards and all political donations by employees are subjected to compliance review and clearance.”
SBA spokesman John Kuczwanski told The Intercept that the fund’s decision-makers wouldn’t have known about the donation:
> “Neither the Trustees nor their appointed members to the Investment Advisory Council (IAC) are involved in the selection of investments. The Trustees specifically, pursuant to Florida Statute and powers granted to them, hire the Executive Director & Chief Investment Officer to manage and make all investment decisions. Any suggestion that politics influenced the SBA’s investment decision on the Cerberus FSBA Levered Loan Opportunities Fund is baseless and without merit,” he said.
However, ethics experts disagreed that drawing such conclusions is baseless:
> Asked about Feinberg’s donations to the Scott Super PAC, ethics specialist Kathleen Clark said, “People in investments think in terms of returns, and this is a great return” for Cerberus. Clark, a professor of law at Washington University in St. Louis, said, “How confident are Florida voters and pensioners that when Scott was making decisions as governor he was doing so on their behalf as opposed to those he was raising money from? Is he representing the people of Florida, or donors? Can we have confidence he’s representing the people? This deal raises the question. Why was that the appropriate decision for the state board to make? Do we know this is in the best interest of the fund?”
American Federation of Teachers President Randi Weingarten also criticized what she considers a pay-to-play deal:
> “These kinds of shameless pay-to-play deals are inappropriate at best and illegal at worst. And it’s doubly disturbing when a governor with a fiduciary duty to protect the retirement security of Florida’s public-sector workers takes the bait and decides to plow their deferred wages into a high-fee private equity fund instead,” said American Federation of Teachers President Randi Weingarten, who represents 140,000 members of the Florida pension fund.
> The SBA said that it has paid out over $4.9 million in fees to the Cerberus fund since the commitment was made. Fees for private equity firms like Cerberus are typically around 10,000 percent higher than for ordinary stocks and bonds, with a typical fee being 2 percent of assets and 20 percent of performance, as opposed to fees that are around 0.05 percent for index funds.
> It is not clear that the fees private equity firms charge always translate into superior performance. Florida’s 2016 Cerberus investment under Scott has yielded a return of about 7.7 percent at an annualized rate from October 2016 through the end of March 2018, according to an analysis of data from the most recent SBA performance reports. The S&P 500’s annualized rate of return during the same time period was 20.1 percent.