Randall Edwards has some explaining to do.
Kari Chisholm
Earlier this week, the Oregonian reported that several of the funds in the Oregon College Savings Plan suffered massive declines in value this year, while similar funds saw moderate gains.
[The conservative option plan] was more heavily invested in the riskier Oppenheimer Core Bond Fund, which lost 38 percent of its value this year. Other comparable bond funds gained 4 percent.The fund's poor performance, caused by investing in cheap mortgage-backed securities and corporate bonds, resulted in higher than expected losses in eight of 16 investment portfolios in the state's college savings plan.
It seems that the manager of the fund, who has since been fired by Oregon's investment partner Oppenheimer Funds, was investing money from Oregon families in some very risky investments, including some of those "credit default swaps" that led to the big Wall Street collapse. And worst of all, the funds that took the big risks were the very ones supposedly designed with a conservative investment strategy:
The Oregon plan's portfolios most affected by the Oppenheimer debacle are tailored for families whose kids are close to or in college -- including the so-called Conservative Portfolio, the Ultra Conservative Portfolio, the 1-3 Years to College Portfolio and the In College Portfolio. Each had 20 to 25 percent of its assets in the toxic bond fund.
And it's not as if these losses were part of the usual risk, nor part of the overall downturn in the markets. As Steve Duin notes, Oregon's doing a lot worse than other state 529 plans:
According to Savingforcollege.com, which ranks the separate plans, Oregon's ranks 37th in the nation on its three-year performance and 43rd on its one-year performance.
The state's managers are simultaneously claiming that there was nothing done wrong; and yet promising that it won't happen again.
"We're sick about that because folks are ready to use the money, and that investment should not have done that," said Michael Parker, executive director of the Oregon 529 College Savings Network. "This will not happen again." ...Despite Oppenheimer's performance, Parker emphasized that the board is not upset with the fund manager itself.
"From the board's perspective, they weren't making bets," Parker said. "They had a strategy. At the end of the day, it was the wrong strategy. And the fund suffered monumentally."
He's headed out the door, but state treasurer Randall Edwards owes Oregon families a detailed explanation of what happened; not just at Oppenheimer, but with the total failure of oversight at the Oregon State Treasurer's office. After all, he's the chair of the oversight board - and appeared on television repeatedly urging Oregon families to put their money in these investments. Duin, again:
The face of the Oregon College Savings Plan when the market was up, Edwards has checked out now that the news is bad, forcing Michael Parker, the network's executive director, to answer the tough questions. ...Once the market began to tank, why were Edwards and his merry men only checking in on the fund's status on a quarterly basis, especially when Morningstar, the investment research site, reports that Oppenheimer went out of its way to hide its investment gimmicks from the average investor?
Sure, buy-and-hold-and-forget is a reasonable long-term strategy for amateurs making long-term retirement investments (like myself) - but it's not an appropriate level of oversight from the professionals at the state treasurer's office, and especially not for short-term "conservative option" funds for families with tuition bills in their near future.
Randall Edwards should provide a full and complete accounting of what happened in the next couple of weeks - before he leaves office. And whether he does or not, Oregonians should expect that incoming treasurer Ben Westlund will conduct his own investigation and give Oregon families some answers. And fast.
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connect with blueoregon
Dec 21, '08
If nothing else the state legislature should call him in to explain his actions, or inactions.
TLG
10:07 p.m.
Dec 21, '08
The Oregon College Fund is based on chance and should be played for entertainment only.
If you or someone you know has a gambling problem, call the problem gambling help line: 1-877-2-STOP-NOW (1-877-278-6766). Treatment is free, confidential, and it works.
Dec 22, '08
In the nature of black humor the "Ads by Google" sidebar is aimed right at selling you these products.
Dec 22, '08
The Dutch had a good reason for calling the market "the wind trade"!
Personally, I'm suspicious of funds with a "conservative investment strategy" that charge little or no fee. Doesn't stand to reason. If memory serves, the cited fund raised a red flag with me that way.
At least we don't have one of the "perks" of the Brit bail-out. Banks and investment houses are supposed to give free, unbiased financial planning advise to customers. There's been a rash of really banal commercials where HSBC or such has all these doe-eyed, 20 something reps giving financial advise as your mother would. "Are you holding any gym memberships? Ah, right; Well, then, you could jog around the block now, couldn't you"? Really makes one wish Monty Python or Benny Hill were still in production; they would have a field day.
All the pandering after monied interests by government can be pretty disheartening, but is nothing compared to seeing government do its business for other motives that it gets to make up!
