By BRETT ARENDS
Mitt Romney's finances have caused him any number of political headaches. But here's what no one else will tell you: They probably didn't even save him any money. Why not? Because most of these elaborate financial vehicles just aren't worth it. They cost too much in fees.
I did the math while I was writing "The Romney Files". And the figures I came up with were eye-opening.
Romney's portfolio is valued at as much as $250 million. His money is held in a "blind trust," which means the portfolio is managed on his behalf without any direct oversight by Romney, so that he doesn't know from day to day what investments are being bought or sold. The idea is to insulate yourself against accusations of conflicts of interest. (President Obama doesn't currently have a blind trust; his campaign has said he doesn't need one, since he doesn't own any stocks, only Treasury bonds and diversified funds.)
Blind trusts do not come cheap. Romney's trust is overseen by a partner at one of the top law firms in Boston. A friend who works in Boston's white-shoe legal industry tells me that the legal and Wall Street fees for managing a portfolio through a blind trust typically start at around 1% of the assets a year. A portfolio as big as Romney's would get a discount, but even if Romney were only paying half a percent a year, that would come to about $1.3 million.
And this is only the beginning. A look through Romney's statement of personal financial disclosure shows that his portfolio includes dozens of specialized hedge funds and private equity partnerships.
The fees on these are, quite simply, astronomical. Romney knows that, because he used to be in the business.
I once calculated for MarketWatch that the typical hedge fund charges more than 3% of the assets per year. That's because they typically charge 1.5% to 2% of the assets each year, plus 20% of any profits. In the case of private equity, the cost is even higher. Private equity firms typically get extra fees related to managing or overseeing the companies in the portfolio, for arranging financing, and so on. Oxford University business professor Ludovic Phalippou, an expert in the industry, says overall the average historically has been close to 7% annually.
Romney's personal financial disclosures show that he has somewhere between $30 million and $100 million in these types of high-fee funds. If we assume his holdings fall right in the middle of that range, that would mean they are around $65 million. If he's paying just 3% on that money, that's another $2 million a year in fees. Combined with the 0.5% overall portfolio management fee, that would take him well over $3 million. And these estimates are conservative.
By contrast, Romney paid $3 million in taxes in 2010.
In other words, for all his sophisticated financial maneuvers, Mitt Romney is almost certainly paying more to his friends than he is paying to Uncle Sam. Don Williamson, executive director of the American University's Kogod Tax Center and a CPA with thirty years' experience, told me: "The fees for running the blind trust, for managing the portfolio, for the hedge funds and private equity, and for the accountants and the tax preparers all of those could easily exceed the $3 million."
The Romney campaign did not respond to requests for comment for this article. In previous conversations, however, the campaign declined to comment.
Romney could have saved himself a great deal of trouble, and money, by putting his money in a handful of low-cost funds. For example, the day after he was first elected governor of Massachusetts in November 2002, Romney could have invested in a portfolio of 60% Vanguard Global Equity fund, 20% Vanguard Inflation-Protected Securities, and 20% Vanguard Long-Term Treasury fund.
No trusts. No lawyers. No hassles.
His fees would have been less than 0.5% a year, and in a decade, just rebalancing once a quarter, he would have more than doubled his money. It would have made him look very smart, too. It's tough to lampoon someone as Thurston Howell III, no matter how rich he is, if he owns the same mutual funds as everybody else.