Republicans picked up state financial officer positions during the midterm elections amid a campaign against environmental, social and governance investing.
Five positions — in Kansas, Iowa, Missouri, Nevada and Wisconsin — flipped from Democratic to Republican in races for state auditor, controller or treasurer. Of the 50 directly elected positions, Republicans won 29 and Democrats won 19, according to an analysis from Ballotpedia. Two races remain uncalled.
A handful of Republicans’ campaigns for state financial officers focused on ESG, echoing sentiments from GOP officials at statehouses across the country and in Congress who say ESG investing is harming capital markets and domestic energy production and reject the case made by Democrats, major investors and other proponents.
At stake is a suite of legislation and rules that would curb ESG as a material consideration, along with other financial factors, for investors. The proposals include policies for states’ pension funds to divest hundreds of millions of dollars from financial institutions that incorporate ESG — and especially climate — in their investment decisions.
Viewers of Berkshire Hathaway’s 2022 Annual Meeting recently learned that some public pension funds feel strongly about how the corporations they own stock in should be governed. At the Berkshire meeting, a group of three pension systems offered a series of shareholder resolutions, all of which were rejected. While there may be instances where it is reasonable for public pension funds to try to influence corporate decision-making, the pension funds should determine whether proxy fights can appreciably enhance the value of their assets before picking a fight.
Pension funds and other institutional investors sometimes withhold their support for corporate-endorsed board candidates and submit resolutions. But changing the outcome of corporate elections is typically an uphill battle. According to ProxyPulse, only 2.2% of corporate board candidates failed to obtain majorities during the 2021 proxy season. Sullivan & Cromwell found that only 9% of shareholder proposals submitted were ultimately ratified.
In comparison, the prospects for shareholder resolutions being adopted appear to be improving. ProxyPulse found that the mean share of votes for shareholder proposals increased from 34% in 2017 to 40% in 2021. The threat of a shareholder proposal passing may also be encouraging boards to go ahead and adopt some recommended policies.
Between January 1, 2020, and April 30, 2022, pension funds filed 81 forms with the Securities and Exchange Commission in which they disclosed shareholder solicitations, accounting for over 10% of all such disclosures filed during this period. Shareholders who send letters to other shareholders asking them to vote against recommendations of management in their proxy statements disclose the fact that they have done so on SEC Form PX14A6G.
Members of the board of Pennsylvania’s $73 billion school pension fund won’t be required to sign nondisclosure agreements before hearing on Monday the long-awaited findings of an internal investigation into the mammoth plan.
The Public School Employees’ Retirement System is still asking the board to sign the secrecy pacts but is not insisting upon it, the plan’s spokesperson says. Her statement clarified a previous controversial email from the board’s chairman, who asked members to sign NDAs without saying they had the option to refuse.
A law firm is to unveil the results of its investigation at a closed-door session for the PSERS board Monday morning. But the board has yet to decide whether, how soon and how completely those findings will be made public after the meeting.
Author(s): ANGELA COULOUMBIS, JOSEPH N. DISTEFANO AND CRAIG R. MCCOY
State lawmakers met with officials of Pennsylvania’s public pension funds Thursday to vet reform measures that have been introduced to increase transparency and oversight of the pension system.
The measures are working their way through the legislative process and could be considered for passage this year. Thursday’s hearing offered participants a chance to voice concerns or probe for costs and conflicts that could derail the measures.
Among the proposals reviewed by pension officials and legislators was a bill that would force the funds to more closely track more than $1 billion of annual investment manager fees, and profit-sharing and other money-management costs. The measure would also require video copies of hours-long board meetings to be made publicly available — online for three years, and then by request.
A $66 billion Pennsylvania state pension fund under scrutiny for errors in calculating investment returns has been asked by securities regulators to turn over records related to possible gifts exchanges with dozens of Wall Street firms, according to a subpoena reviewed by Bloomberg.
SEC Enforcement Division Senior Counsel Heidi Mitza asked that the pension fund supply “all Documents and Communications Concerning any compensation, remuneration, money, gifts, gratuities, trips or anything of any value” exchanged between representatives of investment managers, advisers, and consultants and any representatives of PSERS or the state, according to the subpoena.
New York City police unions that hold partial control over how their members’ pension money is invested are planning to pull out of a consortium of other city pension funds that Comptroller Scott Stringer has credited with considerably augmenting their return on investment.
In 2015, Stringer launched what’s come to be known as the Common Investment Meeting, where the trustees of the city’s five largest union pension funds meet to hash out how their money is managed.
According to Stringer, the CIM has boosted the pension funds’ growth overall, with their rate of return hitting 11.58% over the five years since the CIM was created, compared to a 7.02% rate of return for the five years prior to its creation.
The police pension funds’ trustees are made up of several police unions. The most powerful among them is the Police Benevolent Association.
The PBA’s head, Patrick Lynch, pointed out that the CIM began as a pilot program and disputed the idea that, over the past five years, it’s made life easier for the funds’ trustees.
According to a lawsuit filed this week by Tobe, the pension denied most of his requests for records under the Illinois Freedom of Information Act. It’s no secret that state and local government pensions—which are supposed to be the most transparent of all pensions—are regularly criticized for opposing public record requests, particularly related to alternative investment documents.
