Is ‘Occupy’ Helping Wall Street?

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The Occupy Wall Street movement has been remarkably successful in its quest to raise awareness about economic inequality and, in particular, highlight the disproportionate share of wealth enjoyed by the “1%ers” on Wall Street. So powerful has this movement become that I’d wager there isn’t a single person reading this post that doesn’t know what is implied when someone says ‘the other 99%’. That’s the intriguing aspect of these social movements; they change the way we talk and think about the world we live in. Anyway, while I appreciate the increasing awareness of this issue, it seems to me that the folks over at Occupy might be interested to learn that their movement is being mobilized in a way that benefits the 1% at the expense of the 99%. Let me explain.

Consider the $48 billion Massachusetts Pension Reserves Investment Management board (“MassPRIM”). A few weeks ago, the Boston Globe published an article shaming MassPRIM for paying a total of $267,000 in performance based bonuses out to staff. Here’s a blurb:

“These people must be living in some sort of bubble,’’ said David J. Holway, president of the National Association of Government Employees, the union that represents 22,000 state, local, and county workers in Massachusetts. “For these highly paid individuals to have a payment scheme that gives them huge bonuses for their performance is totally outrageous. Obviously, they haven’t gone by Occupy Boston to see how people are feeling about how the rich are getting richer and the working families are struggling.’’

And so, the 25-person team at MassPRIM was made to feel bad for accepting a little over $10k per person in annual performance compensation, which was the cherry atop a cake of less than $100k per year. This, in my view, is where the Occupy movement may be being used against its own objectives.

Because the $48 billion public pension can’t get the political buy-in to pay anything approaching the going market rate to attract or retain talented finance professionals, MassPRIM has no choice but to outsource almost everything they do. For example, certain key roles have been vacant for months, which means the pension is paying external advisors to help fill the gaps. Here’s what PRIM’s Executive Director Michael Trotsky had to say:

“It’s very difficult to hire people in that environment and, frankly, as manager, I’m a little bit worried about retention.”

Yeah, I would be too! But what does all this imply for Occupy and Wall Street? Well it means that MassPRIM is forced — due to its inability to hire talented staff (via higher compensation) — to rely exclusively on Wall Street and its service providers. (The irony of this will undoubtedly generate a few smiles among asset managers.) Indeed, MassPRIM could never — ever — implement a strategy like we see in Canada (see AIMCo, CPPIB, OMERS, OTPP, etc.), where funds are increasingly bringing assets in house in order to avoid some of the high fees associated with external managers.

You can think of it this way: The “Canadian Model” is about avoiding the Wall Street toll bridge connecting investors to the broader financial markets. But this Model isn’t possible without a highly sophisticated in-house team of finance professionals. And in order to develop the internal capabilities, you have to pay a median market wage. In finance, that’s more than $110k per year, I promise you. (Note: The Canadians still work with Wall Street all the time. But they have sought to create internal markets for financial services that can at least compete with the external service providers, which means they work with Wall Street as partners rather than dependents.)

And so here’s the punchline: The Occupy movement may be making it harder for funds like MassPRIM to improve their internal capabilities. Were they to improve their internal capabilities, MassPRIM could bypass Wall Street on its way out into global financial markets. Isn’t that precisely what the Occupy movement is trying to do? If so, it might behoove the Occupy supporters to understand that by underpaying pension staff, they may inadvertently be supporting Wall Street…

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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