Even later update — Earlier posts read as though Millard’s investment plan had been entirely implemented, which we don’t believe to be the case. A Congressional staffer said the PGBC had refused to say how much of the fund had already been reallocated under Millard’s guidelines. But a PGBC spokesman told BusinessWeek none of it had and that the agency would “work with our board to decide whether these contracts should be terminated and whether strategic partnerships fit into the board’s investment approach going forward.”
The original version of this post was also somewhat unclear on the specifics of the various investigations into Millard. Both houses of Congress are investigating Millard and a group of senators requested a criminal investigation as well.
Remember Charles Millard? He’s the former Bush-appointed director of the Pension Benefits Guaranty Corporation, and we expect to be seeing a lot more of him as congressional investigations into his brief but significant tenure at the agency gathers steam, starting with a scheduled appearance next Wednesday.
Some background: the Pension Benefits Guaranty Corporation insures a portion of the retirement funds of 44 million Americans to protect their savings accounts from the capriciousness of market conditions. Somehow, by the perverse illogic that defined the financial services industry of the past few years it came to pass that this fund would be run by a former Lehman Brothers executive who would devise a plan to plow the majority of its investment portfolio into the volatile stock market and the massively overheated real estate market under the pricey guidance of financial advisers at Wall Street’s most prestigious investment banks, such that some such that billions of dollars would vanish in the course of months. An honest mistake, or was unethical behavior involved?
The Office of the Inspector General conducted an audit of Millard, who spearheaded this effort, and found no evidence he’d committed any actual crimes — but enough “clear violations” of agency ethics rules to alarm Congress, which released the OIG’s draft report yesterday and announced an investigation of Millard and said it had requested a criminal probe of him as well.
Millard was the subject of intrigue in the financial community long before the Senate caught wind of him — which as we have seen is too often the case with obscure public officials charged with overseeing multibillion dollar sums of retirement funds they are free to farm out to hedge funds and Wall Street money managers at will.
But even in the ethically compromised world of pensions Millard raised eyebrows. A former New York City Councilman and friend of Rudy Giuliani’s who did not actually know what the PBGC was when he was offered the job, he threw himself into the pursuit of a bizarre new investment strategy that rotated the fund’s investments out of bonds, which had previously dominated the portfolio, into 55% stocks and real estate, including 19% foreign stocks and 6% emerging market stocks.
The shift was supposedly recommended by a Connecticut consultancy called Rocaton Investment Advisors, a firm whose pension fund advice had been called into question the year earlier when a San Diego pension fund cut its ties with the firm over a hedge fund investment gone sour. (Rocaton eventually paid the fund $2.5 million to settle the matter. Rocaton’s models showed that stocks, over the long term, had the greatest likelihood of generating the returns necessary to fend off a federal bailout of the fund — even though it is no secret global stocks have wildly underperformed government bonds over the past ten years.
Pension experts interviewed by Institutional Investor had few words for his plan — which was internally called “North Star” — not synonymous with “insane.” But the most telling testimonial in the piece might be the individual behind the one positive quote about Millard, from an old law firm buddy of his:
When Charlie takes on something, he puts for 100 percent of his effort to do it well.That, at least, is the opinion of one Paul Atkins, a former SEC commissioner known as “Dr. No” for repeatedly voting against fining companies for breaking securities laws and engaging in malfeasance. Atkins resigned last year — but not, as we know all too well from last week’s amazing OAG report on the Bush era SEC — before making a devastating mark on his own agency.
It sure looks as though his friend Millard gave him a run for his money. (And ours.)