Dean Dennis: Open letter to STRS Board: a case for mismanagement and the mandated every-10-years audit that hasn't happened in over 14 years

From Dean Dennis

March 11, 2021

Open Letter to STRS Trustees

Trustees,

John Damschroder's, "Panda article" certainly caught my attention. Here it is, if you haven't already read it. https://www.thenews-messenger.com/.../damschr.../6883736002/

You may have also seen a recent article in the Columbus Dispatch titled, Mismanagement or misunderstanding? The outside audit of Ohio's pension fund explained. I think there is a case for "mismanagement."

Below you will find some research on the Panda investment. I thought it was prudent to share; I hope you will find it of value.

http://www.orsc.org/Assets/Reports/816.pdf (see page 29, $345,000,000 to Panda Power)
https://www.institutionalinvestor.com/.../yield-hungry... (STRS Ohio is first pension system mentioned)
https://www.powermag.com/panda-power-funds-rolls-on-with.../ (risky investment)
https://www.utilitydive.com/.../panda-temple.../442582/ (Panda goes bankrupt)
https://www.dallasnews.com/.../panda-energys-backing.../ (on the way to bankruptcy Panda invests in wrestling/daughter)
https://www.strsoh.org/_pdfs/annual-reports/50-143-19.pdf (see actual page 59. We still carry Panda as an alternative investment and have done so since we first got involved)

Panda is only one of our 130-plus alternative investments. As retirees go more than half a decade without their promised COLA the question needs to be asked, how much money can trustees find in investments gone awry that likely have numerous hidden fees?

Trustees, let's diligently manage our outside auditors and guarantee to members they look at our alternative investments both painfully meticulously. We need to make sure all expenses and fees for every investment are accounted for.

Let's also diligently manage the STRS management regarding the forensic audit. The $75,000 members raised for this audit equates to less than one-millionth of our $80 billion investment portfolio. No one knows what the audit will find, perhaps nothing. However, when retirees are constantly told by STRS how great STRS is doing while they go year after year without a COLA, and as active teachers work longer and contribute more for less, I think you can understand why the forensic audit is a reality.

Additionally, realize that the outside state of Ohio, required fiduciary audit that is supposed to occur every 10 years has now gone more than 14 years without happening. This key piece of information wasn't highlighted by the Columbus Dispatch when they were explaining the outside audit to their readers. That said, please make sure that STRS management is transparent when it comes to all public information requests related to the forensic audit.

My best and thank you for the time you commit,

Dean Dennis

Dean Dennis to the members of the Ohio Retirement Study Council: Why STRS retirees are concerned about alternative investments

From: Dean Dennis

Date: Wed, Mar 10, 2021 at 12:02 PM

Subject: STRS Forensic Audit

Chair Carfagna,
Please carefully read and share these articles with other members of the ORSC. I hope this sheds some light on why STRS retirees are concerned.
http://www.orsc.org/Assets/Reports/816.pdf  (see page 29, $345,000,000 to Panda Power)

https://www.institutionalinvestor.com/article/b14zbb3wdl6z2k/yield-hungry-institutions-back-merchant-power-plant-revival (STRS Ohio is first pension system mentioned)

https://www.powermag.com/panda-power-funds-rolls-on-with-another-new-gas-plant/ (risky Investment) 

https://www.utilitydive.com/news/panda-temple-bankruptcy-could-chill-new-gas-plant-buildout-in-ercot-market/442582/ (Panda goes bankrupt)

https://www.dallasnews.com/business/2012/06/09/panda-energys-backing-pays-off-in-tna-wrestling-venture/ (on the way to bankruptcy Panda invests in wrestling/daughter)

https://www.strsoh.org/_pdfs/annual-reports/50-143-19.pdf  (see actual page 59. We still carry Panda as an alternative investment and have done so since we first got involved.)

What does all this mean? Anything here (see Panda articles) retirees should be concerned about? Do the outside auditors look at our alternative Investments such as the one above? I'm counting that we currently have 133 alternative investments.

I certainly hope the ORSC finds an auditor that is painfully meticulous. We need to make sure all expenses of every investment are accounted for.
Thank you,
Dean Dennis

Robin Rayfield's report on the February 17, 2021 STRS Board meeting

From Dr. Robin Rayfield, Executive Director

Ohio Retired Teachers Association

Report to ORTA members

March 10, 2021

STRS News

The STRS trustees met in February. On Wednesday, the 17th the investment committee met to review what is taking place with the numerous asset classes or areas in which STRS invests our money. The discussions were routine with many questions from trustees on the real estate investments and the alternative investments. There was some degree of controversy near the end of this lengthy committee meeting. Board member Wade Steen revisited the ‘performance incentive’ (bonus) topic. He made a motion that each trustee would receive the information on the bonuses paid to our investment 50 days prior to any vote on these payments. Mr. Mayerfeld 2nd the motion. The discussion included the fact that the benchmarks are not well defined, and Mr. Steen felt that he wanted to be able to better understand if the benchmarks for earning a bonus were met. 50 days would allow him to ask questions and seek clarification. Mr. Mayerfeld and Mr. Steen voted to recommend this 50-day provision to the entire board. Ms. Walters, Ms. Herrington, and Mr. Scott did not support this effort at transparency. They were more concerned that the bonuses be paid in a timely manner than they were as to whether the bonuses were earned. 

The following day the STRS board met. Takeaways from the meeting were:

• STRS is experiencing a good year with nearly 16% earnings in the 1st half of the fiscal year.

• Mr. Morrow, chief investment officer will retire in April of 2021. STRS manager of alternative investments and fixed income, Mr. Worley, will replace Mr. Morrow. STRS will hire two people to replace Mr. Worley.

• Mr. Bill Neville, Executive Director of STRS, advised the board that STRS Assumed Rate of Return (ARR) is higher than most pension systems across America. It appears that STRS staff is preparing the STRS board for a recommendation that the ARR be lowered. This is of great significance as it is the ARR that determines the funding ratio of our pension system. Lowering the ARR by just ¼ of 1% from 7.45% to 7.20% would increase our liabilities pushing our funding ratio lower. With no serious consideration of COLA prior to an 85% funding ratio lowering this assumed rate of return will push any discussion of COLA out by as much as a decade. Remember, STRS does not predict reaching the 85% threshold before 2038 with the current assumed rate of return.

• Mr. Gary Russell (Deputy Director of STRS) presented information comparing STRS to other public pensions across the U.S. What I found interesting is that STRS has the highest individual contribution rate and the lowest employer contribution rate.

• Mr. Nick Treneff presented the results of the STRS annual membership satisfaction survey results. According to the 300 people surveyed, STRS rates high in member satisfaction.

Forensic Audit

Mr. Siedle has begun his work on the forensic audit of STRS. His public records request can be seen here: https://www.orta.org/advocacy. His work is expected to take about 4 months to complete. Check ORTA’s website for any updates.

Dr. Robin Rayfield, ORTA
Executive Director