Dean Dennis: STRS Fiscal Year Investment Costs Raise Questions of Credibility

 September 23, 2021

STRS Fiscal Year Investment Costs Raise Questions of Credibility

By Dean Dennis, Founder
STRS Ohio Watchdogs

In the August 20, STRS eUPDATE, STRS stated the 2021 Fiscal Year (FY) Total Gross Returns were 29.28% and the Total Net Returns were 29.16% . This is, "after all management fees and costs, including carried interest and other fund expenses." This breaks down to investment costs of 12 basis points (bps). This was a good year, returns were near record highs, bonuses were paid and investment costs were low.

Investment costs were exceptionally low, and our Trustees should be skeptical.

STRS advertises they are one of the top tier premiere pension systems in the United States. They make this claim with the support of many of their paid consultants. One such consultant is CEM Benchmarking. CEM works with over 400 fund sponsors worldwide providing objective actionable benchmarking insight. A pension system would hire CEM to make sure pension costs are reasonable and provide value. CEM, using STRS's numbers, supports the STRS top-tier pension claim.

STRS members question the STRS claim. A top-tier pension system pays a COLA. STRS no longer pays one. A teacher who retired after 2013 has never seen a COLA. All retirees have gone at least 5 year without a COLA. The best pension systems don't rate last in the United States by providing the least value for employee contributions. This disconnect rallied STRS members to raise $75,000 of their own money to hire nationally renowned forensic auditor Edward Siedle of Benchmark Financial Services (BFS), to perform a forensic audit of STRS.

The money was well spent and identified many issues. Top among the issues was money being lost to Wall Street in fees, cost and carried interest. This was detailed in the BFS report titled, The High Cost of Secrecy. Shortly after the release of the Siedle report, STRS Ohio released their own report titled, STRS Ohio Response To Benchmark Financial Services (BFS) Report.

Unintended, the STRS Ohio Response to the BFS report raises red flags about the credibility of STRS Fiscal Year (FY) 2021 investment costs of only 12 (bps). Here's why.

In the STRS report, rebutting the BFS report, on pages 27 and 28, STRS defends their FY 2018 investment costs of 37 basis points. However, these costs were adjusted upwards by their own consultant, CEM Benchmarking, to 40.1 basis points. Making matters worse, the BFS report states STRS investment costs really are around 61.3 basis points and CEM states similar peer pension systems average investment costs are 54.5 basis points.

Clearly, if STRS investment costs were higher than the 54.5 bps average it would challenge their top-tier pension system reputation.

To reinforce their FY 2018 investment cost claim, STRS states in their BFS rebuttal that CEM "correctly reported our actual investment costs as $279.1 million or 36.9 basis points." Digging deeper, embedded in their investment cost claim defense, one of the reasons they were not 61.3 bps as stated by Siedle, or 40.1 bps, as adjusted by CEM, is because they didn't include carried interest arguing, "carried interest is not a fee." STRS held steadfast that their investment costs were 14.5 bps lower than their peers.

So with that, one controversy is now being replaced with another.

Here's why there is reason for skepticism; how can FY 2021 STRS investment costs only be 12 basis points and include carried interest? In 2018 investment costs, thought to be too low, were redacted by their own advisor, CEM. Without including carried interest, investment costs were stated as 36.9 basis points. In 2021, STRS states investment costs "after all management fees and costs, including carried interest and other fund expenses" are only 12 bps.

How is this credible?

Let's hope our Board Chair and other trustees find out and can offer an explanation.

Dean Dennis is a retired teacher from Cincinnati and a strong advocate for the restoration of teachers’ earned benefits, particularly their COLA, from STRS Ohio. He is also a noted leader for the Facebook group Ohio STRS Member Only Forum.

SHAME ON YOU, STRS! SHAME, SHAME, SHAME, SHAME, SHAME!!!

You have STOLEN BILLIONS from those who trusted you, those who could LEAST AFFORD TO LOSE WHAT YOU HAVE TAKEN FROM THEM!!! 

SHAME, SHAME, SHAME, SHAME, SHAME!!!!!

Highway Patrol eligible retirees to receive 3% COLA in 2022. STRS gets ZERO.

From John Curry

September 22, 2021

The last sentence says it all. This is from the Highway Patrol Retirement System August newsletter. STRSers....WE are all alone with ZERO COLA for 2022 - all other systems WILL BE PAYING A COLA IN 2022! Bill Neville, what about OUR "best and brightest?" What seems to be the problem? STRS is now the ONLY Ohio public pension that has NO COLA!

