Buried in the Select Board’s agenda packet for Tuesday, August 27, is the Quarterly Deposit & Investment Report for the period ending 6/30/2024, authored by Town Treasurer Charles J. Paquet and delivered by Town CFO Kyla Lapierre. Paquet paints a rosy picture of the town’s cash position and investments, noting that Hopkinton generated $974,472 in interest income for the period, on a General Fund balance of just over $78 million. 

“In line with the current market trend, the Town’s investments experienced gains in the fourth quarter. Trust Fund investments were up .78% and the Stabilization and CPA accounts were up .81%. The Other Post Employee Benefits (OPEB) Trust Fund investments were up 1.43%. In total, investments were up 1.05% for the quarter and 4.25% annualized change for the positive,” reads the report.

Included in Paquet’s report is an account statement issued from Bartholomew & Company, the investment advisory firm charged with managing the town’s sprawling portfolio. On their website, Bartholomew advertises “a team that brings more than 100 collective years of investment experience and more than 30 years of municipal experience to our partnership with you.“

Although Bartholomew does not publicly disclose their fee structure, most investment advisors charge a fee of between 0.5% – 2% of Assets Under Management (AUM) annually, depending on the size of the portfolio and level of service offered. 

Through Bartholomew, the Town of Hopkinton has more than $15.7 million under management.

A review of the statement raises several ethical concerns about the town’s investment thesis, notably around the use of taxpayer money to pick individual stocks and whether those stocks are appropriate for taxpayers to hold at all. 

Further, it’s unclear how actively the portfolio is being managed. The HopNews team reviewed Bartholomew’s March 31, 2024 report, which revealed nearly identical holdings, despite a struggling bond market and headwinds the pharmaceutical sector is facing, an area in which the town holds more than $2.1 million in individual stocks and bonds. 

Portfolios

The town has three portfolios under management with Bartholomew; the Other Post-Employee Benefits (OPEB) Trust, the Stabilization CPA Trust, and the Town of Hopkinton Trust Fund. 

The OPEB Trust was formed in 2012, established to manage and fund the future costs of benefits provided to retired employees, excluding pensions. These benefits typically include health insurance, dental, vision, and other healthcare-related benefits.

The Stabilization CPA Trust is a combined trust designed to backstop the town in the event of a financial emergency (hence “stabilization“) while the CPA refers to the Community Preservation Act, used to support projects such as acquiring open space, preserving historic buildings, creating afforable housing and developing recreational facilities. The CPA was adopted by the town in 2001 with a 2% surcharge on property taxes.

Finally, the Town of Hopkinton Trust Fund is a general investment account that holds $3.1 million.

Holdings

The Town of Hopkinton has a fairly conservative portfolio, with $9.2 million, or nearly 60% of its investments allocated to Fixed Income assets. These include US Treasury Bonds, which are considered among the safest investments given they are backed by the “full faith and credit” of the US government. The portfolio also holds Corporate bonds, which are backed by the financial strength and creditworthiness of the issuing corporation. Interestingly, the town has elected to purchase bonds from companies such as Verizon, Merck, Johnson & Johnson, Bristol-Myers Squibb, and others.

Although the town has seen overall gains, through its fixed income holdings, the OPEB Trust lost $165,705 in the month of June, reflecting the continuing inflationary pressure on the bond market and worldwide currencies. A significant loss came from the town’s holdings in the Janus Henderson Developed World (HFAIX) bond, a $1.1 billion fund that primarily holds bonds issued by other developed countries. Over the past four years, the bond has lost nearly 10% of its value.

The town also holds individual company stocks in both the Stabilization CPA and Town Trust funds, valued at $1.7 million. It’s not immediately clear who picked or why those stocks were selected, but with the exception of two, each is considered a “blue chip” stock and all pay a reliable dividend. 

The town’s holdings in American Insurance Group (AIG) is notable given the company’s mixed history, especially as a central player in the 2008 financial crisis. AIG’s involvement in mortgage-backed securities and other risky financial products led to its near-collapse and a massive $182 billion bailout by the U.S. government to prevent its bankruptcy, sparking widespread public outrage. After receiving the bailout, AIG came under intense scrutiny for paying out large bonuses to its executives, particularly those in the financial products division responsible for the company’s near-collapse. The company has also been involved with several accounting scandals, leading them to settle with the SEC and agree to fines of more than $1.6 billion.

The town also holds stock in Altria, the parent company of Phillip Morris, which manufactures Marlboro cigarettes and other tobacco products, such as Copenhagen and Skoal. Altria’s product portfolio is centered around tobacco, nicotine, alcohol, and cannabis; it is also a large producer of vape pens and e-cigarettes. This position seems to be at odds with the Massachusetts Tobacco Cessation and Prevention Program (MTCP), which operates statewide and encompasses activities in Hopkinton. The MTCP focuses on reducing tobacco use through various initiatives, including helping current smokers quit, preventing young people from starting to smoke, and protecting individuals from secondhand smoke. It is widely known that Hopkinton Public Schools struggle to control vaping at school, particularly at the middle and high school level. Vaping is considered an epidemic by both the World Health Organization and the CDC, with approximately 2.1 million students reporting e-cigarette use in 2023.

With holdings in Coca Cola and PepsiCo, the town is contributing to the obesity epidemic that ravages the United States. Research has consistently shown that the consumption of sugar-sweetened beverages is a significant contributor to weight gain and obesity. Frequent consumption of sugary drinks has been linked to other health issues such as type 2 diabetes, heart disease, and dental problems. 

Both Pfizer and Johnson & Johnson are significant producers of opioids. Pfizer makes several generic versions of oxycodone, morphine, and hydrocodone, but their involvement pales in comparison to Johnson & Johnson’s role in the opioid crisis ravaging the nation. Through its subsidiary Tasmanian Alkaloids, J&J was one of the world’s largest producers of opium poppies. These poppies were used to produce narcotics, including the ingredients used in opioid medications like OxyContin, which was manufactured by Purdue Pharma. In November 2021, Johnson & Johnson, along with other major pharmaceutical companies, agreed to a settlement of $26 billion to resolve thousands of lawsuits related to the opioid crisis.

Hopkinton also holds stock in McDonalds Corporation, which is ironic given Hopkinton’s strict zoning laws that prohibit drive-through restaurants.

The Need for Oversight

Many public and private companies establish investment committees to oversee the company’s investment activities and to ensure that these investments align with the company’s overall financial strategy, risk tolerance, and long-term goals. Importantly, one of main functions of an investment committee is to contemplate the ethical and compliance considerations of an investment, seeking to avoid investments that could lead to conflicts of interest or reputational harm. 

And while overall portfolio returns are up, the town may potentially see benefit in establishing a similar committee to ensure its investment strategy aligns with its public health mission and vision for Hopkinton as a sustainable community to live, work and worship.

Paquette and Lapierre will appear before the Select Board this evening to discuss the town’s financial performance. The meeting will be broadcast live on HCAM.