"Mr. Faber’s transparency award is worse than undeserved. It crosses the line to harmful by validating the myth that STRS is open and transparent, when in reality it is still closed and self-dealing."

Toledo Blade Editorial: Transparency award joke

THE BLADE EDITORIAL BOARD

APR 27, 2023 

Auditor of State Keith Faber can’t make up his mind on the State Teachers Retirement System of Ohio.

This month the auditor honored STRS with the Highest Achievement in Open and Transparent Government Award. It is the third year in a row that Mr. Faber has given STRS his highest rating for transparency.

But in his Dec. 29 Special Investigations Unit probe of STRS (“No illegal activity in the $90B Ohio teacher retirement fund, special audit finds,” Dec. 29) Mr. Faber made lack of transparency in the alternative investment portfolio an issue of concern. The auditor said STRS should “strive for transparency” and recommended ending the practice of classifying dark market investments as “trade secrets.”

Transparency is also a huge issue regarding the highly controversial payment of bonuses to STRS investment staff. Mr. Faber recommended that the basis for bonus calculation and whether they should be paid at all, is ripe for review by the General Assembly. Incredibly, next month the STRS Board is set to vote on a 30-percent increase in the investment staff bonus budget.

Investment expert Richard Ennis wrote in a March 4 Saturday Essay (“STRS investment performance measure flawed”) that STRS bonus benchmarks are the antithesis of transparent by design.

“The convention among large public pension funds 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 the staff and/?or consultant; 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.”

There is little incentive for STRS or the General Assembly to seriously consider Mr. Faber’s concerns and recommendations on transparency when he hands STRS an award for the highest achievement in open government. The damage is compounded when a purposefully complex benchmark is used to pay six-figure bonuses to investment staff for performance that lags a market index. The December audit concluded STRS would have improved results by a stunning $90 billion by using a low cost S&P 500 index.

Mr. Faber’s transparency award is worse than undeserved.

It crosses the line to harmful by validating the myth that STRS is open and transparent, when in reality it is still closed and self-dealing.