In 2010, State Treasurer Denise Nappier presented a new investment opportunity to Connecticut’s Investment Advisory Council (IAC), into which she was hoping to invest $150 million of Connecticut’s pension funds for state employees and teachers.

As per the typical investment proposal before the IAC, a recommendation report was compiled by Franklin Park, the private investment consultant firm hired by the Office of the State Treasurer, and a presentation was made by the investment management company hoping to secure Connecticut’s commitment. 

That company, Fairview Capital Partners based out of West Hartford, was already managing three separate funds for Connecticut totaling $1.14 billion. Their entry into Connecticut’s pension investments had come after several years of investing for the pension systems in New York. 

The founding partners of Fairview – Laurence Morse and JoAnne Price, along with their top staff – had all the bonafides: Both Morse and Price had graduated Howard University. Morse went on to Ivy League schools like Princeton and Harvard. Morse had been made part of Webster Bank’s board in 2004, and Price served as president of the National Association of Investment Companies, among several other notable connections to the banking and finance industry.

Fairview Capital was managing funds-of-funds for Connecticut, which means they create a fund – in Connecticut’s case, called the Constitution Fund – which then invests in other venture capital funds, hoping to minimize the risk and earn reward through diversifying their venture capital investments.

And the risk was significant. Connecticut’s pension costs from unfunded pension liabilities were rising significantly, part of a deal struck between the State Employees Bargaining Agent Coalition (SEBAC) and former Gov. John Roland that created ballooning annual payments toward the pension debt and would ultimately result in two tax increases in 2011 and 2015 just to pay for those costs, according to then Gov. Dannel Malloy.

That pension debt also drove budget deficits and led to negotiated givebacks by state employees in order to reduce costs, including state employees paying more for health coverage and creating new retirement tiers less generous than in previous years. In essence, it cost everyone.

At the time, as well, Connecticut projected its pension investments would return a minimum of 8.25 percent per year. Failure to meet that assumed rate of return further would further drive up the unfunded liabilities and the annual cost of Connecticut’s pension payments.

Although Fairview’s partners were highly regarded, the two previous funds, created in 2005 and 2007 called Constitution II and Constitution III, were not performing so well. Both funds at the time had returns of -6.6 and -21.3 percent respectively, although Franklin Park cautioned that the funds were still relatively new.

There were other cautionary notes in the 2010 recommendation report. For one, venture capital investments boomed in the 1990s but were relatively flat across the board in the 2000s. Secondly, Fairview’s investment management fees were high. Connecticut not only had to pay the fee for Fairview to manage the investments but also the fees associated with the underlying funds into which the money would be invested.

 “In addition to fees and carry paid to underlying funds, the Fund will also charge fees and carry which will serve to dilute returns to CRPTF,” Franklin Park wrote. Fairview was charging a management fee of .8 percent per year. For an investment of $200 million, that would bring $1.6 million in fees annually. Additionally, they retained 1 percent of the profit. Those fees encompassed what was paid out to the underlying funds, as well.

Although the recommendation report indicated Fairview’s Constitution IV fund met Connecticut’s guidelines and “represents an efficient vehicle for CRPTF to gain exposure to venture capital funds,” the IAC had serious reservations, namely that 54 percent of the underlying funds had performed below the median, according to meeting minutes, and ultimately did not vote to move forward with that investment in 2010.

One year later, however, Nappier and Franklin Price were back pitching it again. This time, Franklin Park had reworked their original numbers and reconciled them with Fairview’s own internal numbers.

As documented in the May 4, 2011, update on Fairview’s venture capital Constitution IV proposal, Franklin Park revised their numbers, changed their benchmarks and adjusted some of the language from the original report. The numbers still weren’t great, but more in line with what Fairview had presented – mainly that 54 percent of the underlying funds into which Connecticut’s pension money was invested performed above the median, and 46 percent below the median.

