Giannoulias faces Bright Start college savings trouble
State Treasurer Alexi Giannoulias had a problem: A college savings program administered by his office had lost $150 million for thousands of Illinois families. His opponents in the race for U.S. Senate were accusing him of sloppy management.
So Giannoulias took the offensive with an ad boasting about the "Bright Start" program and the way he responded to its problems. The ad portrays Giannoulias as a champion of higher education who acted quickly when he learned that Wall Street investors were blowing investors' money.
Here's a look at the facts and how well they match Giannoulias' claims in the ad:
CLAIM: "Alexi Giannoulias turned Illinois' college savings program into one of the nation's best."
FACTS: Bright Start allows families to invest money for their children's college educations. It offers tax benefits and lower costs than private alternatives. The program also lets people split their money among many investment options.
Bright Start was not exactly a hit under the previous treasurer, Judy Baar Topinka. It was less popular than similar programs in other states, and financial analysts questioned its performance. Just before Giannoulias took over, SavingForCollege.com said Bright Start's returns ranked 47th out of 48 such programs.
The program has certainly improved since then. It has earned high marks from SavingForCollege.com, Consumer Reports and investment researcher Morningstar. But a big part of that turnaround was hiring a new firm, OppenheimerFunds, to manage the investments, a process that was under way when Giannoulias took office in 2007.
CLAIM: "When Wall Street made improper investments ..."
FACTS: The improper investments weren't made by some anonymous "Wall Street" figures. They were made by the company hired to run Bright Start, and Giannoulias saw early signs of trouble.
Different teams within Oppenheimer oversaw the different Bright Start options, one of which was called "Core Plus" and was presented as a conservative investment choice.
It turns out the Oppenheimer team handling Core Plus — a team the company has now fired — was putting money into risky, complicated investments that tanked in 2008 amid the general financial meltdown.
The treasurer's office says it first became concerned in March 2008, when Core Plus failed to meet its performance benchmarks. The office didn't stop putting people's money into Core Plus until December.
The campaign of David Hoffman, one of Giannoulias' rivals in the Democratic Senate primary, calls that "gross mismanagement" and "oversight failure."
The reason for the long wait, according to Giannoulias' office, is that there were some upticks in the fund's performance and because the fund managers argued against halting investment and thus "locking in" people's losses. In other words, Giannoulias waited to see if the situation would turn around.
Financial experts say he acted responsibly — and actually responded better than officials in some other states using Oppenheimer.
"I think Illinois was out ahead of anybody else," said Andrea Feirstein, managing director of AKF Consulting, which specializes in college savings programs.
And Morningstar analyst Greg Brown said, "To Illinois' credit and Alexi's credit, they were the first to sound the alarm."
The experts say that if Core Plus had lost money while other investments were healthy, it would have been logical for the state to act more quickly. But in 2008, everything was going wrong financially. It was almost impossible, they say, to sort out the overall problems from mismanagement in particular funds.
CLAIM: "... he recovered millions for kids to go to college."
FACTS: Working with Attorney General Lisa Madigan, Giannoulias reached an agreement with Oppenheimer that will pay investors $77 million.
For months, Giannoulias said Core Plus had lost $85 million, so the settlement would have restored nearly all the money investors lost. Unfortunately, it turns out the full loss was actually $150 million, meaning the settlement isn't nearly as helpful.
Core Plus lost 38 percent of its value in 2008. Giannoulias' office says that between the $77 million settlement and better investment results in 2009, the net loss has been reduced to 15.5 percent.
It's worth keeping in mind that very few families had all their money in Core Plus. The treasurer's office says it was just 2.5 percent of investors. Most split their money among several Bright Start options. So whatever Core Plus lost, the average investor didn't suffer the full setback.
CLAIM: Giannoulias offered "help for kids of soldiers killed overseas."
FACTS: As part of the state's original deal to hire Oppenheimer, the company agreed to provide $3.5 million for college scholarships. Giannoulias ended up using part of that money for the children of military personnel killed in Operation Iraqi Freedom or Operation Enduring Freedom. The Fallen Heroes program invests $2,500 in Bright Start on behalf of each child who requests the scholarship.
Oppenheimer continues to handle the Bright Start money, a decision that is sharply criticized by Giannoulias' opponents.
But Feirstein, of AKF Consulting, doesn't see a problem with that. Oppenheimer is a reputable firm that has made a major commitment to college savings programs, she said, and has taken steps to fix the problems that led to Core Plus losses.
CLAIM: "Bravo, Mr. Treasurer"
FACTS: As the ad talks about bringing jobs to Illinois, a quote from The (Springfield) State Journal-Register flashes on screen: "Bravo, Mr. Treasurer." The quote is from a Jan. 17, 2007, editorial on his decision to foreclose on a hotel that owed the state millions of dollars.
The comment had nothing to do with Bright Start or any Giannoulias plan to create jobs.
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