Alden Global Capital, a excellent hedge fund that controls higher than 100 native newspapers, moved virtually $250 million of employee pension monetary financial savings into its own accounts in present years, an unusual switch that is now triggering federal scrutiny.
The hedge fund, which is the controlling proprietor of such newspapers as a result of the Denver Post and Boston Herald beneath the mannequin MediaNews Group, in some situations moved 90 % of retirees’ monetary financial savings into two funds it managed, primarily based on public info filed with the Labor Department. Most of the money has now been moved once more out of the hedge funds.
Federal regulation usually requires that pension managers stay away from conflicts of curiosity and stay away from taking excessive risks with the property they deal with, consultants acknowledged, though some exemptions are allowed.
Alden is being investigated by the Department of Labor for administration of its pensions, a hedge fund spokesman confirmed. The specific nature of the investigation is unclear, nevertheless one specific particular person accustomed to the corporate’s inquiry, speaking on the scenario of anonymity on account of the investigation is confidential, acknowledged the division issued subpoenas to Alden and its companions last yr.
The inquiry would possibly grow to be a component in Alden’s effort to build up what’s now the nation’s largest chain of day-to-day newspapers, Gannett, along with USA Today, as as a minimum one excellent lawmaker raises questions on the way it may deal with the company’s pensions. Alden has confronted criticism for its stewardship of native newspapers the company has purchased. Research reveals it cuts jobs further rapidly than totally different householders.
Its subsidiary MediaNews Group, beforehand usually often called Digital First Media, buys newspapers, normally reduces jobs and sells off the buildings. For three months, MediaNews Group has been attempting to build up McLean, Virginia-based Gannett and its higher than 100 newspapers.
A spokesman for MediaNews Group, Hugh Burns, confirmed the Labor Department’s investigation and issued an announcement denying any violations of the federal regulation defending private pension holders, the Employee Retirement Income Security Act (ERISA).
“MNG believes that Alden’s management of the pension plan assets for which it provided management services has at all times complied with all legal requirements, including ERISA,” he acknowledged in an announcement.
He acknowledged that Alden routinely manages pension money for purchasers, that the funds carried out correctly in the course of the time they’d been invested with Alden and that decrease than 1 % of money in MNG pensions now stays with Alden funds.
“In 2017, consistent with its return of other outside capital, Alden began winding down its management of these pension plan assets, making regular cash distributions to the MNG pension plan investors,” he acknowledged.
Burns acknowledged Alden did not accept any expenses for its work on MNG pensions.
Heath Freeman, Alden’s president, did not reply to a request for comment. A Labor Department spokesman declined to comment. Aon, the company that provided actuarial firms for the pensions, and Prudential Retirement, which serves as trustee and supervisor, every declined to comment.
ERISA, which was handed into regulation in 1974, requires that pensions be invested solely on behalf of retirees and by no means in a fashion that will revenue the pension managers themselves.
The regulation moreover requires that the managers be “prudent” in making investments primarily based on the statute’s language, usually by diversifying funds to cut back the hazard of big losses.
Experts say Alden may have run afoul of each or every of those requirements by investing large majorities of pensions in hedge funds that it managed.
Beginning in 2013, public info current that 90 % or further of some MediaNews Group pensions was invested in two Alden funds based totally in the Cayman Islands. At the San Jose Mercury News (now the Mercury News) $107 million out of the pension’s $119 million in 2015 was invested in the Alden funds, primarily based on Labor Department info.
At the Denver Post, $47 million, or 91 % of the pension’s full in 2015, was invested in the similar two Alden funds, primarily based on Labor Department filings. That yr, $248.5 million of pension monetary financial savings for current and former workers of MediaNews Group papers was positioned into the 2 Alden funds, primarily based on courtroom filings in an unrelated case.
Another plan for newspaper workers had $45 million of its $58 million — 77 % of the total — invested in the Alden funds in 2015, primarily based on Labor Department filings.
Mark Iwry, a former senior Treasury Department official overseeing pensions and retirements, acknowledged he thinks the Department of Labor will likely be wanting on the course of by which Alden moved the funds.
Iwry acknowledged he did not know the specifics of the Alden case nevertheless that federal tips on conflicts of curiosity usually prohibit plan managers from investing with companions in which they’ve a financial stake. “What did [the plan’s managers] think they were doing and what did they think was the justification for it?” he acknowledged.
Relying so carefully on hedge fund investments would possibly fast questions from investigators as correctly, consultants acknowledged. While a couple of of the Alden pensions had been higher than 90 % invested in Alden funds, Fortune 1000 companies put solely 3.3 % of their pension money into hedge funds, primarily based on a February analysis by the advisory company WillisTowers Watson.
Regardless of whether or not or not Alden’s practices ran afoul of federal tips, they’ve irked some pension beneficiaries. Thousands of former newspaper reporters, editors, photographers and printing press workers — a couple of of whom misplaced their jobs because of staff cuts at Alden papers — turned as soon as extra beholden to the hedge fund on account of it managed their retirement monetary financial savings.
In some situations, beneficiaries acknowledged they’d been each unaware that their monetary financial savings had been positioned with Alden or didn’t discover the extent of Alden’s involvement. Many of them keep disconcerted by the easiest way the MNG and Alden dealt with them or their colleagues at their former papers.
