Saturday, December 18, 2021

Farmer and wife

Friday, December 17, 2021

A big thank you from Rudy and some suggestions on how STRS members can help

From Rudy Fichtenbaum

December 17, 2021
As a Board Member, I would like to thank all of the members who took the time to sit though a long meeting [STRS Board meeting 12/16/21] in order to have the opportunity to speak for just 3 minutes. I listened carefully to all of the speakers, most of whom were there not just on their own behalf, but to advocate for all members. Many of the points made in the 3 minute speeches, clearly show that our pension is broken.
Many Board members seem to dismiss these speeches but I do not. In fact, I wish there were more members who came to speak and that the room was packed for every meeting. It takes a lot of courage and persistence for those who come and speak month after month, especially when it is clear that the senior staff are not listening and most Board members simply dismiss speakers as malcontents. We all owe a debt of gratitude to those who come to the meetings and speak for all of us.
When I was elected, a senior staff member told me that they survey members regularly and that most members were very satisfied. My response was you can send out all the surveys you want to a few hundred members and ask questions designed to elicit certain answers that will reinforce your own preconceived ideas. These surveys, in many ways, are like polls and we all know about the inaccuracy of polling. The real survey was the election, where I was the top vote getter because I advocated to restore the COLA and restore benefit cuts that impact active members.
If you are not happy with what is happening with our pension, you should come to the meetings, and speak, if you can. But I recognize that not everyone can attend the meetings. You should also consider writing letters to the editor and calling your state representatives and senators. But the most important thing that all of you can do is to vote in the upcoming Board election. Everyone can vote. If you want change you need to talk to all of the retired and active teachers you know and get them to talk to the teachers and retirees they know and make sure that members, both active and retired, vote for change. Someone once told me that everyone wants change but no one wants to change what they are doing. We all need to change what we are doing if we want a pension that puts members first. This is our pension and ultimately we are the only people who can fix it.

Robin Rayfield rightfully chastises educator members of the STRS Board and the STRS staff for their rude behavior at the November Board meeting

Robin Rayfield's comments to the STRS Board, December 16, 2021

Greetings STRS Board Members,

My name is Robin Rayfield. I serve as the executive director of the Ohio Retired Teachers Association representing thousands of STRS beneficiaries. I am a STRS retiree having retired in 2011 with over 30 years of service.

I think it is important to speak of my disappointment of the way this board conducted its business at the November meeting. The manner in which Mr. Steen, Dr. Fichtenbaum, and Mr. Stein were treated was reprehensible. The educators on this board know better, the non-educator political appointees are to be excused because they do not know any better. Rudeness is common in our political society.

Because I was not able to hear the presentation without the rude interruptions of the STRS staff, I was not able to get a good handle on what was being proposed last month. What I did take away was:

·     There is another idea that could make more money for the pension system. However, that idea would reduce the dependence STRS has on its investment staff and consultants. Clearly, the investment staff is unable to offer a non-biased opinion as the new idea proposed last month would greatly reduce the pension system’s dependence on the staff and their highly paid consultants.

·      It was also clear that the STRS staff had modeled this rude behavior to willing trustees that did their best to keep a closed mind to anything that, in any way, threatens the status quo.   

I did hear the presentation (without rude interruptions) at the HPA meeting last week. My takeaway from that presentation:

·     Market conditions require higher and higher risk to achieve the required results

·     STRS faces a major problem with the next market downturn. This likely will result in additional cuts to our benefits.

·     STRS has an opportunity to reduce risk and increase income. This warehouse concept can be demonstrated with an investment of less that half of what our investment team lost in 1 of their 135 high risk alternative investments.

What is frightening to me is that despite investigations by the Ohio Securities Commission and the Auditor of State’s office the lack of transparency continues.

Robin Rayfield minces no words regarding the November STRS Board meeting*

*Note: Robin may be running a little behind right now due to his busy schedule addressing ORTA chapters around the state and the loss of ORTA's valuable Publications and Communications Coordinator, Alissa Burton, to her new job in California.

