Saturday, September 20, 2008

(a mere 16.2% of STRS' total assets)
.....but you won't see that in any reports THEY put out!
Elephant at STRS?


What, no numbers? Hey, it's only $13 BILLION of OUR money -- why should THEY worry?

Kathie Bracy to Laura Ecklar, September 20, 2008
Subject: Fwd: [News] September Board News Details Retirement Board Actions and Discussions
Laura --
This is an interesting report on the September 2008 STRS Board meeting, but I see absolutely no mention of the elephant in the Board Room: the $13 billion STRS has lost in the past 10-11 months! To me, this is the very basis for any information that should be going out to the membership right now, and I intend to do my best to get the word out. Nobody down there seems to be doing it. Why?
Kathie Bracy

The STRS missing 13 Billion (with a "B") dollars that nobody seems to want to talk about......I will!

From John Curry, September 20, 2008
What does 13 billion (with a "B") dollars look like? Well, here's my best representation of 13 billion dollars:
Since November 2007, STRS has dropped 13 billion dollars in investments and.....guess what? Their press release from the Sept. 2008 board meeting mentions nothing of the sort! Could it be that they don't want to talk about it?
Their press release re. the Sept. 2008 meeting is listed below. Now, maybe I am due for a visit to my friendly local optometrist but.... I can't seem to see anything mentioned about this monetary loss. Please read it for yourself to see if I missed something. John
P.S. I see that they did mention the "Performance-Based Incentive program," which is STRS lingo for what we commoners know as a "bonus" program for their (our) investments people. By the way Mr. or Ms. Retiree, where was your bonus this past year? At the meeting, Dr. Leone wanted to "put a hold" on this issue but was shot down by all the other board members by a vote of all of them against Dennis....are you surprised?

Friday, September 19, 2008

Report on September, 2008 STRS Board meeting

Gee, they didn't mention that $13 billion that we have lost since November 2007! ~ John Curry

