Alden Global Capital, a prominent hedge fund that controls more than 100 local newspapers, moved nearly $250 million of employee pension savings into its own accounts in recent years, an unusual move that is triggering federal scrutiny.
The hedge fund, which is the controlling owner of such newspapers as the Denver Post and Boston Herald under the brand MediaNews Group, in some cases moved 90 percent of retirees’ savings into two funds it controlled, according to public records filed with the Labor Department. Most of the money has now been moved back out of the hedge funds.
Federal law generally requires that pension managers avoid conflicts of interest and avoid taking excessive risks with the assets they manage, experts said, though some exemptions are allowed.
Alden is being investigated by the Department of Labor for management of its pensions, a hedge fund spokesman confirmed. The specific nature of the investigation is unclear, but one person familiar with the agency’s inquiry, speaking on the condition of anonymity because the investigation is confidential, said the department issued subpoenas to Alden and its partners last year.
The inquiry could become a factor in Alden’s effort to acquire what is now the nation’s largest chain of daily newspapers, Gannett, including USA Today, as at least one prominent lawmaker raises questions about how it would manage the company’s pensions. Alden has faced criticism for its stewardship of local newspapers the company has purchased. Research shows it cuts jobs more rapidly than other owners.
Its subsidiary MediaNews Group, formerly known as Digital First Media, buys newspapers, often reduces jobs and sells off the buildings. For three months, MediaNews Group has been trying to acquire McLean, Va.-based Gannett and its more than 100 newspapers.
A spokesman for MediaNews Group, Hugh Burns, confirmed the Labor Department’s investigation and issued a statement denying any violations of the federal law protecting private pension holders, the Employee Retirement Income Security Act (ERISA).
“MNG believes that Alden’s management of the pension plan assets for which it provided management services has at all times complied with all legal requirements, including ERISA,” he said in a statement.
He said that Alden routinely manages pension money for clients, that the funds performed well during the time they were invested with Alden and that less than 1 percent of money in MNG pensions remains with Alden funds.
“In 2017, consistent with its return of other outside capital, Alden began winding down its management of these pension plan assets, making regular cash distributions to the MNG pension plan investors,” he said.
Burns said Alden did not accept any fees for its work on MNG pensions.
Heath Freeman, Alden’s president, did not respond to a request for comment. A Labor Department spokesman declined to comment. Aon, the firm that provided actuarial services for the pensions, and Prudential Retirement, which serves as trustee and manager, both declined to comment.
ERISA, which was passed into law in 1974, requires that pensions be invested solely on behalf of retirees and not in a way that could benefit the pension managers themselves.
The law also requires that the managers be “prudent” in making investments according to the statute’s language, generally by diversifying funds to minimize the risk of large losses.
Experts say Alden may have run afoul of either or both of those requirements by investing large majorities of pensions in hedge funds that it controlled.
Beginning in 2013, public records show 90 percent or more of some MediaNews Group pensions was invested in two Alden funds based in the Cayman Islands. At the San Jose Mercury News (now the Mercury News) $107 million out of the pension’s $119 million in 2015 was invested in the Alden funds, according to Labor Department records.
At the Denver Post, $47 million, or 91 percent of the pension’s total in 2015, was invested in the same two Alden funds, according to Labor Department filings. That year, $248.5 million of pension savings for current and former employees of MediaNews Group papers was placed into the two Alden funds, according to court filings in an unrelated case.
Another plan for newspaper employees had $45 million of its $58 million — 77 percent of the total — invested in the Alden funds in 2015, according to Labor Department filings.
Mark Iwry, a former senior Treasury Department official overseeing pensions and retirements, said he thinks the Department of Labor will probably be looking at the process by which Alden moved the funds.
Iwry said he did not know the specifics of the Alden case but that federal rules on conflicts of interest generally prohibit plan managers from investing with partners in which they have a financial stake. “What did [the plan’s managers] think they were doing and what did they think was the justification for it?” he said.
Relying so heavily on hedge fund investments could prompt questions from investigators as well, experts said. While some of the Alden pensions were more than 90 percent invested in Alden funds, Fortune 1000 companies put only 3.3 percent of their pension money into hedge funds, according to a February study by the advisory firm WillisTowers Watson.
Regardless of whether Alden’s practices ran afoul of federal rules, they have irked some pension beneficiaries. Thousands of former newspaper reporters, editors, photographers and printing press workers — some of whom lost their jobs because of staff cuts at Alden papers — became again beholden to the hedge fund because it controlled their retirement savings.
In some cases, beneficiaries said they were either unaware that their savings had been placed with Alden or didn’t realize the extent of Alden’s involvement. Many of them remain disconcerted by the way the MNG and Alden treated them or their colleagues at their former papers.
Pete Carey worked for 49 years at the Mercury News and was part of a team of investigative reporters who won a 1986 Pulitzer Prize for unveiling widespread corruption in the Philippines.
