Why Bob Stein resigned from the STRS Board

From Bob Stein to Dean Dennis

Sent: Friday, January 14, 2022 5:37 PM

Dean

Responding to your query.

My reasons for resigning my seat on the STRS board include:

1.    The character of the board has changed over the last few years.  When I first took my seat in 2009, board members were willing to discuss challenging and uncomfortable topics with the goal of preserving the system.  Everyone was focused on perpetuating a valuable pension along with a meaningful health care subsidy.  It was always about ideas and not personalities.  People with different politics or who disagreed on topics would work together to use their diverse backgrounds to better understand STRS’s environment and try improve the quality of proposals before they came to the full board.  This continued for about 9 years.  I no longer saw that kind of cooperation by the time I resigned.

2.    Since early 2020 I had been researching an improved version of an investment proposal I first made to the Chief Investment Officer in 2009.  Changes in the structure of the 2009 proposal as well as changes in the global economic environment following the GED made the new version much more workable and very attractive. Since the ideas spanned more than one STRS division, I believed investigating the ideas was the responsibility of the entire board rather than just specific staff.

3.   Cliffwater, the board’s consultant for alternative investments, did not provide a requested due diligence report at the February 2021 executive session. After hearing demonstrably inaccurate and faulty advice from the system’s external Alternatives investment advisor, the board refused to consider, or even hear correct details of, the improved idea or how it might be responsibly investigated.  I was personally attacked for advocating the investigation and the executive session was ended prematurely.

4.   I became convinced that the relationships between STRS and at least some of its advisors were not being well managed.  The February executive session showed that my board contributions were no longer sufficiently valued to allow me to ameliorate the situation. I concluded that I could be of better service to STRS and the broader human enterprise by following a different path.  There was an STRS election in progress and my legal advisor recommended that I postpone my resignation until after the election results had been adopted by the system.

5.    After considering further legal and other advice, I thought that I would be better able to more thoroughly investigate the new idea if I were not a member of the board.  I reasoned that if I personally collected deeper information the board might respect the length and quality of my service enough to at least listen to a report and consider initiating their own independent investigation.

I had planned to devote the rest of my retirement to service on the STRS board.  In leaving this board I believed I could be of more value to STRS beneficiaries.

This is additional background information for you that does not relate directly to your question about my decision to leave the board. I believe it validates my reasoning in resigning. 

After leaving the board, listening to the board’s investment seminar in September 2021, the staff and Callan made several “we don’t understand” statements and offered speculation that included examples that were the opposite of those I had verified. These included a discussion on the lack of value in buying leverage and liquidity throughout market cycles when several of the proposed strategies involve selling leverage and liquidity at specific parts of market cycles.  I considered these as demonstrations and admissions that they indeed did not understand the fundamental ideas or what business model was being proposed. 

I expected the board to see the inconsistencies and be looking for a way to better research the topic using unconflicted specialists. Cliffwater did not attend the annual investment seminar and they couldn't be questioned on the matter.  These shortcomings encouraged me to agree to provide my research insights when asked.  However, the presentation didn’t go as expected. 

The November 2021 board meeting was an embarrassment of coordinated obstruction in support of an unsustainable status quo.  Several present assigned inaccurate statements to myself and other presenters and expanded on the inaccurate and internally inconsistent statements from the September investment seminar and the personal attacks from the February 2021 executive session.  The board broke executive session privilege without a vote and Cliffwater presented a revised inaccurate list of its objections from the February executive session.

Cliffwater left the meeting as soon as it became known that its statements to the board demonstrated a conflict of interest and differed from those it made during due diligence interviews.  Several board members were uninformed and confused enough to behave unprofessionally.  It’s one thing to reject an idea once you understand it.  It’s a breach of fiduciary duty to refuse to hear an idea or force the conversation into an arena where the idea can’t be heard without depreciating its value to the beneficiaries of the system.

I hope this helps.

Best

Bob Stein

On 1/11/2022 2:25 PM, Dean Dennis wrote:

Bob, thanks for the conversation this afternoon. 

As discussed, I periodically see a lot of speculation on Facebook as to why you resigned after winning your seat. I think it would be beneficial to you and to others to hear an explanation from you.  Feel free to write something I can post in its entirety and share; or something I can use to jump into a FB conversation, for use, if I think comments about you are out of bounds.  I either case, I want to be able to state I reached out to you and this is what you shared.

Again, thank you for your dedication while on the Board and your concerns and input afterwards,

Dean Dennis