From STRS, September 19, 2008
This week, the State Teachers Retirement Board held its monthly meeting. Following the regularly scheduled meetings, a report titled "Board News" is posted on the STRS Ohio Web site, as well as mailed to a number of members and education organization representatives who have requested it. As a member of STRS Ohio with an e-mail address on file, you will also receive this report each month. The September report follows.
During the September meeting of the State Teachers Retirement Board, the current turmoil in the bond and domestic equity markets and its effect on the retirement fund was discussed. Since October 2007, the S&P 500 Composite Index has declined by 22%. At the same time, some major players in the financial sector, such as Fannie Mae, Freddie Mac, Lehman Brothers, AIG and Merrill Lynch, have been severely impacted by the credit crisis. As a result, STRS Ohio's total fund return was -5.44% for fiscal year 2008 and the return thus far in fiscal year 2009 (July 1-Aug. 31) is -1.2%. Many of the losses have been recorded by stock holdings in STRS Ohio's passive index portfolios rather than in the actively managed portfolios.
A passive index portfolio replicates the holdings, weights and return of an index and complements the active portfolios. For example, STRS Ohio's passive index portfolio for its domestic stock holdings includes companies such as Fannie Mae and Freddie Mac in the same proportion as the Russell Index. This overall exposure to the investment market ensures that investment dollars are spread throughout all sectors of the markets and not concentrated too heavily or too lightly in any one area. It also means that a passive index portfolio experiences all losses for stocks that decline in value, as well as all gains for stocks that increase in value. The passive index strategy is widely used among public and private pension funds and widely offered by mutual funds.
In discussing the market declines, it was noted that this is not the time for knee-jerk reactions or to change the whole approach to investments that has served STRS Ohio well over the years. STRS Ohio is a long-term investor with a diversified portfolio that is designed to weather the expected ups and downs of the market over time.
The Retirement Board has a policy in place regarding how passive and active investments are managed. This policy will be thoroughly examined as part of a review of STRS Ohio's domestic equities program that is currently under way by Russell Investments, the board's investment consultant. The results of this review will be presented to the board in the coming months. In addition, STRS Ohio will be conducting a scheduled asset allocation study later this year to take a "big picture" look at the system's investment fund to determine if the current allocation levels for the different asset classes within the fund (e.g., domestic stocks, international stocks, real estate, fixed income and alternatives) are appropriate or should be adjusted. One of the things the Retirement Board will be doing as part of this study is evaluating risk versus projected returns for their investments. For example, STRS Ohio could move more of its money into bonds, which are considered to be less risky investments than stocks; however, history would show that the returns over time from bonds would be too low to adequately fund the system's benefits. This study, which will involve the entire board, will begin in November 2008 and conclude in March 2009.
As noted in the August Board News, Retirement Board members received a detailed presentation last month regarding fiscal year 2008 investment returns and projected Performance-Based Incentive (PBI) program payments to eligible Investment Department associates. The total fund return for the past year (July 1, 2007- June 30, 2008) was -5.44% versus the benchmark return of -5.79%. All asset classes exceeded their benchmarks in fiscal year 2008 except domestic equities. The net value added after deducting all direct investment costs (including earned PBI payments and external manager costs) was 24 basis points or an estimated $215 million for the year and more than $2.5 billion during the five-year period from July 1, 2003. This represents the additional value brought to the fund through active management by STRS Ohio associates and external managers, above and beyond passively indexing system assets.
In calculating this year's PBI payments, two program criteria came into play. Under the PBI program, eligible Investment associates have as one of their goals that the STRS Ohio total fund return will exceed its benchmark by 40 net basis points. Since this was not achieved in fiscal year 2008, no Investment associate will earn a maximum payment. In addition, all PBI payments earned are reduced by 20% as the total fund had a negative absolute return. This reduction totals $1.5 million.
At its September 2008 meeting, the Retirement Board approved a PBI payment of $6 million for 87 Investment Department associates. This payment is $3.4 million less than the budgeted amount of $9.4 million and $2.2 million less than the amount paid for fiscal year 2007 performance.
During its September meeting, the members of the Retirement Board expressed their sincere appreciation for the valuable and dedicated service provided to STRS Ohio by their board colleague, Thomas W. Johnson. Johnson was appointed to the Retirement Board by Gov. Bob Taft on Sept. 15, 2006, to complete a four-year term that ends on Sept. 28, 2008. At this time, Gov. Ted Strickland has not yet named a replacement to the board.
The Retirement Board approved 732 active members and 110 inactive members for service retirement benefits.
Rep. Scott Oelslager, sponsor of House Bill 315, continues to bring together the parties interested in the fate of this legislation. H.B. 315 provides a dedicated revenue stream for the STRS Ohio Health Care Program by allowing the Retirement Board to increase both member and employer contributions by up to 2.5% for a total 5% increase. As drafted, the bill prohibits the board from instituting the higher contributions all at once. Rather, the bill permits the increases to be phased in by .5% increments over a five-year period.
This proposal has been met with resistance primarily from two groups: the Ohio School Boards Association and the Ohio Association of School Business Officials. The groups argue monies are not available from within the individual districts to fund the proposed increase. In an effort to work out some of the areas of disagreement, Rep. Oelslager has been conducting a series of meetings with all interested parties to the bill. Four meetings have been held to date with additional meetings scheduled.
STRS Ohio has joined the National Institute on Retirement Security (NIRS) as a charter member. The institute, which is based in Washington, D.C., is the result of a joint initiative by the Council of Institutional Investors, the National Association of State Retirement Administrators and the National Council on Teacher Retirement to create a national, nonprofit organization dedicated to fostering an understanding of the traditional defined benefit pension system in the United States. NIRS' goal is to use its research and education programs to encourage the development of public policies that enhance retirement security for Americans. To date, NIRS has issued several reports, including one titled, "A Better Bang for the Buck: The Economic Efficiencies of Defined Benefit Pension Plans." (Some of the key findings of this report will be shared with STRS Ohio members in the October 2008 newsletters.)
Note from Kathie: There were no speakers for the Public Speaks portion of the Board meeting. Minutes of the CORE meeting will be posted when available.

Thursday, September 18, 2008

Next STRS Board meeting:
September 17 & 18, 2008

From STRS, September 10, 2008
The State Teachers Retirement Board and Committee meetings currently scheduled at the STRS Ohio offices, 275 East Broad Street, Columbus, Ohio 43215, are as follows:
Wednesday, September 17, 2008
10:30 a.m. Disability Review Panel and Final Average Salary Committee (Executive Session)
Thursday, September 18, 2008
9 a.m. Audit Committee Meeting
10 a.m. Retirement Board Meeting, followed by Ad Hoc Committee for Retreat Review
Next CORE meeting:
September 18, 2008
11:45 a.m., STRS building
Second floor, small cafeteria room
behind the Sublett Room
(Bring your lunch tray with you)

Getting to STRS

Click image to enlarge
Set your GPS for 275 E. Broad St., Columbus, OH. When you arrive at E. Broad St. and S. Sixth St., turn onto Sixth (it deadends into Broad; you will head south just briefly on Sixth) and then, pretty quickly, turn right (west) onto a little one-way street, E. Capital St. It runs between the two major parts of the STRS complex; the connecting part of this massive structure will be overhead. (The complex takes up two city blocks, bordered by E. Broad St. on the north, E. Oak St. on the south, S. Fifth St. on the west and S. Sixth St. on the east; E. Capital St. runs through the middle of the complex.) Almost immediately, you will come to the entrance to the parking garage, on the left. Turn in, press the buzzer and tell the security guy you're there for the Board meeting (or the CORE meeting). He'll raise the gate for you to enter. Parking is "free" (you're paying for it in other ways). Note: you might want to check your map; if your GPS is anything like mine, you won't get a signal in downtown Columbus because of all the buildings. KBB
By map: Click here.





