Robin Rayfield's March 2023 report to ORTA members

ORTA Executive Director Robin Rayfield's report to members

From ORTA Newsletter

March 15, 2023 

STRS Update

Finally! Over the last couple of months information supporting the many criticisms ORTA has leveled at STRS have been verified. Auditor of State Faber conducted a special audit of STRS.

The audit was directed at determining if STRS engaged in fraud. Faber’s report indicated no fraud and that STRS had followed its policies when awarding bonuses to its investment staff. Of course, STRS ‘shouted from the rooftops’ that the auditor found no evidence of fraud. However, what was not in the headline of the report, and unfortunately somewhat buried in the lengthy report was support of many of the claims ORTA has made.

Faber Highlights

Auditor Faber was critical of the transparency at STRS and encouraged changes.

Most importantly, Auditor Faber confirmed the notion that the actions of STRS with regards to investments were not effective. In fact, the auditor noted that STRS would have been much better off with a passive approach to investing as opposed to the risky active management approach STRS uses. Specifically, Auditor Faber agrees with ORTA that our pension system ‘lost’ to a indexed benchmark in 13 of the 22 years since 2009. Please understand that had STRS simply invested in index funds, at little to no cost, STRS’s bottom line would be $12.5 billion more than it is.

For all the aggravation and angst over paying unearned bonuses, and paying consultants to say wonderful things about STRS, our pension system would have $12.5 billion more if we simply used a passive investment strategy.

Recently, STRS management attempted to downplay the media reports by renowned pension expert Richard Ennis confirming what Auditor Faber said about STRS investments. Unfortunately, Mr. Ennis’ credibility in the pension world greatly exceeds anyone at STRS. Let provide a quote from Mr. Ennis sent to the STRS board… .

The convention among large public pension funds in the US, like Ohio STRS, is for the staff and consultant to work together to contrive a benchmark that no one else could reproduce if their life depended on it. One that is opaque, complex, and purely subjective. One that is tweaked regularly by staff/consultant to hug the portfolio composition. One that demonstrably understates a fair return for the risk assumed. And one that invariably gives the misleading impression that the fund is outperforming passive management — adding value — when it is not. That, unfortunately, is today’s convention.
[See “Lies, Damn Lies and Benchmarks,” Journal of Investing, forthcoming.] VIEW HERE

We have a powerful message

STRS has lied continuously to keep its members in the dark. We have five STRS board members that are demanding change, including transparency and changes to investment. There are five status quo members that are fighting any changes at STRS. Newly appointed board member Alison Lanza Falls’ (appointed by the Treasurer of State Sprague) position is unknown. STRS board candidate Pat Davidson is committed to reform at STRS. Current incumbent candidate Art Lard is staunchly committed to the current status quo. This spring will be an interesting time at STRS…

Other ORTA Activities

ORTA offered testimony during the public participation portion of the February State Board of Education meeting. ORTA Executive Director Robin Rayfield spoke at the meeting of the State Board of Education in February asking for support for the five reform minded members of the STRS board. ODE holds one seat on the 11 member STRS board. Their current representative, Dr. Hunt, is a strong supporter of the current management team at STRS and votes in favor of the STRS management 100% of the time. Rayfield explained the current situation and provided reasons for the current situation. His comments were well received, however, only time will tell if the State Board of Education will step forward to help educators in Ohio.

And as always, if your membership is up for renewal, reminder you can do everything online at orta.org/join

- Dr. Robin Rayfield