From the December 17, 2021 issue of the ORTA Newsletter:

STRS did meet in November on the 18th. The meeting was not a typical STRS meeting, but instead was more of an investment seminar. Each of the consultants STRS hires to provide advice presented what to expect over the next year. The sessions contained significant information and a review of the many audits that are taking place at STRS was provided. Most of the audits that are ongoing or scheduled should be completed by March of next year. Audits scheduled include actuarial audit, fiduciary performance audit, and an asset liability study. What I am learning about these audits is that the organization being audited receives a positive report, provided they pay the appropriate fee.
Board members Rudy Fichtenbaum, Wade Steen and former board member Bob Stein attempted to make a presentation about ways to increase the amount of money STRS makes each year. Everyone agrees that the current status quo requires STRS to take on higher and higher risk to earn the level of returns necessary to balance the books. Rudy and his group wanted to demonstrate an alternative to the constant need to increase risk and pay high fees to a system that allows STRS to reduce risk and earn fees on our balance sheet. I was really looking forward to the presentation. Unfortunately, Ms. Correthers, who was acting as chair for the meeting, allowed the STRS investment chief Mr. Worley and the highly paid consultants from Callan and Cliffwater to hijack the meeting and treat the presenters with rudeness and contempt. I guess I understand why Mr. Worley and his paid consultants were so rude and disrespectful, after all the discussion was about how this change would eliminate the need for Mr. Worley and his staff of 110 investors. He is very protective of his $8 million bonuses that he pays to himself and his employees. What I was surprised about was that Ms. Correthers allowed the reprehensible behavior and that other board members did not step in and say, ‘Let’s hear from the presenters not the staff.’ It was clear that board members had been coached on how to react to the presentation. It was never to be allowed.

The bottom line is this: Rudy Fichtenbaum, Wade Steen, and Bob Stein all agreed that the proposal needs to be vetted and investigated. Although many were calling this an investment strategy, it is not an investment strategy. It is leveraging our balance sheet, charging fees, and reducing risk. This approach is estimated to provide $4 BILLION each year. Dr. Fichtenbaum suggested that STRS use $250 million to demonstrate that the leverage approach works. Remember, that is less than ½ of what Mr. Worley’s investment staff lost in one deal (Panda Power). It seems like this is something that should be investigated. And not investigated by the investors that have a personal stake in the matter as they have an obvious conflict of interest.

After the board refused to seriously consider the proposal the matter was dropped. And with that, our pension system walked away from an opportunity to increase revenue by $4 BILLION.

Later in the meeting Dr. Fichtenbaum made a motion to pay a 2% COLA to all retirees for 2 years. The motion also included language to reduce the contribution rate of active contributors by 2% for 2 years. Mr. Steen seconded the motion. Before a vote could be taken Mr. McFee (active contributor) moved to table the motion. Rita Walters seconded the motion. The vote on the motion to table indefinitely was 8 – 3. Rudy, Wade, and Yoel Mayerfeld voted against the motion to table, Lard, Rhodes, Walters, McFee, Correthers, Price, Herrington, and Hunt all voted to table the measure killing any chance at COLA or a reduction in the contribution rate. With thousands of STRS retirees that have died since STRS reduced our promised pension, and more dying each year it is sad that the people on our board are only interested in the interests of STRS staff and do not care about any of the membership.

Investigations at STRS

Perhaps a bit of positive news concerning our pension. The Auditor of State, Keith Faber, has recently announced a special audit of STRS. You can read about the special audit here:

The Ohio Securities Commission has also announced an investigation into STRS. This organization is responsible for licensing security traders and trades like what the SEC in New York does.

Recent Media Stories

I am often asked why there is not more reporting on the problems at STRS. I can only speculate, but my suspicion is that the media outlets that are owned by Gannett Publishing (20 of the largest twenty-eight papers in Ohio and several local radio and TV stations) will not publish ‘bad press’ for STRS. If you follow the money, STRS has significant investment in the hedge fund that own Gannett. We have received tremendous coverage from media that is not owned by Gannett such as:

Toledo Blade, Forbes, Bloomberg, Newsweek, Fremont News Messenger, NBC News, PBS, Ohio Statehouse News

Here are three examples of the national coverage we are getting:

Know this… ORTA will continue to voice our concerns and advocate for all STRS members!

Bob Buerkle to STRS Board 12/16/2021: Look out for our members, not STRS Management and their lackeys.

The current STRS Board needs to reverse the 2015 policy of “Closed Funding.”       

First of all, only 2 elected and 1 appointed Board members from that time are still on the Board.  Eight of you were not.  You need to forge your own policies, which reflects the actual known investment returns of the last 10-years, for the benefit of all current and future retirees.  Perform your sworn “Fiduciary Duty” to them, not Callan, not Cliffwater and not STRS
Management.  You have no “Fiduciary Duty” to them.  None of them will ever draw a pension from STRS.  They are not our members.  Look out for our members, not STRS Management and their lackeys.

