Bloomfield Township's investment issues

February 1, 2015

After a Freedom of Information Act (FOIA) appeal with Bloomfield Township, Downtown Publications has received the document created last summer by Shepherd Kaplan, a registered investment advisory company in Boston, hired by Miller Canfield to review the township's $80 million pension bond fund investment account after questions were raised by some in the community about fees paid to a local investment firm, Gregory J. Schwartz & Company.

Township supervisor Leo Savoie hired Miller Canfield to address the concerns, including those of township trustees who realized the township was paying more than they had initially thought it would cost to manage the township's equity account.

For the most part, the Shepherd Kaplan review broke no new ground given the fact that township officials had the document last July and most of the questions raised in the document have already been hashed out publicly in recent months. However, we think release of this document when it was created would have helped educate the public and focus the debate that has been taking place over the investment of some $80 million from a recent township retirement fund bond issue. With an investment portfolio of this size, all opinions – which is all this document is – should have been added to the public discussion so that the township could get on with the task of restructuring how it plans to manage investing in the future.

The main point of contention has been the investment of township pension equity funds into class A shares rather than institutional shares, which resulted in considerably higher fees paid to the Schwartz investment firm.

Shepherd Kaplan stated, in several instances, that Schwartz may have had a conflict of interest in its investing pattern by acting as a broker, taking a "finder's fee" of $450,000, which then led them to invest the township's money in certain mutual funds because it maximized their compensation, costing the township considerable money. The document also raised the question of whether all fees paid had been made public.

Ed Schwartz, president of Gregory Schwartz & Company, wrote in a response to Shepherd Kaplan's document, "We have received nothing beyond the compensation which has been disclosed, which has been paid entirely by the mutual fund companies. We have been paid in accordance with the applicable prospectuses and our written service agreement with the township." Other Schwartz objections to the Shepherd Kaplan review are outlined elsewhere in a story in this month's edition.

Unfortunately, the Shepherd Kaplan review still did not clearly address the issue that "finder's fees" paid to a broker, supposedly from mutual fund assets, are really funds that originated from the township's money, a point often obscured with industry jargon when discussing fees paid to advisors.

The Shepherd Kaplan document did advise the township to create a financial oversight committee as soon as possible, which Savoie has been pushing township treasurer Dan Devine to put in place since at least last September. Devine initially fought the committee tooth and nail, claiming at the October 13 township board meeting, "I am at the top of my profession. The law does not provide for an advisory board...To do that would abrogate our responsibility...I believe we are elected by the residents of the township and I will not agree to push my responsibilities on someone else."

Fortunately, the board has moved ahead and voted to form an advisory panel in the months ahead, so that issue has been laid to rest.

Lastly, the review document suggests that perhaps the township should be rewriting its agreement with the Schwartz company, something that we assume the investment advisory panel will tackle at some point, as well as the question of whether investment services should be put out to bid.

As one last footnote to the Shepherd Kaplan document, we were disappointed during this FOIA appeal process with the performance of the township treasurer, who we have previously criticized for not making sure all along that township trustees had a clear understanding of what fees would be paid to outside firms. Further, as we have noted in this space before, we have not been impressed with Dan Devine's handling in past years with the growing problem with the township's separate Prudential Retirement defined benefit pension plan that is drastically underperforming, and has been since at least 2004-2005, forcing the township to contribute millions to the fund annually out of township funds to keep it fully-funded and available to retirees. 

We now add to our list of concerns how Devine handled our request to release the Shepherd Kaplan document. During the appeal process to make this document public, Devine appeared less concerned about the taxpayers' money – only about the need to "protect our vendor" – Gregory J. Schwartz & Company. He repeatedly stated there was a need to protect the vendor, even as other trustees, such as Corinne Khederian, Neal Barnett, and Dave Buckley, spoke of being the trustees of the public's funds, and of having the responsibility to let the public know what is happening with their money.

The questions about the performance of the township treasurer continue to mount.

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