Bernard Pollack via FlickrAFT President Randi WeingartenThe American Federation of Teachers, a labour union that represents teachers, is going after a bunch of hedge funders who support education reform.
Last week, the AFT released a “watch list” of hedge funds they think are “attacking” their defined benefit plans (DB plans) through their support of various educational reform groups.
Typically, education reform groups advocate replacing DB plans with defined contribution plans to lower costs for schools.
That doesn’t sit well with powerful teachers unions. That’s why last week AFT’s president Randi Weingarten circulated a report called “Ranking Asset Managers” to pension trustees who invest in hedge funds.
The AFT’s report names hedge funders who support education reform organisations that go after their DB plans, while at the same soliciting investments from teachers pensions.
A total of 33 asset managers were named. There were big names on the so-called “watch list”, including David Tepper (Appaloosa Management), Cliff Asness (AQR), Paul Singer (Elliott Management), Henry Kravis (KKR), Daniel Loeb (Third Point), Julian Robertson (Tiger Management) and Paul Tudor Jones (Tudor Investments), just to name a few.
The report states that the AFT “is committed to shining a bright light on organisations that harm public sector workers, especially when those organisations are financed by individuals who earn their money from the deferred wages of our teachers.”
The education reform organisations named in the report include, Students First, the Manhattan Institute and the Show-Me Institute.
The general sense that Business Insider’s gotten from speaking to folks in the hedge fund space is that this list is sending a broader signal that “You might be next.”
The AFT document explicitly states that it’s not intended for “one-time publication” and that other donors and organisations will be included in future reports.
One money manager, who wished to remain anonymous, commented that the AFT’s actions may intimidate some money managers into adopting a lower profile, while others view their inclusion on the list as a “badge of honour.”
Some view the AFT’s actions as being “thuggish.”
Union pension funds control enormous amounts of capital, so being on their blacklist could really hit money managers in their pocketbooks.
“It looked like this was an attack on any investment professional intended to scare away potential investors and try to get existing investors who are teachers’ pension funds, which are huge investors…trying to get them to divest from some of these funds who supported Students First, the Manhattan Institute and the Show-Me Institute,” another hedge fund source, who spoke only on the condition of anonymity, told Business Insider.
This source felt the AFT list was a low blow, aggressive and personally targeted.
“The report attacks firms with the explicit intent of scaring away existing or potential limited partners on the basis of the political views of their individual employees, which is kind of McCarthyist at heart,” our source told us.
We reached out to the AFT multiple times for comment. We will update this piece as warranted if we hear back.
Hedge Funders Taking The Heat
Reuters/ Steve MarcusDaniel Loeb, the founder of Third Point LLC.Of all of the fund managers named in the AFT report, Daniel Loeb, the founder of Third Point LLC, has probably been targeted the most.
For Loeb, the criticism started a couple weeks ago with a scathing Matt Taibbi article in Rolling Stone.
In his piece, Taibbi said that Loeb solicits the business of pension funds, but betrays them through his involvement with Students First.
To be fair, Taibbi asked Loeb for a comment, but didn’t hear back, according to the article.
Then, last week, Loeb also cancelled a panel appearance at the Council of Institutional Investors in D.C. after Weingarten and union leaders threatened to confront him. He was also mentioned in several media reports — one New York Post headline even said, “Flunk You, Loeb!” over his involvement with Students First. He is on the board of the New York chapter.
“Contrary to reports, I have never taken a position against DB plans nor has any philanthropic organisation I lead. In fact, my support for and contribution to DB Plans is demonstrated by maximizing returns for union members who rely on us to deliver their pension goals,” Loeb wrote in a letter to the CII.
Another big hedge funder, Cliff Asness, who runs AQR, was also named on the AFT’s list for his involvement as a trustee of the Manhattan Institute.
“AQR helps many defined-benefit plans achieve their investment objectives. It is critical that defined-benefit plans survive and thrive to provide secure retirements for their beneficiaries,” the firm said in a statement.
The other issue here is that the AFT is seeking to punish the hedge fund firms because of the political viewpoints of individual partners and managers, our hedge fund source explained.
Fund managers who manage their pensions have the responsibility to support the best and safest returns for them. Their job is not to support the political objectives of teachers’ unions.
While it’s completely understandable that unions would want to protect their interests, ideally, investment committees should pick investment managers irrespective of the investment manager’s philanthropic activities, the hedge fund manager continued.
What teachers pensions want to do about defined benefits is up to them, but what hedge fund managers advocating for reform do care about is “doing the right thing for the public schools to improve them,” he said.
“I worry that the AFT is kind of becoming the NRA of the left. It has so much power,” the source added.
Hedge Funds Investing In Educational Reform
So why do hedge fund managers care so much about education reform?
We reached out to hedge funder Whitney Tilson, who runs Kase Capital. Tilson is viewed as a leader in the education reform space. He even helped Wendy Kopp launch Teach For America.
People from all across the investment community have been involved in educational reform efforts, not just NYC hedge funds.
But there are a couple of specific reasons why hedge funders are passionate about educational reform, Tilson told us.
First, because they’re investors it’s only natural that they would look for higher return on investments.
“I think it’s because investors look for higher return on investments, high ROI investments. The old saying about ‘You give a man a fish and he eats for a day. You teach a man to fish and he eats for a lifetime,’ education is just so obviously one of the key leverage points for changing the trajectories of individual lives or entire communities if you can improve the education,” Tilson told Business Insider.
The other reasons, he explained, are generational, and/or also have to do with social networking.
In the previous generation, people would join the board of the Met, or Lincoln centre, or something like that. Then they would invite their friends and it became the thing to do.
Tilson went to college with the generation that started Teach For America.
“It’s not just a money management/Wall Street thing versus other industries. It’s also a generational thing.”
By generational, Tilson explained that it’s people in their 20s, especially their 30s and 40s versus people in their 60s. He noted that there are some folks such as Julian Robertson who have been very supportive of education reform.
As Teach For America has become widely known, people are now just more familiar and this generation has grown up around this issue of education reform.
“It’s a natural area for our philanthropy,” Tilson said.
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