Bob Buerkle to STRS Board 12/16/2021: Look out for our members, not STRS Management and their lackeys.
The current STRS Board needs to reverse the 2015 policy of “Closed Funding.”
Management. You have no “Fiduciary Duty” to them. None of them will ever draw a pension from STRS. They are not our members. Look out for our members, not STRS Management and their lackeys.
Look at what has happened over the last 10 years. Management had the Board vote to lower the “Discount Rate” three times, dropping it from 8% all the way down to 7%. Was that necessary, since STRS reports show that we averaged over 10.25% for the decade? That decision added over $20 billion of projected debt to our unfunded liability. It also prevented STRS from becoming 100% funded. Without that unnecessary phantom debt of $20 billion, STRS assets would almost exactly equal its liabilities today.
The numbers game perpetuated by STRS Management and their hired mercenaries financially benefited them, not our Members. They received annual raises to their base salaries every year. The investment staff also received bonuses every year, whether they were deserved or not! Did anybody responsible for losing a half-billion dollars on Panda lose their bonuses, or their jobs?
There is a precedent for maintaining an 8% discount rate by an Ohio Pension Plan; it’s called “Ohio Police and Fire.” In the 2021 fiscal year they continued to use 8% for their discount rate. Did it harm them? No. They earned less than STRS for the decade but they still beat their 8% assumption rate so they are OK and their members continued to receive their COLA every year.
Over the last 10 years Dean Dennis and I and others have been sharing the genius of Warren Buffett with you. He has claimed that pension systems would do better if they just used Index Funds instead of stock picking, using hedge funds and the like. Below here I have attached what happened with his Million Dollar Bet with a hedge fund manager versus the S&P 500.
_________________________________
Buffett's Bet with the Hedge Funds: And the Winner Is …
By DAVID FLOYD
Updated June 25, 2019
In 2008, Warren Buffett issued a challenge to the hedge fund industry, which in his view charged exorbitant fees that the funds' performances couldn't justify. Protégé Partners LLC accepted, and the two parties placed a million-dollar bet.
Buffett has won the bet, Ted Seides wrote in a Bloomberg op-ed in May. The Protégé co-founder, who left in the fund in 2015, conceded defeat ahead of the contest's scheduled wrap-up on December 31, 2017, writing, "for all intents and purposes, the game is over. I lost."
Buffett's ultimately successful contention was that, including fees, costs and expenses, an S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over 10 years. The bet pit two basic investing philosophies against each other: passive and active investing.
A Wild Ride
Buffett may be the quintessential active investor himself, but clearly doesn't think anyone else should try. He said as much in his most recent letter to Berkshire Hathaway Inc. (BRK.A, BRK.B) shareholders, dated February 225, 2017. Buffett boasted that there was "no doubt" who would come out on top when the contest ends. (See also, The 'Next Warren Buffett' Curse Is Real.)
His victory didn't always seem so certain. Not long after the wager started on January 1, 2008, the market tanked, and the hedge funds were able to show off their strong suit: hedging. Buffett's index fund lost 37.0% of its value, compared to the hedge funds' 23.9%. Buffett then beat Protégé in every year from 2009 through 2014, but it took four years to pull ahead of the hedge funds in terms of cumulative return. (See also, Hedge Fund Fees: Exotic Expenses.)
In 2015, Buffett lagged his hedge fund rival for the first time since 2008, gaining 1.4% versus Protégé's 1.7%. But 2016 saw Buffett gain 11.9% to Protégé's 0.9%. Another downturn could conceivably have handed the advantage back to Protégé, but that didn't happen. At the end of 2016, Buffett's index fund bet had gained 7.1% per year, or $854,000 in total, compared to 2.2% per year for Protégé's picks – just $220,000 in total.
In his shareholder letter, Buffett said he believed the hedge fund managers involved in the bet were "honest and intelligent people," but added, "the results for their investors were dismal – really dismal." And he noted that the two-and-twenty fee structure generally adopted by hedge funds (2% management fee plus 20% of profits) means that managers were "showered with compensation" despite, often enough, providing only "esoteric gibberish" in return.
In the end, Seides admitted the strength of Buffett's argument: "He is correct that hedge-fund fees are high, and his reasoning is convincing. Fees matter in investing, no doubt about it." The index fund Buffett chose (see below for details) charges an expense ratio of just 0.04%, according to Morningstar.
In his letter, Buffett estimated that the financial "elites" had wasted $100 billion or more over the past decade by refusing to settle for low-cost index funds, but pointed out that the harm was not limited to 1%-ers: state pension plans have invested with hedge funds, and "the resulting shortfalls in their assets will for decades have to be made up by local taxpayers." (AND RETIREES! [added])
posted by Kathie Bracy at 2:00 PM
<< Home