Pete Carey labored for 49 years on the Mercury News and was part of a workers of investigative reporters who gained a 1986 Pulitzer Prize for unveiling widespread corruption in the Philippines.
He retired in 2016 after watching a decade’s worth of layoffs and buyouts, cost-cutting that has grow to be an commerce norm. He acknowledged he had found about Alden’s funding of the pension money from an article revealed by the NewsGuild labor union nevertheless hadn’t completely considered the ramifications.
“It sort of looks like self-dealing,” he acknowledged. “It just makes me a little nervous because if I had $5, I definitely would not invest it with Alden Global. And it’s very hard to track.”
John Farrell, a 66-year-old creator and veteran of two five-year stints on the Denver Post, collects $151 a month from his pension. He acknowledged he had not regarded into the small print of the plan nevertheless was appalled on the idea that Alden would possibly want benefited from it.
“I certainly hope they would be forthcoming about something like that,” he acknowledged.
The two funds that acquired the pension money are Alden Global Adfero BPI Fund, Limited and Alden Global CRE Opportunities Fund. According to securitiesfilings, every had been registered in the Cayman Islands, a typical location for hedge funds.
In many situations, an MNG authorities is listed as a result of the administrator of the plans and Freeman is listed as president of the funding adviser.
There is little information accessible publicly about how the funds carried out or what they invested in. Alden continues to buy and make investments in newspaper companies, elevating the probability that its executives have used newspaper workers’ pension money to buy totally different papers.
Alden declined to the touch upon what it did with the pension money.
In 2016, whereas Alden managed higher than $200 million of its newspapers’ pension money, it financed the $52 million purchase of the Orange County Register and the Press-Enterprise in southern California. It’s unknown whether or not or not Alden used pension money in the deal, and Alden moreover buys stakes in totally different companies, along with retail chains.
When The Washington Post revealed a February story about Alden’s observe of reaping precise property revenue from newspapers, Senate Minority Leader Chuck Schumer, D-N.Y., wrote to Alden with points about how MNG would deal with the Gannett newspapers and workers’ pensions.
“MediaNews Group’s decision to invest its employees’ pension assets in Alden Global’s own high-risk hedge funds raises questions regarding its ability to satisfy its current and future fiduciary obligations,” he wrote. Schumer then wrote to the Pension Benefit Guaranty Corporation last week to request a briefing on potential regulatory points.
Experts acknowledged that the Labor Department would possibly view Alden’s transactions as a battle of curiosity. ERISA provides exemptions that usually allow pension managers to place funds with occasions in which they’ve a financial curiosity. A Labor Department spokesman acknowledged it appeared as if Alden had acquired no such exemptions.
“Federal pension law has strict rules prohibiting a wide swath of transactions that can be viewed as conflicted,” acknowledged Michael Kreps, principal at Groom Law Group, a Washington company that specializes in retirement regulation. Kreps acknowledged every state of affairs is totally totally different nevertheless that the corporate “pays particular attention to situations where retirement plan fiduciaries enter into investment and other arrangements with related entities.”
Iwry, the earlier Treasury official now on the Brookings Institution, acknowledged the riskiness of inserting quite a bit money in hedge funds, considered further harmful than totally different investments, would possibly draw scrutiny as correctly.
“These are investments that are not widely held by the public, presumably. Therefore you don’t have the same natural presumption that it’s reasonable to put these investments into them,” Iwry acknowledged.
Burns declined to say who acted as administrators on the plans or what the Alden funds invested in.
Leaders of the Denver Newspaper Guild began confronting administration in regards to the transfers to Alden funds in 2013, acknowledged Tony Mulligan, a former Denver Post employee who now works for the guild. Mulligan acknowledged he contemplated suing the company over the observe nevertheless that the Denver Post pension plan had carried out equally to others.
“You can’t look at the results and say they screwed the plan,” Mulligan acknowledged.
Mulligan acknowledged MNG instructed the guild in 2015 that it had begun transferring investments out of Alden funds, and it has since merged a couple of of the plans. Some of the pension money was moved into further typical, diversified accounts managed by Vanguard.
MNG launched its plans to buy Gannett in January, when R. Joseph Fuchs, chairman of the MNG board, wrote to the Gannett board castigating the company’s efforts to develop revenue and saying it ought to do further to “maximize value right now.” MNG provided to buy Gannett for $12 a share, or $1.36 billion.
Since then, the 2 companies have exchanged ugly accusations in advance of Gannett’s May 16 annual meeting. MNG, which owns 7.5 % of Gannett’s stock, proposed six new board members, along with Freeman and Fuchs.
As they battle by way of the commerce’s decline, many newspapers in present years have frozen pension plans and declined to produce pensions to new hires.
Gannett’s board has raised points about how MNG might deal with its pensions, writing to shareholders March 26 with “grave concerns that under MNG’s control, the board would be repurposed for siphoning value — including potentially from Gannett’s pensions — to deliver generous management fees and profits to Alden.”
But Gannett’s own pensions had been underfunded by $294 million on the end of 2018, which is ready to likely energy the company to make future contributions.
Fuchs wrote to shareholders April 2 saying: “The reality is that the newspaper business is in secular decline. Gannett is in serious trouble and needs to quickly address its operational and strategic issues if it is going to survive.”
The Mercury News veteran, Carey, acknowledged he’s glad to see some scrutiny delivered to the problem: “It does make me a little nervous. But so far the checks keep coming.”