Edward Siedle: State Teachers Retirement System Of Ohio Resorts To Pension Theatre To Defend Costly Secretive Investments

https://www.forbes.com/sites/edwardsiedle/2021/09/10/state-teachers-retirement-system-of-ohio-resorts-to-pension-theatre-to-defend-costly-secretive-investments/?sh=1f37e5e9313b 

Forbes 

Sep 10, 2021

State Teachers Retirement System Of Ohio Resorts To Pension Theatre To Defend Costly Secretive Investments 

Edward Siedle, Contributor

Retirement Pension forensics expert and record-setting whistleblower award winner

Photo: Public pensions facing growing public scrutiny and criticism over mismanagement of investments are increasingly resorting to “pension theatre.” GETTY

Fully two and a half months after my firm, Benchmark Financial Services released a report commissioned by the Ohio Retired Teachers Association entitled “The High Cost of Secrecy: Preliminary Findings of Forensic Investigation of the State Teachers Retirement System of Ohio,”  the staff of STRS finally prepared an analysis of the BFS report “for discussion at the STRS Board meeting” on August 19, 2021. This first in-person meeting of the pension board in over a year was open to the public and hundreds of angry Ohio retired school teachers showed up to let it be known they had lost confidence in pension managers.

Photo: Ohio teachers protesting at State Teachers Retirement System of Ohio August Board meeting. JOHN CURRY

While the long-overdue staff analysis prepared for dissemination to the public at the meeting was entitled, STRS Ohio Response to BFS Report, board member Wade Steen who is a CPA recently reappointed by Gov. Mike DeWine as an investment expert stated, “This was not a board response. To my knowledge, the board was never told staff was drafting such a response.” Newly-elected board member Dr. Rudy Fichtenbaum, an economist, said, “It appears to me to be neither an official response of the pension nor its board.”

In fact, the so-called STRS response appears to simply be a defense of pension staff, crafted by staff and its consultant-helpers. Whether any pension board members even agree with the staff analysis “for discussion” is unclear, especially since, according to Steen, board members were only provided with the analysis days before the meeting and never voted to accept or reject its findings.

Immediately following release of the BFS report months ago, Steen and member-elect Fichtenbaum—both unique in possessing financial expertise—issued statements supporting findings and calling for further investigation by the pension and law enforcement into the disturbing revelations. Other board members, who lacked any financial training, indicated they had not taken time to read the expert report—a report which was unprecedented in that it had been commissioned by tens of thousands of participants in the plan who are openly distrustful of management.  

The STRS staff written “self-evaluation” and presentation at the recent Board meeting appears, in my opinion, to be an example of the type of well-orchestrated “pension theatre” to which state and local government pensions facing growing public scrutiny and criticism are resorting increasingly:

Pension staff spent hundreds of hours penning a lengthy hostile defense conceding nothing—no need for any improvement in management of the pension; financial vendors to the pension from all over the world were flown in to personally praise staff; and a few board members chimed in periodically during the live-steamed meeting with seemingly rehearsed comments supporting STRS’s generous dealings with Wall Street. (Whether the majority of the board has even read the BFS report to this day is unclear. Only one member, Mr. Steen, demonstrated knowledge of the report’s findings, asking probing questions during the meeting.)

All seemed to be going well early-on for STRS until its paid consultants began offering information and opinions which conflicted not only with each another, but with their pension client. The pension and its hired experts could not even agree as to whether all investment fees paid to Wall Street, including hefty performance fees, were fees and, if so, whether the fees should be fully disclosed to pensioners and taxpayers.

“Carried interest is not an investment cost… Carried interest is not a fee,” said the pension staff and its consultant-helpers, apparently unaware of the SEC’s publicly-stated position: “Carried interest is a type of performance fee.” Board members Steen and Fichtenbaum both agree that the hundreds of millions in performance fees paid by the pension to Wall Street investment managers are unquestionably investment fees, consistent with the SEC’s position. Whether the rest of the board is even aware the state pension’s views on investment fees are at odds with the federal securities regulator is unclear.

Retired teachers in attendance audibly groaned when an investment consultant to the pension equated paying Wall Street money managers $59 million in fees on uninvested capital, i.e., fees for doing nothing, to paying teachers over the summer when they’re not in the classroom. (Of course, the pay teachers receive over the summer months is not tens of millions for doing nothing—it’s thousands for hard work done during the school year.)

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