Click images to enlarge.







CORE Alert: CORE Meeting September 18

From CORE, September 3, 2008
CORE (Concerned Ohio Retired Educators) will hold its September Annual Membership meeting on Thursday, September 18th at the STRS Building at 275 East Broad Street in Columbus. Parking is free in the STRS parking garage behind the building. We encourage you to also attend the STRS meeting which usually begins around 9:00 a.m. on Thursday in the meeting room on the 6th floor but this beginning time varies from month to month. For this reason, we encourage you to check the STRS website ( to confirm the time. CORE meeting attendees usually leave the STRS meeting around 11:30 in order to go to the cafeteria on the 2nd floor to get our lunches. We then take our lunches to the small cafeteria room behind the Sublett Room on the 2nd floor of the STRS building where the CORE Annual Membership Meeting will begin promptly at 11:45.
In response to suggestions from our supporters, CORE is calling for input for agenda items for this September 18th meeting. Please hit reply and send the agenda item you would like discussed to the sender of this email, John Curry. John has kindly agreed to send your suggestions to the CORE President, Dave Parshall. In order to have an agenda in place and printed for the meeting, please send your item no later than Tuesday, September 16th. Agenda items which are sent after September 16th will be held over to the October CORE meeting.
This Annual CORE Membership Meeting is one of the most important ones of the year as we hold our fall CORE election in keeping with our Constitution. We will be voting on a new CORE Constitutional By-Law Amendment, we will be voting on and swearing in our new CORE officers and trustees, and we will be updating members’ personal data as you arrive. Thanks to input from members who attended CORE meetings this summer or who sent suggestions by email, we will be distributing a new CORE pamphlet which can be used to promote CORE membership. Members may pay their CORE membership dues for the 2008-2009 year ($10.00) and/or make a CORE donation. So please plan to come and actively participate in our once a year Membership Meeting. We need each and every member. . . your ideas, your concerns, and your help. BRING A FRIEND OR TWO! We are always encouraging new members to join us.

Coming to STRS on September 18?

You might want to arrive early for the 9:00 a.m. Board meeting if you want a good parking place, as an OEA-R conference is scheduled for 10:00 a.m. in one of the meeting rooms. If you are planning to give a speech, please bring an extra copy for me to post on this blog. Thanks! KBB

Tuesday, September 16, 2008

STRS retirees...we lost millions of dollars because of these turkeys...and now it's time for their golden parachutes to open up

From John Curry, September 14, 2008
....and open up they will! Is this the kind of America we, as voters, want?
Fannie, Freddie and fair pay
Fat payments due the ex-CEOs of Fannie Mae and Freddie Mac are just business as usual.
L.A.Times, September 12, 2008
Nothing brings out the populist streak in American politicians quite like a multimillion-dollar golden parachute for a failed executive. So it wasn't surprising when lawmakers broke out the pitchforks and flaming torches after learning that Fannie Mae and Freddie Mac were making rich severance payments to their ousted chief executives. According to compensation consultant David Schmidt of James F. Reda & Associates, ex-Fannie chief Daniel Mudd stands to collect $6 million to $8 million, and ex-Freddie chief Richard Syron more than $15 million. Not bad, considering that Fannie and Freddie's shares lost at least 90% of their value during their relatively brief tenures.
With taxpayers potentially having to inject hundreds of billions of dollars into the two mortgage giants, it's hard to accept their executives departing with enough money to buy a subdivision's worth of repossessed homes. What's lost amid the din of protest is that Mudd and Syron secured their fabulous parting gifts on the way in, not on the way out. That's a common practice in corporate America, where chief executives often persuade compliant directors to insulate them from the financial pain of an ignominious exit. And no matter how many angry statements lawmakers crank out, executives will continue to be rewarded for failure until public companies' boards and shareholders insist that it stop.
We too would love to see Mudd and Syron sent off to the next stage of their careers with little more than a firm handshake. But the federal takeover of Fannie and Freddie (technically, the Federal Housing Finance Agency put them into a conservatorship) shouldn't invalidate the contracts that the two men signed with the companies. The pair would be doing the right thing if they rejected the bulk of their severance payments -- especially Syron, whose contract included an unusual $8.8-million cash payment in lieu of his final year's stock options -- but they should do so voluntarily.
Meanwhile, the controversy about the pair's severance should help the growing number of corporate boards seeking to guard against paying for failure. Boards need to push back against top executives' demands for employment contracts. If they can't avoid a contract, they should make severance packages available only in the event of a buyout that is in shareholders' interests. Too many contracts, like Mudd’s and Syron’s, provide ample rewards for executives even when they're kicked to the curb for poor performance. If boards don't do it, they run the risk that Congress will impose more regulations on executive pay or give shareholders more say over it. Better yet, shareholders may simply vote with their feet, investing in companies whose boards know how to say no.