“We requested Franklin Park revise its performance assessment, correcting the underlying funds’ vintage year comparison to be based on each fund’s first draw date, consistent with how Venture Economics defines vintage year,” Nappier wrote. “Unfortunately, the IAC package inadvertently included an earlier version of Franklin Park’s recommendation report on Fairview IV that had not yet been updated with our request to correct the underlying funds’ vintage year performance comparison.”

According to the personal notes of an IAC member at the time, however, “absolute returns are poor no matter what benchmark you use.”

Furthermore, the IAC member questioned the objectivity and independence of Franklin Park, “which appears to have capitulated to pressure to submit a more favorable opinion than it did originally.” 

Of particular concern was a change of wording regarding Fairview’s strategy. According to the notes, the original Franklin Park report indicated Fairview’s funds “have generated lackluster absolute returns,” which was changed to, “have generated modest absolute returns.”

The IAC did not hold a vote on investing in Fairview’s Constitution IV fund, but this time Nappier went ahead with the $150 million investment anyway. The IAC serves only in an advisory capacity, they have no real control because, in Connecticut, the elected state treasurer is the sole fiduciary. 

By law, there are supposed to be five public members appointed by the governor and legislative leaders who have investment experience and five union representatives who are essentially there to safeguard their own members’ money. 

Nappier’s overruling of the IAC came to light during her 2014 re-election bid, when her Republican opponent Timothy Herbst fact-checked her assertion that she had never gone against the recommendations of the IAC. Nappier argued that she had answered the IAC’s questions to their satisfaction, but members of the IAC had a different take, telling the Hartford Courant Nappier had never satisfied their objections to the investment.

This is not just old news from more than a decade ago. Two months ago, researchers at Yale released an intensive study cataloging Connecticut’s pension investments and performance over the past two decades and compared it to every other state in the country – no small feat, to be sure.

They found that Connecticut had underperformed all but one other state in terms of pension returns, costing taxpayers billions as Connecticut’s attempts to beat the market fell far short of expectations.

In an op-ed published in the Connecticut Post, Jefferey Sonnenfield, professor of Leadership Practice at the Yale School of Management, and Steven Tian, director of research and chief executive of the Leadership Institute, wrote that if Connecticut’s investments had returned just the median investment return of other states, it would have resulted in $27 billion more over the last decade giving lawmakers the ability to shore up the pension fund and reduce taxes. 

Part of the problem, they wrote, was Connecticut’s reliance on smaller fund managers “where Connecticut is the single largest client – sometimes substantively the only client, all while Connecticut pays high fees, with some obscure asset managers individually earning more than the entire state’s cabinet combined.”

The study itself singles out Fairview as that asset manager where Connecticut is the single largest client and to which the state is paying fees over and above what can be found elsewhere. According to the study, Connecticut has committed to ten funds managed by Fairview, amounting to more than $1.7 billion – more than double the next largest allocation with a private investment manager listed in the study.

As the study points out, Connecticut’s private investment consultant StepStone also noted that fees to Fairview were above market. “StepStone has seen many similar SMA vehicles charge much lower fees. Given the State of CT makes up a significant portion of the Firm’s active AUM, StepStone believes the State of CT could negotiate fees that are more in line with the operating costs of running the Constitution series,” StepStone wrote.

That was from a July 3, 2020 IAC report, when then-Treasurer Shawn Wooden was looking to commit another $75 million to the Constitution V Series E, but the warnings about Fairview’s underlying fees had been appearing in reports since Nappier’s tenure.

To be clear, it’s not that Fairview’s returns have been negative for the state to date – most of them haven’t. The latest series of funds have negative returns at this point, but are too young for those returns to be meaningful. The older funds, however, generated positive returns, but most performed under the common target threshold of 20 percent venture capital investments. According to that same July IAC report, at the time none of the Constitution funds had reached that 20 percent threshold and, according to the Yale study, only one of the Constitution series bested that return.

