Rudy Fichtenbaum: a spreadsheet for the HPA

Rudy Fichtenbaum to HPA (STRS Healthcare and Pension Advocates)

June 12, 2021

I am attaching my spreadsheet that shows that when you use the Russell 3000 + 1 for private equity and Russell 3000 -1 for opportunistic/diversified investments as the benchmark and calculate the SIOP benchmark for STRS total returns and compare them with the GIPS returns, STRS active management does not add value. All of the data except the numbers for the Russell 3000 come from STRS’s CARFs. STRS only keeps five years of CAFRs on its website and if you download their PDFs and try and copy and paste the numbers into a spreadsheet, you will find that the PDF is password protected i.e., you cannot copy and paste. So much for transparency. But fortunately, you can download STRS CAFRs from the auditor’s website (look under audits, then search audits and type in State Teachers Retirement) and you can get the CAFRs going all the way back to 2000 and they are not password protected. So, if you want to collect your own data and verify my calculations have at it. I have also provided a little guide to the formulas in the spreadsheet that show the arithmetic in the spreadsheet for anyone unfamiliar with reading formulas in spreadsheets in Column A.

The highlighted numbers in columns O and P show that active management cost STRS approximately $4.1 billion over 10-years which is an average of $410.3 million per year. To me the numbers and the numbers and they show when you use the benchmark in the SIOP STRS underperforms the benchmark for total returns, which implies that we would have done better with passive investing. In addition, the total returns benchmark is a key element in determining PBI.

Finally, all of these numbers are totally unrelated to the question of whether STRS accurately reports its expenses. The returns I use in this spreadsheet are STRS’s GIPs returns, so in effect this analysis assumes STRS is accurately reporting all expenses. If the GIP’s returns are not net of all expenses, because STRS understates its expenses, then the underperformance would be even greater.