With all the ink that has been spilled over Steven Rattner's dealings with the New York State pension fund, it's astonishing (to me, at least) to discover that the investment that the Securities and Exchange Commission and the attorney general of New York are hassling Mr. Rattner over actually performed relatively well for the state pension fund.
FutureOfCapitalism.com has learned that from March 2005 to March 2009, the net internal rate of return for the Quadrangle fund in question, Quadrangle Capital Partners II, was almost flat. During this same period, the Dow Jones Industrial Average was down 27%, the S&P 500 was down 32%, and the NASDAQ was down 24%. Through the third quarter of 2008, the investment also outperformed other private equity funds that had been raised in the same year as QCPII.
From March 2005 to September 2009, QCPII's net internal rate of return was +4.6%. That's a period for which the Dow Jones Industrial Average was down 8% and the S&P 500 was down 11%.
Under the circumstances, one could make the case that rather than suing Mr. Rattner for $26 million and seeking to ban him for life from the securities industry in New York, New York state officials should be thanking Mr. Rattner and figuring out how to get him to agree to manage more money for the state.
Whatever common-sense appeal the "no harm, no foul" theory of regulation may have, it doesn't seem particularly popular at the moment among securities regulators, who have not only pursued Mr. Rattner, but who also, in an entirely unrelated case that does not involve Mr. Rattner or Quadrangle, brought insider trading charges over trades in which the trader with the supposed inside information actually lost money.
Disclosures: Mr. Rattner's press spokesman used to work with me at the New York Sun. Mr. Rattner's book publisher has contracted to publish my next book. One of the lawyers working on the case for Attorney General Cuomo is a person I'm friendly with. I've got various other one-degree-of-separation type connections to Mr. Rattner, but I don't think I have ever met him, and anyone who has followed this site's coverage of the auto bailout/takeover or of Mr. Rattner's campaign against income inequality can see that I'm not exactly in the tank for him. I wasn't invited to his book party at the Four Seasons. For a more extensive account of my thoughts on the New York state pension fund scandal, see this Forbes article.
