At press time, word was that Shelby County mayor A C Wharton had advised the county retirement board that it needs to take another look at its arrangements with Consulting Services Group, the local firm that advises the county on the disposition of its pension assets. Without prejudging the issues, we consider that an advisable and long overdue step. It may be that, as county commissioner Mike Carpenter, a member of the board, said recently, CSG has served the county well, that its judgments have much more often than not proved out and that the selection of the county fund as "Small Pension Plan of the Year" by Money Management Letter is direct proof of that.
And the fund's financial reverses over the past year are no worse than the declines suffered by other investment portfolios during a period when the entire economic universe — stocks, bonds, hedge funds, and what have you — came close to spiraling out of control. With current indications that the system may finally have begun righting itself, the county's fund also may stabilize on the positive side.
The fact remains, however, that CSG was recently implicated in a scandal involving the New York State Retirement Fund — one in which the Securities and Exchange Commission filed a formal complaint and New York attorney Andrew Cuomo indicted two officials of the state comptroller's office for extortion.
CSG's role was identified as that of paying a kickback of more than $1 million to acquire the management role for New York state's pension assets, similar to the one it has locally with Shelby County. CSG has not been charged, but the fact of its involvement in the New York affair is reason enough for a systematic reexamination of its role with regard to Shelby County.
As we noted in our May 28th issue, even more complications were revealed in a recent article in Forbes magazine, which pointed out that the company had been fined by the Department of Labor for withholding payments contractually owed to certain of its clients and that it had counseled other clients to route their assets into questionable investments, including the now notorious Ponzi scheme operated by acknowledged felon Bernie Madoff. Forbes also laid out what appeared to be a CSG pattern of routing clients' investments through a snarl of investment layers that increased its own commissions but added costs for the clients.
In the case of Shelby County's investments, according to Forbes, this may have "siphoned off between 2.5 percent and 3.25 percent annually, plus 20 percent of any profits."
It may be that the justifications for such practices will come down to the fact that in Rome one does as the Romans do, and this is how high finance operated during the hothouse boom experienced by the industry over the last couple of decades. That by itself would be worth discovering, even if a thoroughgoing review of the sort apparently now advocated by Wharton should leave the county's relationship with CSG intact.