Dan MacDonald's report on the STRS ad hoc governance committee meeting on June 14 and the STRS Board meeting June 15

From Dan MacDonald

STRS JUNE REPORT

ACTIONS SPEAK LOUDER THEN WORDS. TWO DAYS AT STRS, JUNE 14 & 15, 2023

Dan MacDonald attended STRS’s ad hoc governance committee meeting on Wednesday, June 14th.  Four companies were interviewed to assist the Board in reviewing, altering, rewriting, or writing STRS’s governance policies along with having the Board look at its split through governance. [Interesting, the next day Fichtenbaum moved to have approved Robert’s Rules of Order. His motion was tabled. On this day’s presentations, what impressed me most were lawyers’ fees, the most impressive, an hourly rate of $1,725, discounted for STRS to $1,380 an hour.  All 4 firms were not located in Ohio so think of travel fees.]  No decisions were made.  Two more companies still need to be interviewed.

Rob Walters and I attended the Board meeting on June 15th.  [Thanks to all who tuned in. There was quite the large, raucous crowd present.]  The meeting started at 8:30 am and adjourned about 5:45 pm. After May minutes were approved, Chair Correthers called for the Investment Department Report. Sellers interjected a motion to go into executive session because of the legality of the meeting and the lawsuit filed by Wade Steen. The vote was 6 to 4 with Herrington missing the vote [Actions speak louder than words].

The Investment Department continued.  The Semi-annual Broker Evaluation and Associated Policies and the Amended Stock Proxy Voting Policy were moved and approved. The FY 2024 Investment Plan and an Economics report was made featuring data slides on interest rates, inflation, capital expenditures, the housing market, the labor market, the job market, consumer spending, and recession risks.  Questions throughout. Then each department reviewed FY 2023: Fixed Income, Domestic Equities, International Equities, Real Estate, Alternative Investments, and Risk Management. As FY 2023 ends June 30th, the investment staff is forecasting below trend economic growth and projecting a positive fund return at-to-below the board’s policy return of 6.03%.

Outside consultants Callan and Cliffwater both approved the FY 2024 Investment Plan. The Investment Plan was moved and passed with 7 Yeas and 4 Abstains: Fichtenbaum, Foreman, Jones, Sellers. [Actions speak louder than words.] Consultant Callan then compared STRS with other pension plans and showed data that STRS was bettering most and the fund had a gross return over 30 years of 8.86 percent. Fichtenbaum and Sellers both pushed Callan on their data and STRS successes. 

Finally, Callan stated that STRS will not be able to invest out of STRS’s continued $4 billion hole; other funding is needed. Throughout the meeting, Dr. Hunt suggested establishing a legislative committee to address funding. Correthers stated a need for all stakeholders to work together. Bottom line, no Board member made a motion for another committee. [Actions speak louder than words.]

As to the General Fund, May’s preliminary return was a negative 0.59%.  FY 2023 return is estimated at a positive 4.67% gross; positive 4.56% net.  Total investment assets ended May at $87.8 billion, higher by $200 million in fiscal 2023. [Remember, last month the Board voted a one percent COLA starting July 1, 2023 and kept actives at full-retirement with 34 years of service until 2028. There changes added $825 million to future costs. I hope you are catching that since Jul 1, 2022, the fund is up $200 million but the Board added costs of $325 million. With this type of accounting, what is the plan to restore active benefits and restore a 3% COLA? There is NO WORKING PLAN. Actions speak louder than words.]

Public Participation followed. 13 people spoke. 12 retirees and 1 active. 2 spoke in favor of the Board’s actions, 11 expressed multiple concerns regarding the Board’s action.

The Board then went into Executive Session for over three hours, returning at 4:03 pm.  Outside consultant AON reviewed the Performance-Based Incentive (PBI) Policy. Consultant AON suggested several language changes to the policy. During discussions Board members admitted to confusion and lack of clarity. Both Bishop and Falls addressed inclusiveness. All stakeholders, including STRS should be treated with fairness, but pain needs to be acknowledged throughout the organization in its working policies and decisions. The PBI policy for FY 2024 was not brought up for vote. Further discussion should take place in August.

The Finance Department started its report at 4:47 pm. The proposed FY2024 Budgets, Operating and Capital, were presented. Lots of discussion and before voting Falls, Fichtenbaum and Bishop gave brief speeches.  No Board member made a motion to amend any part of either budget.  A two percent merit-based raise was approved for staff.  [Remember that investment incentives are based on salary; remember fairness and pain, where is it? Actions speak louder than words.].  The Budget was approved 6 to 5 with Bishop joining Fichtenbaum, Foreman, Jones, and Sellers as a “Nay”.

Executive Director Neville reported on 6 areas and had STRS Lobbyist Bump report on Ohio Assembly bills dealing with STRS concerns.

After Routine matters, an election was held for a new vice-chair for September, 2023.  Price is currently vice-chair, but in September, he becomes chair. Next year’s vice-chair becomes chair in September, 2024. Fichtenbaum and Correthers were nominated.  Correthers was voted to be vice-chair.  [Bishop and Falls talked more than once about needed changes; another spot that change could have been activated was in this vote. Actions do speak louder than words.]  Vote 7 for Correthers; Fichtenbaum 4.

The meeting ended with Fichtenbaum moving that Board meetings follow Robert’s Rules of Order. By a 7 to 4 vote the motion was tabled. [Actions speak louder than words.] 

No meeting in July. The next Board meeting should be August 17, 2023.