The broader question might be why Connecticut has so heavily invested in this single management company with such high fees.

According to that same 2020 report, “Fairview is responsible for nearly all the PIF’s current venture capital exposure, which is structured in fund-of-funds vehicles that create an additional fee drag on overall return potential,” StepStone wrote. “The concentration of assets and oversight of the PIF’s venture capital program with one manager increases performance and organization risk.”

By 2020, Connecticut’s government had a 16-year relationship with Fairview and the firm’s upper management had ingratiated themselves into Connecticut state government, serving on government committees and boards. Hindsight for investments is easy, the market can be a gamble. In the land of steady habits, getting the state to invest with a private firm so many times over may depend on relationships.

Fairview was formed in 1994, registering in Delaware like many other companies, but formally registered to do business in Connecticut in Farmington before moving their primary location to West Hartford. According to the Connecticut Department of Banking, Fairview was fined for conducting business without the proper registration from 1994 to 2001.

Prior to managing funds for Connecticut, Fairview had formed funds-of-funds for New York’s pension system in 1999 and 2002. Connecticut’s Constitution Liquidating Fund, formed in 1987 with $100 million, eventually growing to $640 million in taxpayer-funded investments by 2001, was taken over by Fairview in 2004 following a formal request for proposals. The Liquidating Fund, also called Constitution I, had originally been managed by Bigler Investment Management, before they sold their management stake to The Crossroads Group in the mid-1990s, according to IAC documents.

When The Crossroads Group was acquired by Lehman Brothers in 2003, Connecticut went looking for a new manager for its commitment. Nappier and the IAC selected Fairview in 2004 from a pool of 40 companies vying for the job. At the time, Fairview counted among its principals Matthew Schaeffer, who had previously worked for Bigler and Crossroads up until 1999.

“At the time, Fairview already had a highly ranked venture capital fund investment program, with an over 70 percent manager overlap with the State of Connecticut’s portfolio, and we believe this was the key determinant in our successful bid,” a spokesperson for Fairview Capital said in an emailed response to several questions.

The Constitution I fund ended up performing well, although reports point out that Fairview merely took over managing existing investments made by Bigler. It was also this year that Morse was appointed to the board of Webster Bank where he remains today.

By 2005, Fairview was presenting a new opportunity to Nappier and the IAC for a Constitution Fund II, to continue the investment strategy that had worked for Constitution Fund I. The IAC all voted in favor of making the investment and waived the 45-day comment period, something that appears quite common according to meeting minutes, and Nappier announced in the following meeting that she would commit $200 million.

Nearly 18 months later, in 2006, Fairview was again presenting before the IAC for a $300 million commitment for its Constitution Fund III. This time, IAC members were more hesitant, expressing concern that $300 million was too high, that the fees were too high, and that Fairview did not have a track record with Connecticut’s pension investments at this point. But those who were hesitant acquiesced, some of them reluctantly.

Interestingly, in December of 2005, the IAC heard a presentation by Cornerstone Real Estate Advisors. Among those presenting on behalf of Cornerstone was Pamela McKoin, wife of Fairview co-founder Laurence Morse. McKoin served at the time as Cornerstone’s vice president for client contact. IAC member’s responses to the proposal were lukewarm but ultimately approved for a $75 million commitment by the state.

It is unclear if that investment ever materialized, however. Nappier noted her office was awaiting final contract approval. By June of 2006, Chief Investment Officer Susan Sweeney said she expected the investment to be completed by July. By December it was noted the investment with Cornerstone had not closed, and the company was not mentioned again throughout 2007. It is also not listed as an investment by Yale’s study.

At this point, Fairview was managing $640 million through Constitution I and $500 million through Constitution II and III, leading into the 2010 and 2011 disagreement between Nappier and members of the IAC who didn’t believe the returns from Fairview’s two original funds warranted another commitment at that time. 