Look at what has happened over the last 10 years.  Management had the Board vote to lower the “Discount Rate” three times, dropping it from 8% all the way down to 7%.  Was that necessary, since STRS reports show that we averaged over 10.25% for the decade?  That decision added over $20 billion of projected debt to our unfunded liability.  It also prevented STRS from becoming 100% funded.  Without that unnecessary phantom debt of $20 billion, STRS assets would almost exactly equal its liabilities today.

The numbers game perpetuated by STRS Management and their hired mercenaries financially benefited them, not our Members.  They received annual raises to their base salaries every year.  The investment staff also received bonuses every year, whether they were deserved or not!  Did anybody responsible for losing a half-billion dollars on Panda lose their bonuses, or their jobs?

There is a precedent for maintaining an 8% discount rate by an Ohio Pension Plan; it’s called “Ohio Police and Fire.”  In the 2021 fiscal year they continued to use 8% for their discount rate.  Did it harm them?  No.  They earned less than STRS for the decade but they still beat their 8% assumption rate so they are OK and their members continued to receive their COLA every year.

Over the last 10 years Dean Dennis and I and others have been sharing the genius of Warren Buffett with you.  He has claimed that pension systems would do better if they just used Index Funds instead of stock picking, using hedge funds and the like. Below here I have attached what happened with his Million Dollar Bet with a hedge fund manager versus the S&P 500.


Buffett's Bet with the Hedge Funds: And the Winner Is …


Updated June 25, 2019

In 2008, Warren Buffett issued a challenge to the hedge fund industry, which in his view charged exorbitant fees that the funds' performances couldn't justify. Protégé Partners LLC accepted, and the two parties placed a million-dollar bet.

Buffett has won the bet, Ted Seides wrote in a Bloomberg op-ed in May. The Protégé co-founder, who left in the fund in 2015, conceded defeat ahead of the contest's scheduled wrap-up on December 31, 2017, writing, "for all intents and purposes, the game is over. I lost."

Buffett's ultimately successful contention was that, including fees, costs and expenses, an S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over 10 years. The bet pit two basic investing philosophies against each other: passive and active investing.

A Wild Ride

Buffett may be the quintessential active investor himself, but clearly doesn't think anyone else should try. He said as much in his most recent letter to Berkshire Hathaway Inc. (BRK.ABRK.B) shareholders, dated February 225, 2017. Buffett boasted that there was "no doubt" who would come out on top when the contest ends. (See also, The 'Next Warren Buffett' Curse Is Real.)

His victory didn't always seem so certain. Not long after the wager started on January 1, 2008, the market tanked, and the hedge funds were able to show off their strong suit: hedging. Buffett's index fund lost 37.0% of its value, compared to the hedge funds' 23.9%. Buffett then beat Protégé in every year from 2009 through 2014, but it took four years to pull ahead of the hedge funds in terms of cumulative return. (See also, Hedge Fund Fees: Exotic Expenses.)

In 2015, Buffett lagged his hedge fund rival for the first time since 2008, gaining 1.4% versus Protégé's 1.7%. But 2016 saw Buffett gain 11.9% to Protégé's 0.9%. Another downturn could conceivably have handed the advantage back to Protégé, but that didn't happen. At the end of 2016, Buffett's index fund bet had gained 7.1% per year, or $854,000 in total, compared to 2.2% per year for Protégé's picks – just $220,000 in total.

In his shareholder letter, Buffett said he believed the hedge fund managers involved in the bet were "honest and intelligent people," but added, "the results for their investors were dismal – really dismal." And he noted that the two-and-twenty fee structure generally adopted by hedge funds (2% management fee plus 20% of profits) means that managers were "showered with compensation" despite, often enough, providing only "esoteric gibberish" in return.

In the end, Seides admitted the strength of Buffett's argument: "He is correct that hedge-fund fees are high, and his reasoning is convincing. Fees matter in investing, no doubt about it." The index fund Buffett chose (see below for details) charges an expense ratio of just 0.04%, according to Morningstar.

In his letter, Buffett estimated that the financial "elites" had wasted $100 billion or more over the past decade by refusing to settle for low-cost index funds, but pointed out that the harm was not limited to 1%-ers: state pension plans have invested with hedge funds, and "the resulting shortfalls in their assets will for decades have to be made up by local taxpayers."  (AND RETIREES! [added]) 

Thursday, December 16, 2021

Whistleblower Chris Tobe Discusses Pension Fund and Private Equity Games with Fiduciary Irregularities

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