Ohio pension systems didn't move fast enough?
From John Curry, May 13, 2010
State pension funds held risky assets for too long
Deputy treasurer, though, got rid of $800 million in bad investments
Columbus Dispatch, May 12, 2010
By Alan Johnson
By Alan Johnson
Shortly after arriving at the Ohio treasurer's office in early 2008, Amer Ahmad discovered a ticking time bomb: $800 million in risky short-term investments, including some with Lehman Brothers.
Fresh off 12 years working for two large Wall Street firms, the deputy state treasurer and chief financial officer immediately saw red flags.
In less than a week, the treasurer's office, then headed by Richard Cordray, disposed of all assets that Ahmad considered toxic.
"I made a choice that we should not be investing in these companies," Ahmad said, "because in the world I just came from, everybody knew these companies were toxic assets."
But it was a different story at Ohio's five pension funds. For a number of reasons, the funds could not or did not move quickly enough to sell off questionable assets. As a result, the treasurer's office, which acts as custodian but does not invest pension monies, calculated that the funds had a combined $480 million loss in market value solely from Lehman investments. Officials at the pension funds, in response to questions from The Dispatch, calculated direct losses at about $220 million. The difference between the two figures essentially represents the higher value the investments reached before plummeting when the markets fell in September 2008.
Ahmad said the types of investments at the treasurer's office and the pension funds were different. The treasurer had short-term commercial paper, including some from Lehman Brothers, while the pension funds generally had longer-term mortgage- or asset-backed securities, or investments in failed or failing financial institutions.
But he said the bottom line is the same: "Toxic means toxic."
A spokesman for the Ohio Police & Fire Pension Fund said its external fund managers made their investment decisions based on objective criteria.
"What OP&F owned was managed by a quantitative model-driven account that triggered buys and sells based on a formula that looked at many market factors," David Graham said in a statement.
Dan Weiss, executive director of the Highway Patrol Retirement System, the smallest of the five state pensions, said the attorney general's office concluded that the system's loss was too small to justify a lawsuit. The system lost less than $75,000, Weiss said.
The State Teachers Retirement System did not own any subprime mortgage-backed securities with Lehman Brothers or any other company, a spokeswoman said.
Officials from the Ohio Public Employees Retirement System and School Employees Retirement System of Ohio did not have answers today, noting the difficulty of defining "toxic assets."
Even after the sell-off by the treasurer's office, Lehman Brothers officials continued pitching new investments to the agency.
In late July and early August 2008, Ahmad said he received calls from two senior management officials: Erin Callan, chief financial officer, and Paolo Tonucci, corporate treasurer.
"They said, 'Things are fine at Lehman Brothers. We would encourage you to buy our commercial paper and help us with the liquidity issues we have on Wall Street.'"
But Corday and Ahmad decided to "distance ourselves" from the commercial-paper holdings, Ahmad said.
Ahmad said he found it "shocking" that such high-level officials would call to pitch investments to the state.
About six weeks later, Lehman Brothers announced it was filing for bankruptcy. It was the largest corporate bankruptcy in U.S. history. An examiner's report said the firm masked $50 billion in debt.
The Lehman Brothers issue continued spilling over into the gubernatorial race between incumbent Democrat Ted Strickland and Republican challenger John Kasich.
In a statement to The Dispatch this week, the Kasich campaign acknowledged that he helped arrange two meetings in 2002 between Lehman officials and representatives of the public employees and police and fire funds. The meetings did not result in any business for Lehman, where Kasich was a director.
"We also think there's more information that is not yet known, and that's one of the reasons that we are asking the congressman to be more transparent," Strickland said today. "I think now he's trying to rewrite his own history, and I'm not of a mind to let him do that."
In a separate interview, Kasich said he was doing a professional favor for a colleague by arranging the meetings.
"It was no more; we didn't get any business out of it. I was not in on it," he said. "That's the end of it. Period."
Dispatch Senior Editor Joe Hallett and reporters James Nash and Mark Niquette contributed to this story.
posted by Kathie Bracy at 12:35 AM
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