Steve Buser's speech to STRS Board, June 14, 2007

Hello. My name is Steve Buser. I am a retired member of STRS with 30 years of service credit. I would like to speak to you today about a proposal that would tie policy weights for STRS investments to the financial condition of STRS.

In 2005 the STRS Board voted to adjust policy weightings for various categories of STRS investments. The net effect of these changes was to increase the exposure of STRS investments to up and down moves in financial markets.

I was a member of the Board at the time and was an enthusiastic supporter of the change. To borrow a sports analogy, in 2005 STRS was behind in the game in the sense that we were in a weakened financial condition. I felt that we needed to be more aggressive in our play calling, and a reasonable increase in market exposure offered the best chance to improve our financial condition.

STRS was rewarded for the change. Following the vote, financial markets were generally favorable, and talented staff members at STRS were able to leverage the favorable market conditions into even greater returns on STRS investments. As a result, it is my current understanding that STRS would now easily meet or exceed the requirement for a 30 year funding period if that rule were applied to the current market value of STRS assets rather than to a smoothed measure of past values.

By virtue of the improved financial condition, I would like to suggest that the STRS Board now consider scaling back on the degree of market exposure. To continue the sporting analogy, now that we have pulled even or ahead in the game, perhaps it is time for a more conservative game plan. If STRS had made such an adjustment at the end of the 1990s, when STRS financial strength had gotten exceptionally strong, perhaps some of the pain suffered by our members would have been lessened following the steep market decline of 2001-02.

The downside of the proposed change is that if STRS were to reduce the exposure to market risk, we could no longer expect to benefit from strong financial markets in the future to the degree we have done so in the recent past. However, STRS financial condition would be better protected in the event of another market downturn. In essence, when the task was to recover from a weakened financial condition, the market was a potential ally. However, if the new task is to maintain the existing financial security, the market has increasingly become a potential threat.

Thank You