Fannie, Freddie CEOs now denied exit bonuses!
Reuters, September 14, 2008

Michael O'Mara

BRECKSVILLE -- "Abigail do you want to try to show us how to write the letter 'h' on the smartboard?" asked 3rd grade teacher Elena Kucharski.
Far from Wall Street, at Highland Drive Elementary School in Brecksville, Mrs. Kucharski is teaching her young students how to write in cursive. The veteran teacher is also worrying about her retirement funds.
Kucharski is tracking the health of the nation's largest insurer, the American Investment Group. AIG controls more than one trillion dollars in assets. Almost every major bank and retirement fund in the country has investments tied to AIG.
Teachers like Kucharski wonder if their retirement plans could be affected if AIG goes bankrupt and the markets melt down.
The State Teachers Retirement System has been the safe haven for educators in Ohio for years. Both Elena and her husband Don, also a teacher, have their retirement funds in STRS.
Joseph Granzier, managing partner for Thomas McDonald Partners in Cleveland understands the frustrations of investors like Elena.
"With STRS the teachers are kind of handcuffed because they have no say and they have no flexibility to change things inside the fund," said Granzier. "Teachers can't do anything about that, but they have to understand that those funds are being managed by professionals as well. The fund managers are dealing with this mess and they will make some adjustments hopefully as well."
Said Kucharski, "If my husband and I can't rely on that money being there when we retire we'll probably be working until we can no longer work. I hoped to retire in 15 years. Now I am not so sure."
The bizarre fact in this new Wall Street shakedown is that AIG has more than one trillion dollars in assets. The company has 74 million customers worldwide, most of them Americans. It employed 116,000 people in 130 countries at the end of 2007.
AIG, through its aircraft leasing group, owns more than 900 planes, is worth about $50 Billion, and is the largest customer of both Boeing and Airbus.
Analysts say AIG's current troubles arise because it doesn't have liquidity, or cash, on hand to cover guarantees it wrote on mortgages. If it can't find the short term cash, it may have to declare bankruptcy this week.
Back in Brecksville, Elena Kucharski's students have questions about their handwriting assignment. Meanwhile, the third grade teacher now has questions about her financial future.

Laura Ecklar responds to John Curry's questions...but does she answer them? You be the judge

Laura Ecklar to John Curry, September 15, 2008
Subject: Re: Laura...a question...

