In one of 2022’s final contested congressional primaries between progressives and the Democratic establishment, party leaders are coalescing around a Rhode Island official who has used retirees’ savings to pay more than a half a billion dollars in fees for high-risk financial investments.

The schemes backed by General Treasurer Seth Magaziner delivered subpar returns for teachers, firefighters, and other public-sector workers already hit by benefit cuts — but they generated huge profits for the financial sector that funneled $178,000 into Magaziner’s treasurer campaigns and has now dumped more than $200,000 into his congressional campaign.

Those donations include $17,800 from close family members of the head of one of Rhode Island’s largest private equity firms, Nautic Partners, which over the past six years has received $95 million in additional commitments from the state pension fund on Magaziner’s watch — an arrangement that one ethics expert says “does not pass the smell test.”

As Magaziner now uses finance industry cash to dramatically outspend his progressive opponent in the congressional race, the state of the race underscores the political benefits for state treasurers and other custodians of pension assets to pursue a pro-Wall Street investment strategy, even though that approach can financially imperil the workers the funds are supposed to benefit.

Magaziner, in his second term, is seen as the frontrunner in the September 13 Democratic primary for Rhode Island’s second congressional district — a race that includes former Democratic state Rep. David Segal, a progressive stalwart. If Magaziner wins, it will mark another victory for the corporate faction of the Democratic Party that is raking in ever-more Wall Street cash — and that is eager to limit the pro-consumer regulatory agenda pushed by Sens. Bernie Sanders (Ind.-Vt.) and Elizabeth Warren (D-Mass.), the latter of whom has endorsed Segal.

Nationwide, more than a quarter of the $5 trillion in public pension assets in the United States is now invested in so-called “alternative investments” like private equity, hedge funds, and private real estate. These investments tend to perform either similarly or worse than the general stock market, while charging much higher fees and coming with far more risk. The finance industry is using this capital to have workers fund a war on themselves through exorbitant C-suite bonuses, self-enriching stock buyback schemes, corporate downsizing projects, Orwellian criminal justice technologies, and mass evictions.

Meanwhile, some of the country’s largest pension funds, including the California Public Employees Retirement System and the New York State Common Retirement Fund, have become engulfed in scandals related to alternative investments, with their former leaders sentenced to prison.

“Back To Basics”

When Magaziner was first elected as Rhode Island Treasurer in 2014, he was a 31-year-old financier who had never before served in public office. His primary claim to political fame was being the son of an aide to President Bill Clinton who spearheaded Hillary Clinton’s failed insurance-friendly health care reform initiative in 1993.

Upon winning office, Magaziner pledged to reduce the amount of state pension money invested in hedge funds, which had become a scandal under his predecessor Gina Raimondo, who went on to serve as governor and now U.S. Commerce Secretary. While leading a fight to slash retiree benefits, Raimondo infamously increased fees the state pension fund was paying to Wall Street from 0.6 percent of the fund’s total portfolio to 1 percent — a change that equaled more than $30 million in workers’ pension dollars.


The scheme from Raimondo — whose political future is now being touted by a fossil fuel billionaire — became a national cautionary tale about the perils of handing over ever-more public pension money to Wall Street.

“Our ‘Back to Basics’ approach will improve returns through common sense investments that have proven they can deliver growth and stability,” Magaziner said at the time, portraying himself as an opponent of Raimondo’s Wall Street-enriching pension scheme.

But since then, Magaziner — who received nearly $67,000 from the finance industry during his 2014 campaign and another $111,000 for his 2018 re-election bid — has instead opted to double down on alternative investments, with the portion of the state pension fund invested in hedge funds, private equity, real estate, and commodities growing from 28 percent in 2017 to 34 percent this year.

As a result, Rhode Island’s pension fees to Wall Street have doubled, reaching 2 percent of the fund’s total portfolio in 2021, when $187 million in fees were paid out to the finance sector. In all, the pension fund has paid out about $620 million in fees since Magaziner took office promising reforms.

Those fees have delivered a jackpot to powerful private equity and hedge fund executives — including to a venture capital firm that once employed Raimondo and which managed Rhode Island state pension money during her tenure as the state’s treasurer.

Rhode Island now boasts one of the most aggressive alternative investment strategies of any state pension fund, with 40 percent of the pension in alternatives as of June 2021. Nevada’s pension fund, for example, caps their investments in alternative investments at 12 percent of its total fund, while numerous local public pension funds in Pennsylvania do not invest in alternative investments at all due to their complexity and risk.