At some point, both Fairview and Cornerstone Real Estate Advisors under Pamela McKoin, also became private equity managers for the City of Hartford. The city lists both firms as investment managers in 2012. Denise Nappier had previously served as Hartford’s treasurer and her sister, Donna Nappier, served as assistant city treasurer.

Fairview was, naturally, collecting management and expense fees for the $1.1 billion in assets they were managing for the state for those three funds. Connecticut’s online open data records, which only go back to 2012, show that between 2012 and 2022, Fairview received $15.9 million for management consulting services, as well as $1.2 million for the liquidation fund.

That $15.9 million is for only two funds out of ten into which Connecticut has invested. Sonnenfeld of the Yale study believes the total amount paid to Fairview for management of 10 different funds to be north of $40 million per year when accounting for the fees to Fairview and the profit skim. — an estimate which a spokesperson for Fairview categorically rejects.

“This is false and irresponsibly inaccurate, given that the actual amount is a very small fraction of this figure,” Fairview said in a written statement.

Both estimates may be true: Fairview only retains a portion of those fees, having to pay out fees to the underlying funds as well. As indicated in those IAC reports, Connecticut is essentially paying two sets of fees for each investment.

Denise Nappier further doubled down with Fairview in 2016 with its Constitution Fund V and multiple times over with Constitution Fund V’s series B-F. Some of those final investments came during Nappier’s tenure as state treasurer, some came during her successor, Shawn Wooden’s tenure. 

Between 2016 and 2018, Fairview Capital also lost three of its partners, something that would generally give investors pause, but did not appear to affect Nappier’s faith in the firm, although the IAC expressed concerns. Nappier committed an additional $150 million to Fairview in 2016 and 2017.

In October of 2018, Nappier and the IAC committed another $100 million to Constitution V’s series C and D, just before she left office, being succeeded by Shawn Wooden. All in all, Nappier committed $750 million to the firm, in addition to the $640 million of the original Constitution Liquidating Fund.

Before serving as state treasurer, Wooden was a partner with the law firm Day Pitney where he ran the firm’s public pension plan investment practice. Day Pitney has multiple offices in Connecticut, including one in West Hartford in the same building as Fairview Capital’s office. Although CII asked if Fairview had ever worked with Wooden prior to his becoming treasurer, they did not give a response.

During the summer of 2020, Wooden committed another $75 million to Fairview’s Series E and another $100 million in October of 2021 before announcing he would not seek reelection in April of 2022. 

Part of the concern regarding Fairview’s fees, is that the firm receives fees not only for money that has been invested and actively managed but also for money that has been committed to be invested but has not yet been deployed. The money is still sitting in Connecticut’s bank account, but Fairview is receiving payment for managing it.

According to the study, Connecticut has committed $1.7 billion to the firm’s Constitution series, but only $1.1 billion is currently under active management, according to 2023 SEC filings. Fairview continues to receive fees for the remainder which is not yet deployed. However, based on meeting minutes, the state often makes restrictions on the timing of investment deployments, stretching them out.

According to Fairview’s 2023 ADV filing with the Securities and Exchange Commission, Fairview currently has roughly $2.5 billion in assets under management (AUM), meaning that Connecticut’s $1.7 billion in commitments to Fairview makes up more than half their AUM. Fairview says that over the course of the firm’s existence they have managed over $10 billion on behalf of institutional investors, “foundations, endowments and pension plans,” making them one of the largest minority-owned investment firms in the United States.

“The firm has a deep commitment to providing superior client service and consistently producing above-market risk-adjusted returns,” Fairview said.

That $10 billion figure cited, however, was the cause of some concern by the SEC in 2019, according to the 2020 IAC report, which found their reporting of total managed AUM over the history of their company was not consistent with reporting standards, and Fairview had to make adjustments.

There is nothing preventing the state treasurer from either exiting investments that aren’t performing well or renegotiating fees and Fairview says their fees have consistently gone down over the years.