Highway Patrol

John Curry: You can compare and contrast the top salaries of the two major teachers unions in Ohio

From John Curry

September 20, 2021

Compare and Contrast

Let's "compare and contrast" the two unions that represent most educators in Ohio. I think you will find a very significant difference in salaries. First, let me state from the very beginning that I am totally pro-union. I grew up in a union house as my father, in the mid-1950's, organized the first labor union at the Baldwin-Lima-Hamilton (formerly Lima Locomotive Works) and went on to become their first union president. In this early organizing process he was assaulted by three "company goons" at the Fourth Street Gate. So...I don't want to hear claims of "Curry's union bashing" by putting out the following statistics. I am not union bashing....I am furnishing union comparison data. Remember, just like good leadership or bad leadership, good executives or bad executives, good retirement system boards or bad retirement system boards there are also good unions and there are also bad unions.

The following data was compiled from the latest information from the U.S. Department of Labor. Every year all labor unions in the United States are required to post an annual statement of all their expenses, income, outgo, employees -- their salaries and other pertinent dats as required by federal law. The link for this information is listed below as well as the "Employer File Number" of both unions. You are most welcome to go to this site and make your own comparisons. These salaries were obtained by the most recent LM-2 reports submitted by both the OEA and the OFT in the fall of 2020.

https://olmsapps.dol.gov/query/getOrgQry.do

OEA Employer File Number 512-490
OFT Employer File Number 513-310

Should there be a union official unhappy that this information has been put out I say to them, If you can't stand the heat then get out of the kitchen as you should have known YOUR salary, like it or not, IS public information!"

Robin Rayfield: Comments to STRS Board September 16, 2021

Greetings STRS Board Members 

My name is Robin Rayfield. I serve as the executive director of the Ohio Retired Teachers Association representing thousands of STRS beneficiaries. I am a STRS retiree, having retired in 2011 with over 30 years of service.  

Last month Mr. Neville presented a lengthy response to the Siedle report. The 53-page document provided by STRS management was presented ‘for discussion’. Unfortunately, there was no discussion by the board of the Siedle report or the Neville response. Certainly, I never expected STRS to receive a report that is so unflattering and say ‘Wow! We’ve been doing this wrong for decades! We need to change immediately’. I would have expected that board members would have ‘discussed’ both reports. As it is, I question if any of the board members read either of the reports.  

When a person only receives information from one source, their perceptions are often slanted. For example, if I only watched Fox News, or I only watched CNN, my view of the world would be slanted. I think the same is true of the way you folks receive information about STRS. If you only get information from the STRS management, then it's very hard to see any other perspective. Likewise, if retirees only receive information from Facebook or ORTA, then it is difficult to see any other perspective.

My challenge is for each board member to stop and challenge themselves. I do this often. What if Siedle is wrong? What if he doesn’t know what he is talking about? I ask you all to ask What if we have been having the wool pulled over our eyes for all this time? What if we are paying more fees that are reported?

Remember this… All ORTA wants is what we were promised, not more, just what we were promised. All actives want is a retirement that is worth what they are paying in. Who gets rich at STRS?  

Management people make large salaries working at STRS. They make more than every teacher and more than most superintendents.  

STRS investment staff are dependent upon bonuses to make their money. The pressure to reduce fees and inflate performance is real.  

External consultants receive large contracts and are indebted to STRS for money received in consultant fees and for money that they get paid from hedge fund managers.  

Wall St. money managers receive crazy money from fees charged to STRS.  

Everyone gets rich at STRS EXCEPT for the people that put the money in!  

John Curry refreshes our memory re: trips taken by former STRS Board members on your dime

From John Curry

September 1, 2021

STRS has "been there, done that" before, haven't they. Let us take a little trip back in time, shall we? This time it was a "beach bar bill," wasn't it? Fort Lauderdale and Dallas weren't the only destinations...try Honolulu, Kiawah Island and other exotic places. Dennis Leone told them what to do....they didn't listen. That Leone letter to the Board AND THE OHIO RETIREMENT STUDY COUNCIL (link below) was every bit as riveting as Martha McFerran Dahya's speech was this week. He offered many solutions that STRS AND THE OHIO RETIREMENT STUDY COUNCIL should have followed - but didn't. The sad fact is that far too many educators today never knew what was going on at their retirement system not just now....but for decades! However, THE POLITICIANS DID! Ignorance is bliss! After looking at this chart maybe you can see why Jack Chapman was given the nickname "Travelin' Jack." http://www.avonhistory.org/school/strs1.htm