He retired in 2016 after watching a decade’s worth of layoffs and buyouts, cost-cutting that has become an industry norm. He said he had learned about Alden’s investment of the pension money from an article published by the NewsGuild labor union but hadn’t fully considered the ramifications.
“It sort of looks like self-dealing,” he said. “It just makes me a little nervous because if I had $5, I definitely would not invest it with Alden Global. And it’s very hard to track.”
John A. Farrell, a 66-year-old author and veteran of two five-year stints at the Denver Post, collects $151 a month from his pension. He said he had not looked into the details of the plan but was appalled at the idea that Alden might have benefited from it.
“I certainly hope they would be forthcoming about something like that,” he said.
The two funds that received the pension money are Alden Global Adfero BPI Fund, Limited and Alden Global CRE Opportunities Fund. According to securities filings, both were registered in the Cayman Islands, a common location for hedge funds.
In many cases, an MNG executive is listed as the administrator of the plans and Freeman is listed as president of the investment adviser.
There is little information available publicly about how the funds performed or what they invested in. Alden continues to buy and invest in newspaper companies, raising the possibility that its executives have used newspaper employees’ pension money to buy other papers.
Alden declined to comment on what it did with the pension money.
In 2016, while Alden managed more than $200 million of its newspapers’ pension money, it financed the $52 million purchase of the Orange County Register and the Press-Enterprise in Southern California. It’s unknown whether Alden used pension money in the deal, and Alden also buys stakes in other companies, including retail chains.
When The Washington Post published a February story about Alden’s practice of reaping real estate profits from newspapers, Senate Minority Leader Charles E. Schumer (D-N.Y.), wrote to Alden with concerns about how MNG would manage the Gannett newspapers and employees’ pensions.
“MediaNews Group’s decision to invest its employees’ pension assets in Alden Global’s own high-risk hedge funds raises questions regarding its ability to satisfy its current and future fiduciary obligations,” he wrote. Schumer then wrote to the Pension Benefit Guaranty Corporation last week to request a briefing on potential regulatory concerns.
Experts said the Labor Department could view Alden’s transactions as a conflict of interest. ERISA provides exemptions that sometimes allow pension managers to place funds with parties in which they have a financial interest. A Labor Department spokesman said it appeared as though Alden had received no such exemptions.
“Federal pension law has strict rules prohibiting a wide swath of transactions that can be viewed as conflicted,” said Michael Kreps, principal at Groom Law Group, a D.C. firm that specializes in retirement law. Kreps said every situation is different but that the agency “pays particular attention to situations where retirement plan fiduciaries enter into investment and other arrangements with related entities.”
Iwry, the former Treasury official now at the Brookings Institution, said the riskiness of placing so much money in hedge funds, considered more risky than other investments, could draw scrutiny as well.
“These are investments that are not widely held by the public, presumably. Therefore you don’t have the same natural presumption that it’s reasonable to put these investments into them,” Iwry said.
Burns declined to say who acted as administrators on the plans or what the Alden funds invested in.
Leaders of the Denver Newspaper Guild began confronting management about the transfers to Alden funds in 2013, said Tony Mulligan, a former Denver Post employee who now works for the guild. Mulligan said he contemplated suing the company over the practice but that the Denver Post pension plan had performed similarly to others.
“You can’t look at the results and say they screwed the plan,” Mulligan said.
Mulligan said MNG told the guild in 2015 that it had begun moving investments out of Alden funds, and it has since merged some of the plans. Some of the pension money was moved into more traditional, diversified accounts managed by Vanguard.
MNG announced its plans to buy Gannett in January, when R. Joseph Fuchs, chairman of the MNG board, wrote to the Gannett board castigating the company’s efforts to grow revenue and saying it ought to do more to “maximize value right now.” MNG offered to buy Gannett for $12 a share, or $1.36 billion.
Since then, the two companies have exchanged ugly accusations in advance of Gannett’s May 16 annual meeting. MNG, which owns 7.5 percent of Gannett’s stock, proposed six new board members, including Freeman and Fuchs.
As they struggle through the industry’s decline, many newspapers in recent years have frozen pension plans and declined to offer pensions to new hires.
Gannett’s board has raised concerns about how MNG might manage its pensions, writing to shareholders March 26 with “grave concerns that under MNG’s control, the board would be repurposed for siphoning value — including potentially from Gannett’s pensions — to deliver generous management fees and profits to Alden.”
But Gannett’s own pensions were underfunded by $294 million at the end of 2018, which will probably force the company to make future contributions.
Fuchs wrote to shareholders April 2 saying: “The reality is that the newspaper business is in secular decline. Gannett is in serious trouble and needs to quickly address its operational and strategic issues if it is going to survive.”
The Mercury News veteran, Carey, said he’s glad to see some scrutiny brought to the issue: “It does make me a little nervous. But so far the checks keep coming.”