“Fairview’s fees are market competitive. The State of Connecticut and Fairview have negotiated fees multiple times over the lifetime of the partnership and Fairview’s fees have only gone down (never up) in keeping with market trends,” the spokesperson for Fairview said.

Indeed, the Constitution Fund IV from 2011, contained a .8 percent fee for invested capital. By 2020, when Connecticut was investing into the Constitution Fund V, the fee structure had been reduced to .65 percent. But still, there remains the unusual practice of paying fees to a management company for money — in Connecticut’s case roughly $700 million — not yet invested.

During this nearly two decade run of investments into Fairview, principals at the firm began to serve on boards and committees within Connecticut’s government, as well as nonprofits associated with state government, all while gaining new investment opportunities.

Fairview’s principals serve on the boards of prestigious universities, healthcare systems, cultural centers and nonprofits, but they also became more ensconced in Connecticut’s state government. Fairview’s insider status in Connecticut state government could make business conversations regarding investments and fees more difficult. Relationships matter in both business and politics.

Fairview’s co-founder, JoAnn Price, served on the board of the Hartford Foundation for Public Giving between 2010 and 2019, including as board chair from 2017 to 2019. The Hartford Foundation’s board is made up of well-monied and politically connected members who utilize those connections for philanthropic purposes. During this time with the Hartford Foundation, Price testified multiple times before legislative committees on behalf of the foundation, generally in support of diversity and workforce development bills.

Price was also appointed to the Board of Regents overseeing Connecticut’s Colleges and University system by Gov. Dannel Malloy in 2014, serving alongside Richard J. Balducci, who had formerly served as Connecticut’s Speaker of the House, and Catherine Smith, commissioner of the Department of Economic and Community Development. 

Price continues to serve on the Hartford Foundation’s development committee and serves as chair of 4-CT, a nonprofit started in 2020 that offers direct cash assistance for Connecticut’s most vulnerable populations, according to their website. Also on the board is Governor Ned Lamont’s daughter. Price serves on the board of the Amistad Center for Art and Culture in New Haven, where former treasurer Shawn Wooden is an honorary board member.

Fairview Partner Alan Mattamana currently serves on the board of the Hartford Foundation as well as the board of Connecticut Health and Education Facilities (CHEFA), which receives state funding and provides financial assistance to educational institutions, healthcare and childcare providers and other nonprofits. The state treasurer is an ex-officio board member, and Lamont’s budget chief Jeffrey Beckham also sits on the board.

Fairview’s senior advisor, Edwin Shirley, was appointed to Connecticut’s Social Equity Council overseeing Connecticut’s legalized cannabis business by Senate Majority Leader Bob Duff, D-Norwalk, and serves on the boards of the Hartford Symphony Orchestra and the Bushnell Center for Performing Arts.

Of course, none of this is inherently a conflict of interest or constitutes wrongdoing. Connecticut is a small state, smaller still when trying to find people willing to devote their time and energy for free, serving on the boards of nonprofits and philanthropic organizations investing in underserved communities. In fact, it’s even necessary, in some regard, for Fairview and other investment managers looking to do business with the State of Connecticut.

Fairview says the service of their managers and partners is part of their commitment to the community and to the state.

“Fairview Capital has been a Connecticut-based company with a team and culture deeply committed to supporting and giving back to the community where our employees live and work,” Fairview said. “Community and Service are two of the core values for the firm and several members of the Fairview team volunteer on community and nonprofit boards locally and nationally. In every case, the objective is to give back as engaged corporate citizens, while avoiding any conflicts with our fiduciary responsibilities to all clients, including the State of Connecticut.”

Fairview’s proximity to the Capitol and being a Connecticut firm certainly invites them to participate in such government-related and state-based philanthropic activities. Connecticut’s next largest allocation to a private fund manager listed in Yale’s study is Clearlake Capital, headquartered in Santa Monica, California. Their managers are certainly not going to be serving on boards in Connecticut.