“[Magaziner] did not go back to basics, he just went into other types of private investment funds,” said Ted Siedle, a former attorney with the Securities and Exchange Commission (SEC) who has investigated the fund’s investments on behalf of members of the pension.

Magaziner’s pricey foray into so-called “alternative investments” comes as the pension fund’s retirees received a cost-of-living payment adjustment of just more than 1 percent in 2021, and no increase this year, even as inflation hits four-decade highs.

While Magaziner’s office recently claimed that Rhode Island’s pension performance is in the top two percent in the nation for this year, such performance statements rely on opaque private equity valuations. Furthermore, the valuations’ stated private equity returns of nearly 32 percent were wildly discordant with the performance of publicly traded private equity firms, which actually posted a slight negative return for the year.

Alternatively, had the state of Rhode Island instead invested 80 percent of its funds in blue chip stocks and 20 percent in bonds — an investment strategy advocated by experts as varied as Berkshire Hathaway’s Warren Buffett, Vanguard’s Jack Bogle, Democratic Pennsylvania Attorney General Josh Shapiro, and Republican South Carolina State Treasurer Curtis Loftis — the fund would have generated more than $1 billion in additional funds to pay out benefits to retired teachers, firefighters, and bus drivers.

“Treasurer Magaziner has shown through his career his willingness to stand up to Wall Street for working people,” Magaziner’s campaign spokesperson noted in a statement to The Lever. “The fact that fees are higher is a function of improved net of fee performance that has been delivered to the pension system.”

When asked about the state pension fund’s performance, Benjamin Smith, a spokesperson for the Rhode Island Treasury Department, said, “It is not appropriate to compare our performance to the S&P 500 Listed Private Equity Index, as the index is designed to measure the performance of listed companies active in the private equity space rather than the funds themselves.”

“It Certainly Does Not Pass The Smell Test”

The finance, insurance, and real estate industries have delivered over $200,000 to Magaziner’s campaign for Congress, according to data collected by OpenSecrets — slightly more than the total amount he received from the sector in his two campaigns for state treasurer.

Magaziner's congressional campaign has received $17,800 in donations from the father, uncle, and two brothers-in-law of Bernard Buonanno III, the CEO of Nautic Partners, a private equity firm which primarily invests in the health care sector.

While Nautic has been working with the state of Rhode Island since 2000, the company scored major new commitments under Magaziner’s watch. In 2016, 2019, and 2021, the Rhode Island State Investment Commission, chaired by Magaziner, awarded the company investment management contracts, totaling $95 million.

Campaign contributions by employees of asset management firms to officials with influence over pension contributions like Magaziner are prohibited by the SEC’s pay-to-play rule, enacted in response to pension bribery scandals in the 2000s. But in this case, the family members are not considered “covered associates” under the rule because they are not direct employees of the firm or their spouses.

“Campaign contributions from business interests are all about buying favors,” said Craig Holman, a government ethics lobbyist with Public Citizen. “While the SEC has done a remarkable job at reining in obvious pay-to-play politics by banning campaign contributions from government contractors to those responsible for awarding the contracts, the anti-corruption regulation can be sidestepped by laundering those same contributions through other persons.”

The SEC’s pay-to-pay rule also “prohibits advisers and covered persons from coordinating or soliciting any person… to make any contribution to an official” overseeing a pension, like Magaziner, but there has been limited enforcement in this space.

“[The] ‘laundering’ of campaign contributions would still be illegal if it is in fact coordinated by the contractor,” said Holman. “The SEC should take a close look at whether those $17,800 in contributions from family members of the contractor were in fact orchestrated. It certainly does not pass the smell test.”

In response to a request for comment about his relatives’ donations to Magaziner, Buonanno III said, “None of this was from me. It may have been my dad, brother in law or uncle, but I’ve never spoken to them about these. I have never donated to him.”

Magaziner’s congressional campaign said in a statement that, “Treasurer Magaziner does not accept campaign contributions from any investment managers that perform work for the Rhode Island pension fund.”

The campaign added, “The Treasurer has not taken any money from any employee of Nautic Partners including Bernard Buonanno III, and any suggestion that he has is completely untrue. The Rhode Island pension system has been invested in Nautic Partners for decades and their funds are among the highest performers in the Rhode Island pension system.”

While Magaziner has hoovered up support and money from local and national Democrats, his role stewarding the state pension has received minimal media scrutiny. This is likely one of the reasons Magaziner is currently leading his closest primary challengers, Segal and former U.S. Commerce Department official Sarah Morgenthau, according to a recent poll.

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