19,000 public school teachers who are members of the Ohio Retired Teachers Association (ORTA) would like to know how their retirement savings are invested by Wall Street money managers selected by the staff of the near-$100 billion State Teachers Retirement System of Ohio. Since February 2021, the state pension has failed to respond to public records requests on behalf of retirees for the prospectuses and other investment documents related to the pension’s investments—despite state public records laws that mandate transparency. Federal and state securities laws also stipulate that all investors are entitled to material information before they invest. Government workers participating in public pensions who are denied prospectuses and investment information routinely provided to investors are being disadvantaged as wealthy investors and industry insiders secretly profit at their expense.
According to the State of Ohio Division of Securities, “The cornerstone of investor protection is to ensure that investors have access to accurate and up-to-date information about any company or mutual fund in which they might choose to invest. Public access to information to make sound investment decisions is why companies and mutual funds are required to prepare prospectuses, financial statements and other public disclosure materials. A prospectus is invaluable as the starting point to making an informed investment decision. It gives investors and their financial advisers information about a company or mutual fund, including information on their products, management, financial and strategic planning, and risks. Reading a prospectus is the first step to becoming an informed investor.”
Few investors and no regulator in the world would dispute that reading a prospectus before you invest your hard-earned retirement savings is a good idea.
However, in Ohio and across the nation, prospectuses and other documents regarding public pension investments are being kept secret from government workers who had no say in selecting the investments for their pensions. Most closely guarded are the documents related to the highest-cost, highest-risk so-called “alternative” investments—information which is routinely provided to wealthy investors and industry insiders who, unlike government workers, can afford to lose a substantial portion of their savings in these funds.
It hardly seems unreasonable for public school teachers in Ohio, as investors, to request full disclosure regarding the fees, risks and strategies related to all investments set aside to secure their retirement.
After all, it’s their money.
STRS Ohio is funded through investment returns and contributions made by teachers and their employers. Members currently contribute 14% of gross earnings—which is among the highest paid by teachers. Employers contribute an additional 14% of members’ annual salary.
Yet since February, the Ohio teachers’ pension has failed to provide the retirees with a single prospectus, offering memoranda, or financial statement related to their investments—despite the fact that the federal and state securities laws require registered investment advisers provide all investors with this information.
If I, as a wealthy individual, choose to gamble in any of the high-risk, high-cost alternative investments (such as hedge, private equity and real estate funds) in which STRS Ohio has gambled, the investment managers would happily hand over the offering documents for my review.
Yet public school teachers, cops and firefighters are not entitled to the same critical information regarding the highest cost, riskiest investments in their pension plan?
For nearly two decades, alternative investment managers have been permitted to handle public pension money while they refuse to play by the rules applicable to these funds and submit to public scrutiny.
Wall Street alternative managers have successfully argued that the very same investment information widely distributed to wealthy individuals somehow amounts to “trade secrets” exempt from public records laws… when requested by state workers.
While it’s not surprising Wall Street’s biggest gamblers want to keep investors in the dark as to their misdeeds, it’s unconscionable that STRS Ohio and other public pensions around the nation are willing to abandon transparency, exposing workers to unfathomable risks and jeopardizing their retirement security.
Alternative investment managers may seek to keep secrets, but it’s no secret what’s often in these well-guarded documents: excessive and illegal fees; outrageous conflicts of interest and self dealing; fiduciary breaches and outright violations of law—even criminal conduct. For example, eight years ago the SEC staff found that a majority of private equity firms inflate fees and expenses charged to companies in which they hold stakes.
State and federal securities regulators and law enforcement should put an end to the secrecy surrounding investments in public pensions which is costing government workers and pension stakeholders, including taxpayers, dearly. There is no reason public pension stakeholders should be kept in the dark while wealthy investors and industry insiders profit at their expense.