The Treasurer’s Office and the IAC consider both the diversity of a management company’s staff and their contributions back to communities, according to IAC meeting minutes, and the Office of the State Treasurer’s investment policy and diversity policy principles. Firms are required to report the diversity of their workforce and provide a narrative of expanding that diversity, according to state diversity principles approved in 2019. According to the 2022 investment policy, the treasurer and the IAC consider the Environmental, Social and Governance (ESG) factors of any potential partner.

But relationships and partnerships involving hundreds of millions in state investments does matter.

When Shawn Wooden held a charity gala at Dunkin Donuts stadium in 2023 after leaving office, billionaire Robert F. Smith, owner of Vista Equity Partners – another management company highlighted by Yale as underperforming – into which Connecticut has invested $325 million, including investments made during Wooden’s tenure, flew out from Austin, Texas to attend and praised Wooden’s leadership on key issues.

Wooden left the treasurer’s office to take a job with Apollo Global Management, a firm with which Connecticut has investments, but all the investments were made well before his election.

Does politics matter when it comes to investment performance? According to Yale researchers: No.

Red, blue, or purple, all states but one performed better than Connecticut when it came to returns on its investments. Instead, the problem came down to under-performing investment managers; a shocking finding coming out of a state known for its concentration of wealth, hedge funds and financial expertise.

ESG investment policies have become a cultural and political flashpoint over the years with criticism from right-of-center groups claiming it uses taxpayer money to inappropriately emphasize political trends over investment returns for shareholders or pensioners, while those on the left side of the political spectrum argue that accounting for these factors makes an investment more sustainable in the long-term and make for better corporate citizenship.

Connecticut’s diversity principles for investments aren’t new. Meeting minutes from the mid-2000s show Nappier and the IAC regularly chiding investment managers for a lack of staff diversity and occasionally pushing for or against investments based on issues unrelated to performance. Sometimes that worked out well for Connecticut, other times it did not.

In 2007, Nappier and the IAC were looking to expand their investments into European real estate. To that end, JER Partners presented to the IAC their JER Europe Fund III, managed by JER partners, with a potential $35 million investment. While some IAC members thought it would be a good move for Connecticut’s pension investments, there was a big roadblock: JER’s CEO, Joseph Robert, was supportive of independent and non-public schools in the Washington D.C. area through his foundation, Fight for Children.

“Mr. Freeman said that he would absolutely not support the investment because he could not justify to the members of the Union that he represents an investment in a firm that has a policy initiative that could hurt public education,” according to April 11, 2007, meeting minutes.

In May, Nappier indicated that she would ask Joseph Robert to sit down with the union members of the IAC, “so that he could learn more about opposing perspectives on supporting non-traditional public schools.” According to the notes, Nappier felt a conversation would be more productive than immediately declining to make an investment.

JER backed out of the negotiations following Robert’s meeting with the IAC members. This ultimately proved to be fortuitous for Connecticut; the JER Europe Fund III saw double-digit negative returns, but it also shows that political considerations do have an impact on the investment decision-making process.

In 2006, the Treasurer’s office and the IAC approved an investment of $40 million into a Los-Angeles based firm that was minority-owned and invested in small-cap companies that were minority-owned and employed low-to-moderate-income people, according to meeting minutes. That investment saw a return of negative 24.07 percent, according to the Yale study.

But decision-makers in the IAC and treasurer’s office have also doubled down on fund managers who already had poor performance, regardless of politics or diversity measures.

In 1998, Connecticut invested $75 million into the Thomas H. Lee Equity Fund IV. The investment did poorly, but the fund manager presented a new opportunity to the IAC in February of 2007. Despite the poor performance of Connecticut’s previous investment with THL, the IAC and Nappier moved ahead with a $100 million investment into their Fund VI. According to the Yale Study, THL’s Fund IV returned negative 2.61 percent and Fund VI returned 7.8 percent, well below benchmarks for mega buyout strategies.

