HARRISBURG, Pa. — Republican U.S. Senate candidate Mehmet Oz on Tuesday sought to attack GOP front-runner David McCormick for his role in leading a hedge fund that made hundreds of millions of dollars from the embattled Pennsylvania school pension fund, PSERS.
Pointing at PSERS headquarters in the state capital, as staff gathered upstairs for a board meeting, Oz noted how McCormick had served as CEO of Bridgewater Associates, the giant hedge fund that was until recently PSERS' largest outside money manager and its largest recipient of fees. Both PSERS' and Bridgewater's investments for the agency have been criticized for lackluster performance.
"Rich people on Wall Street continue to charge us and make money whatever happens," said Oz who spoke on the sidewalk across from PSERS's midrise building, accompanied by several teachers and a small-business owner.
Oz sought to blame McCormick for the pension fund's large deficit even though the shortfall has accrued over many years. "They trusted my opponent in this Senate race, David McCormick, to invest their money," he said, noting that the pension fund had paid McCormick's firm over half a billion dollars in fees from the 2000s through 2019.
Bridgewater investments made money for PSERS but not as much as other funds did. The Bridgewater holdings "performed so poorly" that taxpayers and teachers have had to pay more and more into the system.
In all, taxpayers paid $5 billion and school staff more than $1 billion in the current fiscal year.
Why PSERS investment strategy has failed to pay off for Pa. taxpayers and school employees
Oz also charged that Bridgewater's poor performance was a factor in the departure of several top PSERS officials, including executive director Glen Grell and chief investment officer James L. Grossman Jr. Board critics said PSERS performed poorly, with expensive private investments such as Bridgewater's that underperformed compared to U.S. stock indexes.
Two other senior officers also stepped down last year amid investigations of PSERS investment practices and land purchases by the U.S. Attorney's office in Philadelphia and the Securities and Exchange Commission. No one has been charged.
Oz acknowledged helping raise $2 million in past charitable contributions from Bridgewater's founder, Ray Dalio, who hired McCormick.
Oz said he would not return that money because it was spent on nonprofit activities unrelated to investments. Asked why he was attacking McCormick instead of Dalio, Oz said, "because he's the one running for Senate," adding that McCormick had been Bridgewater's CEO, and "when you're CEO, the buck stops with you."
McCormick campaign spokesperson Jess Szymanski said PSERS invested more money with Bridgewater after the 2008 financial crisis to protect against future downturns.
"This conservative approach reflected the risk PSERS wanted to take for its retirees and delivered results in line with expectations," he said. "Pennsylvania retirees made $3.9 billion in net profits and did not lose a penny over the life of the relationship under Bridgewater management."
The Oz event came as he and McCormick have engaged in a brutal primary fight, attacking each other's professional backgrounds and previous comments on issues such as abortion, guns and China.
McCormick, public polls show, has recently vaulted into the lead in their Senate primary, pushing ahead of Oz with the help of a super PAC spending lofty sums on attack ads.
Oz's response signals the increasingly intense lines of attack between the two front-runners for the GOP nomination.
It's also another attempt by Oz to turn McCormick's time leading Bridgewater into a liability, after previously attacking McCormick over the company's major investments in China.
While McCormick has an early lead, the polls suggest there's still a lot of room for movement among GOP voters. Other Republican candidates are watching closely, hoping the two big-spending contenders do so much damage to one another that a third candidate can rise up to win the nomination.
Bridgewater's history with PSERS
For much of the last decade, Bridgewater Associates has been the money manager of choice for the Public School Employees' Retirement System, a.k.a. PSERS.
At the peak for the hedge fund, PSERS gave Bridgewater about $5 billion to invest and paid it hundreds of millions in fees. The fees totaled $560 million from the 2000s through 2019.
Bridgewater, the world's largest hedge fund, was founded in 1975 by Dalio, a legendary figure in financial circles known for the unusual culture he established at his business. At its headquarters in Westport, Connecticut, 1,500 analysts, junior and senior, are encouraged to question each other's decisions in confrontational, some say cutthroat, ways. "Radical transparency," Dalio calls it. Forbes estimated his net worth at $20 billion.
McCormick joined Bridgewater in 2009 and was named co-CEO in 2017 before becoming the sole head in 2020. He quit this position to run for U.S. Senate as a Republican.
Though Bridgewater says it has delivered $58 billion in profits for its customers over the last 40 years, its once-dazzling performance has trailed off in recent years.
The Pennsylvania fund was an early and enthusiastic adopter of a strategy that Dalio invented known as "risk parity," a term for creating curated funds that its backers said could gain value even in hard times. The idea is to select a mix of stocks, bonds, commodities, and other assets that address varying market conditions. PSERS staff liked the concept so much that it also put hundreds of millions of dollars into similar funds run by three Bridgewater rivals.
But the results have been tepid.
Over the last five years, Bridgewater and the other risk-parity funds in which PSERS put money have delivered only a 4.4% profit — trailing badly behind even other risk-parity players in a comparative index built by PSERS itself, the pension system has reported. That index averaged a 7.4% return, a figure still under the return during those years for domestic stocks.
For fiscal 2020, the year of the COVID-19 pandemic, PSERS' risk-parity returns were especially poor — just one-tenth of 1%, vs. more than 10% for the comparative index.
After this performance, PSERS cut to almost zero its investment in risk parity funds.
Still, Bridgewater remains the pension fund's second-largest external manager, trailing only a London-based firm, Pareto, which protects PSERS' overseas investments when foreign currencies lose value compared to the U. S. dollar.
At last count, PSERS still had almost $3 billion investment with Bridgewater.
