Dean Dennis to STRS Board 8/17/23: "...in my opinion, when you are unable to audit 21% of the investments in our portfolio, they become illegal investments. I believe holding them in our portfolio is actionable."

Dean Dennis' Speech to STRS Board

August 18, 2023

STRS-August 17, 2023  Dean Dennis, Retired 35 Years Cincinnati Public Schools, ORTA President, Founder of STRS Ohio Watchdogs, Member of STRS MOF, Hamilton Co. Retirees Chapter and the CFT Retiree Chapter. 

What are risky investments? Perhaps investments with hidden fees and non-disclosure-agreements [NDAs] that not even our Board members are allowed to see. Such as the Private Equity [PE] investments found in our Alternative Investments portfolio. 

These risky investments were addressed in the 12/29/2022 State Auditor's Report.  Concerns were raised regarding fee disclosure. Page 24 of the report reads, "Given the longstanding issues about PE fee completeness, the Ohio legislature should consider legislation restricting the kinds of PE funds the state pension funds can invest in, such as requiring state pension funds to obtain certain fee disclosures that can be made public as a precondition to using an external asset management firm." 

Since 2010, our Alternative Investment portfolio has tripled from 7% of our portfolio to 21%.  It's problematic because we can't audit the fair value of this portfolio which accounts for approximately $19 billion dollars. Instead, we rely upon 130 General Partners to tell us the fair value of 130 investments. If you read an STRS Comprehensive Annual Financial Report, you might come across this disclosure, "Due to the nature of Alternative Investments, substantially all investments in this asset class are valued using market-based inputs that are comparable, but subjective in nature due to the lack of widely observable inputs."  Again, these investments are, "subjective in nature due to the lack of widely observable inputs." 

More questions about PE investments. In 2020, members raised $75,000 to conduct a Forensic Audit. The audit never was completed due to requested paperwork over transparency being withheld by STRS management. Benchmark Financial Services and STRS are now in a court battle over these transparency issues. Why are some Board members supporting legal efforts which hide fees and NDAs in our investments and obscure the fair value of these investments? 

There's a Code in Ohio. It's Section 3307.15 of the ORC. It is titled Investment and fiduciary duties of board. Section (e) of the code states, "Any statement of financial position distributed  by the board shall include the fair value, as the statement date, of all investments held by the board under this section."

In conclusion, Members of the Board, in my opinion, when you are unable to audit 21% of the investments in our portfolio, they become illegal investments. I believe holding them in our portfolio is actionable. An independent legal opinion needs to be sought as to if public monies can be used in investments which cannot be independently audited, have hidden fees and NDAs. This needs to become a top priority. Thank you.