Mario Iacone: STRS Performance Overview from ORSC

From Mario Iacone, May 1, 2009

Ohio Retirement Study Council (ORSC) oversees all of Ohio’s Public Pensions

ORSC Investment Review of STRS Performance.

(Click image to enlarge.)

Ten Year Return is 3.30%. Would probably somewhat lower if Fixed Income had not returned 5.37%.

During that period of time STRS has spent approximately ONE Billion dollars on expenses for investment staff, advisory fees, and fees to external money managers.

TWO CONCLUSIONS can made from the ORSC Performance Review.

STRS investments are at too high of a risk level and subject to volatile swings in the markets and economy.

STRS does not have a good RISK MANAGEMENT POLICY in place.

The concept of Risk Management is actually very simple. Applied to the stock market, risk management simply means you sell out and stop losing when you cannot afford to lose more.

EXAMPLE:

• One has a $1,000,000 invested in stocks.
• One must keep $800,000 to maintain life style.
• When losses approach $800,000, one sells out and limits losses to $200,000 or less.

The RISK MANAGEMENT concept also applies to PROFIT when one does not wish to risk the profit.

EXAMPLE:

• One has a $1,000,000 invested in stocks.
• One must keep $800,000 to maintain life style.
• When investment reaches $1,200,000 one sells out and removes the risk of losing $200,000 profit.