Dan MacDonald reports on that long, long March 2023 STRS Board meeting

From Dan MacDonald

March 20, 2023

STRS GOES LONG ON MARCH 16

Thank you to anyone that signed into the March 16, 2023 STRS Board meeting. The meeting started at 8:30 AM and ended at 6:15 PM.

The Investment Committee also held a March 15 noon meeting to seek a future general financial consultant and an alternatives investment consultant. Three firms responded to STRS’s RFP [Request for Proposal], but one withdrew, leaving Callan, LLC and Albourne Alternatives Investment Consultants. Each responder was given 15 minutes to introduce their company, 50 minutes for committee members questioning, and finally, 10 minutes for final remarks. After the two presentations, the committee decided to continue its search for a general financial consultant but also to bring back Callan and Albourne for 2nd interviews in April for a determination of an alternative investment consultant.

The March 16th meeting began with the Finance Department report on a Sustainable Benefit Enhancement Plan. In 2012 the Ohio General Assembly granted the Board limited authority to adjust COLAs, Member Contributions and Eligibility Retirement Requirements. The Board can act on these only in conjunction with its actuary, currently Cheiron. Cheiron has created a three-part fiscal integrity test into the STRS annual budget process to determine if funds are available for enhancements/restorations. Cheiron will present at the April Board meeting in combination with STRS’s proposed 2024 budget. [Much discussion. No one wants to go backwards with the fund’s financial health. In 2021 STRS closed at 87.8 percent fully funded. In 2022 STRS closed at 78.9 percent fully funded.]

Public Participation concluded the morning session with 7 speakers. Four speakers spoke on broken STRS promises; two in support of the Board and Neville, and one suggested passive consultants gurus present before the Board.

After lunch the Investment Department presented until 5:37 PM. First, a vote on the Adoption of the Amended Stock Proxy Voting Policy was postponed for further understanding of the policy by Board member Jones.

February’s return was shared. The return was a negative 1.51% for February with approximately $87.3 billion in total investment assets; January’s total assets were approximately $89.0 billion.

STRS’s investment in Silicon Valley Bank was addressed. STRS reported a loss of $27.2 million in stock with a 102,000 shares exposure. The importance of portfolio diversity was emphasized as well as this stock being widely held throughout portfolios and part of the S&P 500 and Russell 3000. In other bank closings, Signature Bank, Silvergate Bank, etc., STRS had no holdings. [It was mentioned that if SVB was indexed, STRS would have lost $9 million.]

Outside consultant Callan presented on economic updates and capital markets. New asset allocations and capital markets projections indicate STRS should do better this year. Callan expects a 7 percent return with less risk. Callan went on to report on Public Fund Sponsors and STRS outperforming over 90 percent of its peers over a long period of time. The CEO of Callan, Greg Allen, addressed the Board on current benchmarking practices and what is an “Empirical Benchmark” as coined by Richard Ennis and developed by William F. Sharpe. Allen’s conclusion, Empirical Benchmark is a great tool for determining investment style, but not appropriate to apply at STRS after the fact. Fichtenbaum agreed somewhat with Allen but challenged the benchmarks and their calculations.

Outside consultant Cliffwater LLC did a performance review of Alternative Investments and showed how they add to STRS overall portfolio. Head of STRS Alternative Investments, Aaron DiCenzo, followed up on the purpose of Alternative Investments and STRS’s business model evolution and its strengthening of STRS general fund.

Finally, Callan led Board members through 10 Investment Belief statements which were a recommendation from the Funston fiduciary audit.

The Executive Director’s report followed. Neville addressed 6 items, 4 of which we share. Rhonda Hare is retiring after 23 years of service to STRS. [Rhonda makes STRS flow.] Retirements are 23% higher than the same period last year. FY2024 Budget is underway. Board election for a contributing [active] member seat takes place late March with ballots sent out and a Monday, May 1 deadline to vote. Two candidates – Arthur Lard, currently on Board, and Patrick Davidson, teacher from Berea. [Local 279-R encourages actives to vote for Patrick Davidson for many reasons two of which are that Mr. Lard rarely adds to Board discussion and, as chair of STRS’s Health Committee, he hasn’t ever scheduled his committee.]

Routine matters ensued. The meeting ended with Old Business/New Business, and, as has been happening recently, fireworks. Dr. Hunt made a statement on why he voted confidence for Mr. Neville which included a 3% COLA last year, eliminating 60 years of age for retirement, health care premium rebates and much more along with a request to the Board to talk before presenting a motion. Steen requested his name be removed from outgoing STRS reports while Herrington chimed in on e-updates and Price stated that STRS should correct misinformation. Fichtenbaum challenged STRS’s findings of misinformation and Sellers reported election interference. Correthers meanwhile asked to be approved for a Callan Institute workshop plus Price, Sellers, Fichtenbaum and Jones all had to give a report on a meeting they attended. [Truly, sign into STRSOH.org and click on heading ABOUT US, find RETIREMENT BOARD and then click on Most Recent Board Meeting Materials, then look for March 2023 retirement Board Meeting Presentations. Forward the video to the last 20 minutes of the meeting.]

Next Board meetings, April 19, 20, 21, 2023 with probable date April 20.