Investment into an urban real estate fund started by basketball superstar Earvin “Magic” Johnson, known as the Canyon-Johnson Fund, saw the state lose 10.4 percent, part of the real estate funds highlighted in Yale’s report, which showed over $1 billion in pension funds committed to real estate investments that all lost money, although it should be noted that many of these investments were made prior to the 2008 real estate crash and subsequent recession.

Connecticut’s other investments in real estate were also highlighted in the Yale study, saying “Connecticut’s portfolio of investments in real estate strategies also illustrates the state’s historical woes in finding top-tier managers,” and the state’s real estate investments over the last decade have trailed the property index by more than two points.

Of course, investing can be a gamble and even winning strategies can turn sour, particularly in light of the 2008 financial crisis. In 2006, Connecticut invested $100 million into the MacFarlane Urban Real Estate Fund II, after the company earned a return of 36 percent over ten years for California’s pension system. Connecticut’s investment, however, saw a negative 16.47 percent return.

The study produced by Sonnenfeld and his team of researchers was reportedly well-received by Gov. Lamont and newly-elected State Treasurer Erik Russell and, according to both the study and Sonnenfeld, Russell is already making moves to improve Connecticut’s performance by addressing concerns highlighted in the report.

“The Yale study is extraordinarily disturbing,” said Sen. Ryan Fazio, R-Greenwich. “By all accounts Connecticut has severely lagged the rest of the country in investment returns. Connecticut has basically been lighting money on fire for the past ten or twenty years and its cost taxpayers enormously and it’s added enormous risk to the retirement of state workers.”

“And it was a public service that Sonnenfeld and Tian did in publishing this report,” Fazio added.

However, at least one former member of the IAC was critical of the report. Danita Johnson, who served on the IAC between 2018 and 2021 and now works as managing director of real assets for Maryland’s pension system, emailed Sonnenfeld and said criticizing these small investment managers was unfair. She encouraged Yale’s team of researchers to familiarize themselves with the “J curve.”

“Listing these managers, some of whom are relatively small, with negative comments on their performance without doing the appropriate research is irresponsible and does them and the investment staff a disservice,” Johnson wrote.

Sonnenfeld responded, backing up his work and his familiarity with the “J-Curve,” saying it does not address Connecticut’s “historic underperformance at all when looking at the disastrous expired terms.”

“If Connecticut merely earned the average returns produced by your new colleagues in Maryland, we would have had over $10 billion more in earnings over the last decade for Connecticut to write down massively its debt overhand – let alone to not transfer the $8 billion in tax revenue Governor Lamont needed to do these past four years to pay pension liabilities,” Sonnenfeld wrote in response. “There is no excuse- none- which explains such shamefully poor performance compared against 50 other states.”

Similarly, Fairview criticized Yale’s study, saying they have consistently outperformed industry benchmarks generating significant revenue for Connecticut’s pension system.

According to Fairview, Yale’s study “made selective and misleading references about Fairview Capital, without ever reaching out to the firm for confirmation or comment and, in a significant error of omission, making no reference to Fairview’s overall track record and outperformance on behalf of the State.”

“Since the selection, Fairview has consistently generated strong performance for the CRPTF through the Fairview Constitution program by investing in some of the best-performing venture capital firms in the world and derivatively in their portfolio companies,” the Fairview spokesperson wrote. “Over this period, the Constitution program has outperformed industry benchmarks (Cambridge Associates Venture Capital Benchmark) in over 80% of vintage years. In each of the last nine years, the program’s distributions to the State have exceeded contributions by an average factor of 2.7 times, with $720 million distributed in the last five years alone ($111 million of that in 2022).”

However, it should be noted, a significant portion of those returns to Connecticut came from the original Constitution Fund, which Fairview took over in 2004.