Thank you for your patience, Mr. Curry. I am happy to respond to your questions. As you noted, the Sept. 9
article in the Columbus Dispatch was focused on just one day, as exemplified in the headline of the article, "Wild day for public pension funds." The federal government's takeover of Freddie Mac and Fannie Mae had an immediate impact on both the agencies' stocks and bonds - negatively impacting any stock holdings and positively impacting the value of the bonds. (In the case of STRS Ohio, our $4 billion in Freddie Mac/Fannie Mae bond holdings appreciated by about $40 to $50 million in just that one day.)
I would like to make one additional point about the article: the reporter made an error in reporting STRS Ohio's one-day loss on the stocks. When I spoke with him, I told him that the total market value of our stock holdings in both Fannie Mae and Freddie Mac was approximately $10 million on Friday and $2 to $3 million on Monday. Unfortunately, the reporter used that latter number as the "loss" number rather than correctly reporting the loss at $7 to $8 million.
In reply to your questions, the loss in market value on our stock holdings in Fannie Mae from August 2007 through Sept. 8, 2008, is $84.7 million. Of that amount, the loss to shares held in the passive index portfolio is $73.8 million, and the active portfolios' shares market loss is $10.9 million. For the same time period for Freddie Mac, the loss in market value on the stock holdings is $76.7 million, with $45.9 million attributable to the passive index portfolio and $30.8 attributable to the active portfolios. On Sept. 8, we owned about 1,289,900 shares of Fannie Mae and about 1,053,900 shares of Freddie Mac. This represents less than .01% of our total domestic stock holdings.
During the period of time you inquired about, the overall U.S. stock market posted a very steep decline of 22%. Nevertheless, some of STRS Ohio's
holdings fared well. Over the exact same period, STRS Ohio had market gains of $83 million in Wal-Mart, $32 million in McDonald's and $25 million in Anheuser-Busch.
In response to your question about how much we paid for the shares in Freddie Mac and Fannie Mae, we calculate holdings at market value every day. Our Investment staff conducts transactions totaling more than $300 million during a typical day. Shares that are held in Fannie Mae, Freddie Mac or any stock were purchased and sometimes sold at various prices over time. All our investments are carried at current market value and our investment returns reflect changes in market value, not cost, from one period to the next. This is accepted as proper accounting and investment performance measurement.
As noted above, the majority of our stock holdings in Fannie Mae and Freddie Mac are held in passive index portfolios rather than in our actively managed portfolios. You may wonder why STRS Ohio invests in a passive index portfolio - please let me explain.
The Retirement Board's asset mix policy indicates that 95% of STRS Ohio's target return of 8% is expected to come from overall exposure to the investment markets, with the remainder coming from staff's active management of the underlying portfolios. In other words, a significant portion of our expected return from domestic equities, for example, comes from participating in the U.S. stock market - which STRS Ohio defines as the Russell 3000 Index.
A passive index portfolio is a low-cost strategy designed to replicate the holdings, weights and return of the index and to complement the active portfolios. So, for example, our passive index portfolio for our domestic stock holdings includes Fannie Mae and Freddie Mac in the same proportion as the index. This overall exposure to the investment market ensures that our investment dollars are spread throughout all sectors of the markets and not concentrated too heavily or too lightly in any one area. A passive index portfolio experiences all losses for stocks that decline in value, as well as all gains for stocks that increase in value. The passive index strategy is widely used among public and private pension funds, as well as by many individual investors. The Retirement Board's investment consultant, Russell Investments, calls this strategy essential to achieving the board's goals and objectives. Russell Investments has also indicated that it would not be in STRS Ohio's best interests to eliminate the passive index portfolio, or to undermine this investment strategy by choosing not to hold specific stocks like Fannie Mae or Freddie Mac in the passive portfolio.
While we had a full index weighting in our passive portfolio, STRS Ohio was underweighted in our actively managed stock portfolios (including underweighted in Fannie Mae and Freddie Mac) during this time period. This overall underweighting improved our domestic equity performance relative to the benchmark by approximately 7 basis points.
We appreciate that the events surrounding Freddie Mac and Fannie Mae are of interest, due to the significant media coverage covering this unprecedented action by the federal government. However, in times such as these, it is particularly important to remember that STRS Ohio is a long-term investor with a diverse portfolio that allows us to weather significant downturns or losses in an individual stock or sector.
I hope that you find this information helpful. Thanks so much!
Laura Ecklar
Communication Services
John Curry to Laura Ecklar, September 9, 2008
Subject: Laura...a question...
Could you also state how much STRS has lost on its Fannie Mae and Freddie Mac holdings during the last year...and not just the one day that you said we lost "$3 million on Fannie Mae and Freddie Mac stock yesterday" in the quote taken from today's Columbus Dispatch? Retirees would like to know this figure also.
"The State Teachers Retirement System of Ohio lost about $3 million on Fannie Mae and Freddie Mac stock yesterday. However, it made $40 million to $50 million from about $4 billion in bond investments because of the government's move to firm up the balance sheets of the two companies, said Laura Ecklar, spokeswoman for the $70 billion pension fund."
The Dispatch article goes on to say: "The Ohio Police & Fire Pension Fund holds about 5,500 shares of stock in the two companies; the shares were bought months ago at about $28."
If the OP & F can state the amount they paid several months ago for Fannie Mae stocks ("about $28") and the number of shares held ("5,500 shares of stock in the two companies") I would also ask you, "How many shares of Fannie Mae and Freddie Mac stock did STRS own, as of yesterday, and what price(s) did we pay for these?"
Thank you,
John Curry
P.S. So that there will be no confusion let me restate my questions:
1. Could you also state how much STRS has lost on its Fannie Mae and Freddie Mac holdings during the last year...and not just the one day that you said we lost "$3 million on Fannie Mae and Freddie Mac stock yesterday" in the quote taken from today's Columbus Dispatch?
2. How many shares of Fannie Mae and Freddie Mac stock did STRS own, as of yesterday, and what price(s) did we pay for these?
Larry KehresMount Union Collge
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