I love Mike's comparison. Maybe that's why the conspicuous disclaimer "not for investment purposes" on the lottery. Should read, "not for your investment, but we can rig it for us to use for your children's future, we think...".
Call me a product of a litigious society, but I really believe the time for malpractice suits against software engineers and investment managers has come. And today I would add meteorologists.
Dec 22, '08
The point here is not just that these investment funds lost money, but that this fund was specifically designed as a conservative financial investment. It's the apparent lack of oversight -- and lack of adequate public response now -- that's the issue.
A lot of Oregon families and students counted on the treasurer's office to be more vigilant with their kids' college funds. Randall is a smart, talented guy, but I'm disappointed with how he's chosen to handle this. It almost feels like he's trying to run out the clock here without taking responsibility for an office he leads. That's at least how I read the initial stories last week.
I'm much less worried about the money my family's personally lost in this fund and much more concerned about the students who are now scrambling to figure how to pay for college next year.
Dec 22, '08
As an attorney, the first word that jumped in my mind on this was "negligence". One wonders whether the protection in the Oregon Tort Claims Act for "discretionary" decisions will protect the State from exposure from tort claims here.
I also wonder whether Oregon's Unlawful Trade Practices Act would exempt the State here. Any other business representing to consumers that a product is not what it is represented to be, ie. a conservative investment plan, would face legal exposure under this Act.
Dec 22, '08
Correction to previous paragraph: false or misleading statements concerning products may subject businesses to liability under Oregon's Unlawful Trade Practices Act. Note to self: proof read before clicking "post". LOL.
8:12 p.m.
Dec 22, '08
I am glad to see some outrage over this issue. The initial story included some truly terrible quotes from Michael parker, the executive director.
The follow up story indicating complete lack of oversight and followup is even worse.
I moved my investments over to Vanguard a few years ago because their management fees are half of Oppenheimer / Strong. The problem with Vanguard is that there is no age-adjusted investment portfolio.
Luckily, I can afford my current son's tuition at PSU out of pocket, since his college fund is down 30%. for others who acctually listened to the terrible advice coming out fo the 529 leadership, they are really up a creek.
Dec 22, '08
@ Paul G.:
No age adjusted portfolios at Vanguard? I was just at their site checking on my Retirement 20XX fund, of which they have about 10 (Retirement 2010, 2015, 2020, 2025 ...). All mainly invested in other Vanguard index funds, with an increasing tilt towards bonds and cash as the target date approaches.
Dec 22, '08
This is getting off-topic, but folks should think a bit about over-adjusting toward bonds and cash as retirement approaches. You might retire at 65, but you should be planning to live until 95 or longer... and 30 years is way too long to have all your investments in low-growth investments.
(As always, consult your own investment advisor.)
Dec 23, '08
should be planning to live until 95 or longer... and 30 years is way too long to have all your investments in low-growth investments.
(As always, consult your own investment advisor.)
So that's why the students at a shall-remain-nameless medical school wanted to add an investment course to the curriculum, rather than a course on nutrition! Take to treasuries and call your broker in the morning...
Dec 24, '08
No age adjusted portfolios at Vanguard?
They're not offered through Oregon's 529 plan. You can buy some Vanguard funds, but the age-adjusted ones are run by Oppenheimer. It's by far the most popular plan because it (theoretically) reallocates as your child gets closer to college, investing more and more conservatively. The 10+ years to college fund has about 10% in the now-toxic Oppenheimer Core Bond fund. The allocation to the Core Bond Fund grows to a maximum of 35% before dropping back down to 20% as your child gets older. So those most impacted by this are those with the most money in the fund who are closest to college.
My own kids 529 plans have lost over 40% of their value, but that's not why I'm pissed off. They're young, and I have chosen to invest almost completely in equities. The losses are part of the risk. But when something is billed as a "conservative" investment, the state needs to make sure that it is.
This is negligence by the Treasurer and his staff for not exercising greater oversight. The legislature needs to hold hearings and demand some real answers. Michael Parker may need to be fired. I usually come to the defense of state employees, but they also need to be held accountable when they screw up. And Parker and Edwards screwed up.
Dec 27, '08
The manager of the Oppenheimer fund, Angelo Manioudakis also has some explaining to do.
http://en.wikipedia.org/wiki/Angelo_Manioudakis
Dec 29, '08
"As an attorney, the first word that jumped in my mind on this was "negligence".
<h2>I am guessing you are not securities lawyer...</h2>