by Max Brantley
The Democrat-Gazette this morning carried another long examination of a $40 million investment by the Arkansas Teacher Retirement System in Tennenbaum Capital Partners, a firm that puts together investment packages that look for profits in the debt of distressed companies and properties. ($40 million is a lot of money, but it should be viewed in the context of a retirement system with $11.6 billion in assets.)
For several weeks, I've been amassing the same documents that the D-G used for its article this morning. The summary of it is that a professional investment analyst, Susan Crosby, was fired
Feb. 24, not long after she questioned ATRS Director George Hopkins' decision to invest in the fund. She thinks Hopkins moved too hastily, particularly given a lack of enthusiasm on the part of some other outside financial experts. Hopkins says Crosby was fired for insubordination unrelated to the Tennenbaum investment.
The records demonstrate Hopkins moved quickly. They also demonstrate Crosby's disagreement and mixed reviews from outside analysts. The wisdom of the decision won't be known for some time (it's a seven-year commitment). Arkansas is not alone in investing in Tennenbaum. Public retirement systems around the country are other investors, based on a web search.
So what does it all mean? To me, the key question for Hopkins, who might address it at an April 4 ATRS board meeting: What made this Tennenbaum investment so special that there was some variance from the usual review process? (I think the short answer will be that it was part of a strategy to keep diversity in investments to include "alternatives," such as this one, to stocks, bonds, real estate and other investments.)
One piece of background not reported directly in the D-G articles so far: Crosby, and others familiar with the investment, say Tennebaum mentioned a prominent Little Rock businessman, Arkansas Democrat-Gazette publisher Walter Hussman, in the course of pitching ATRS on his fund. Hopkins has not responded to my question on his influence. But, I should add, even if true, there isn't necessarily anything suspicious about invoking a local reference, particularly that of a successful businessman. The D-G posted e-mails today that include a note from Hussman to Tennenbaum noting a newspaper article that mentioned ATRS' desire to invest in the Tennenbaum fund. Tennenbaum apparently forwarded that note to Hopkins, "FYI." The note from Hussman to Tennenbaum said:
Michael, see the last part of this article in our paper today, where it mentions they want to make a $40 million investment in your fund. Thanks, Walter.
UPDATE: I asked Hussman about his reported call to ATRS on behalf of Tennenbaum. He replied:
I met Michael Tennenbaum while vacationing in Colorado. He appears to me to be a very knowledgeable and successful investor. I understand he has invested money for other state or teacher retirement funds. We have not invested with him, as we don't invest in private equity or alternative investments or other illiquid funds.