As indicated before, Fairview’s returns have mostly not been negative, but have also mostly not generated the 20 percent threshold return highlighted by the state’s private investment consultant. Series D-F of the Constitution V fund into which Wooden invested are in the negative, although it is likely too early for those results to be meaningful — part of the “J curve” of investments — while series A, B, and C have generated positive returns — one as high as 30 percent.

But the Yale study raised the question as to why the state has continually doubled down, investing heavily in a single management company with a fund-of-funds structure that generates such high fees and a record that, at various points during Connecticut’s investment history, was not generating expected returns.

Naturally, Connecticut’s investment underperformance is spread across hundreds of firms. It has little to do with any single manager, but that performance affects every taxpayer, state employee and government entity. It results in money directly out of people’s pockets and billions of surplus dollars poured into Connecticut’s pension debt that could have been used for everything from tax cuts to more social services.

During a turbulent 2022 on Wall Street, Connecticut’s pension investments took a negative 10 percent loss, resulting in more than 14,000 state employees having to pay more directly out of their paycheck for their pensions under a new retirement tier put in place in 2017 to help ease the budgetary pain of Connecticut’s unfunded pension liabilities.

Now, there are changes afoot. Part of the biennial budget passed in June of 2023 lifted the restriction on public IAC members working for businesses, organizations or their affiliates who may have business before the IAC. Instead, it only requires them to recuse themselves from votes when those companies have business before the IAC.

“The IAC is an integral part of Connecticut’s fiscal future, sharing in the responsibility to shape, evaluate and execute our investment strategies. Some of the statutory restrictions on potential IAC members were unnecessarily constraining, and were a barrier to recruiting additional qualified, expert investment professionals to serve,” Russell said in a press release. “I applaud the legislature and Governor Ned Lamont for expanding eligibility for the IAC and for giving my office more flexibility to attract and retain in-house talent. I believe these measures are good news both for the IAC and for the state’s retirement plans and trust funds.”

Such a measure could be seen as a double-edged sword: on one hand, it allows individuals with extensive investing expertise who are still working in finance to be members of the IAC; on the other hand, it could raise suspicion of investments based on insider relationships.

Fazio says he sees it as a positive change. “I think their reasons for it makes a lot of sense and I’m totally open-minded about watching it and I certainly hope it works,” Fazio said. “There is certainly a strong rationale for it.”

“We’ve had an overly restrictive policy in place for years and hopefully this can bring more talent onto the IAC,” Fazio said, adding that he commends Lamont and Russell, who is new on the job, for taking the matter seriously.

However, Fazio believes that this change, alone, is not enough because the IAC remains only an advisory board.

To that end, he and Senate Republican Leader Kevin Kelly, R-Stratford, plan to propose legislation next year that would create an investment board, chaired by the treasurer, that would be the fiduciary overseeing Connecticut’s investments. Currently, the treasurer is the sole fiduciary and, as indicated previously, can overrule the IAC. Only one other state in the country has the state treasurer as the sole fiduciary. It’s North Carolina, the only state to perform worse than Connecticut over the last five years in Yale’s study.

“That way we can have broader shared responsibility among the board members,” Fazio said. “We could improve our investment returns along the lines of what 47 other states have done.”

Sonnenfeld, in both the study, his op-ed and in person, says current state treasurer Erik Russell is taking these challenges seriously and is in the process of instituting changes, but the poor performance of the last 20 years, many of which were boom years for Wall Street, will continue to hang over the state.

While Connecticut lowered its expected rate of return for its pension benefits to 6.9 percent, according to the latest pension performance report, the state’s investments have returned roughly 6.5 percent over the last ten years. With over $45 billion invested, Connecticut can ill-afford another decade of poor performance resulting in billions of unrealized gains.

“It needs to be an absolute top priority to fix. At the rate we’re going we’re bleeding hundreds of millions of dollars every year,” Fazio said. “It can be fixed. This is literally leaving money on the table. It’s bad for everybody – bad for people who want to spend more money in government and fund programs, it’s bad for people who want to see lower taxes.”

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