The report accuses the pension of failing to monitor and fully disclose investment fees and expenses. It is estimated that fees and expenses could be 10 times greater than the $7.4 million disclosed in the pension’s most recent financial audit. Tobe believes the fees related to dozens of investment managers are not properly disclosed. Using assumptions from an Oxford study, Tobe estimated that undisclosed fees could be as high as $70 million a year. Also, $2 million to $3 million a year in investment fees may have been paid to Wall Street for doing nothing, i.e., fees on committed, uninvested capital.
There was a personnel earthquake in the summer of 2020 at the Teachers’ Retirement System in Springfield.
Ultimately, five high-ranking employees were removed from their positions, including executive director Richard Ingram. The tumult generated clouds of uncertainly that only recently started to clear, revealing improper and possibly criminal behavior.
Although mum at first, TRS officials recently released their first lengthy statement about what occurred, disclosing that a new employee purposely maintained a conflict of interest that he falsely claimed to have ended.
The OEIG report states the scandal dates back to 2018, when the TRS “began the process of constructing a new pension system that it called the Gemini Project.” Urbanek said the Gemini system recently went online.
That required hiring outside information technology professionals. Singh and his company — Singh 3 Consulting — were initially hired as a contractor. But in 2019, the TRS hired Singh as a permanent employee, the hiring predicated on Singh terminating his relationship with his company.
He told the TRS he had done so. But no one apparently ever checked, because subsequent investigations revealed Singh remained president and chief executive officer.
One year after the head of Illinois’ largest public employee pension fund resigned due to what the fund has only described at “performance issues,” a recently published report by the state’s chief ethics officer reveals the circumstances behind the departures of two more former high-ranking officials at the pension fund in 2020.
The former chief information officer at the Illinois’ Teachers’ Retirement System repeatedly directed contracts toward the company he founded and also lied about having severed ties with the company, according to a report published last month by Illinois Executive Inspector General Susan Haling. TRS manages the pensions of more than 427,000 current and retired teachers as well as pension beneficiaries.
The report centers on former CIO Jay Singh’s conflicts of interest, but also brings to light the firing of TRS’ former chief financial officer, Jana Bergschneider, who was fired last July as the investigation unfolded. Singh resigned in April of last year, two months after he was interviewed as part of an internal investigation into his conflicts of interest.
Bergschneider was terminated from TRS on July 2, 2020 based upon her “work performance and conduct related to the procurement process on the Gemini Project,” the OEIG report said, apparently quoting from a reason given to investigators by the pension fund.
Ingram was placed on administrative leave at the end of that month — a result of the TRS board’s unanimous vote after an investigation into performance issued conducted by Chicago Law firms King and Spalding. He resigned a few days later and TRS remains tight-lipped about the exact reason for Ingram’s departure, calling it a personnel matter.
But Urbanek reiterated to NPR Illinois the same reasoning given every inquiring media outlet in the last year: that Ingram “had difficulties meeting performance metrics in his contract.”
It is reasonably well-known that the pension plan has been underfunded for years, and that the state, in setting a new funding plan, allowed a “funding ramp” in 2011 and then re-set that ramp in 2016, so that funding according to the “90% funded by 2055” target only began in 2020. However, Tobe alleges that “Chicago has consistently underfunded the plan more than the statutory amount, blatantly breaking the law, with no consequences.”
Regarding fees and management, Tobe alleges that the pension fund has “failed to monitor and fully disclose investment fees and expenses” and that “fees and expenses could be 10 times that which they disclose” because the fund’s disclosure “omits dozens of managers and their fees.” He also reports that the Fund claimed that “hundreds of contracts for the investment managers” are exempt from FOIA, and denied him access to the fund’s own analysis of fees. He concludes that “PABF may have over 100 ‘ghost managers’ in funds of funds,” that is, the fund is required to disclose its managers but it fails to do so, even though Tobe has identified them through other sources.
With respect to governance, the fund violates a fundamental aspect of prudent governance because its Chief Investment Officer is not a professional with qualification in the field, but simply a trustee and active-duty policeman, and, what’s more, one who has “22 allegations of misconduct as a police officer including one for bribery/official corruption.” Further, no staff members hold the credential of a CFA charter, another marker of professionalism. Another related governance issue is the use of offshore investments, e.g., in the Cayman Islands, which lack key governance and transparency protections of US-based funds.
But we also have Meng’s unreported stock trades. And Meng’s arrival happened to coincide with a big spike in personal trading violations, which CalPERS attempted to minimize by saying they came mainly from one person.
What if it turns out that the Olson report showed that Meng was a very active trader the entire time he was there? There is no way CalPERS could suppress this information, since it was required to have been reported on the Forms 700.
This would be hugely embarrassing to CalPERS, in that it would show it had hired a CIO who didn’t have his full attention on his very big ticket say job. And it would be vastly worse if Meng as head of the investment operation had been routinely violating SEC requirements for trade pre-approvals to prevent insider trading.
This possibility seems even more likely when you look at the board transcript below. Marlene Timberlake D’Adamo droned on and on and on trying to justify CalPERS not having reviewed Meng’s Form 700 to see if it looked internally consistent and/or matched up with his trading records. At first I thought this was to exhaust the board and dissipate their energy so they’d not be as persistent about their issues when they finally got the mike. But it may also be that the compliance department was clearly remiss in not reviewing Meng’s Form 700 by virtue of him being an active trader. And if he indeed was the person who’d made the big personal trading violations, that would almost mandate reviewing his Form 700.
In fact, all of the damaging information that got Meng so upset that he quit was public, and it all came directly from or was generated by Meng.
Yet the CalPERS board acts as if it’s the victim of internal saboteurs. As the transcript shows, CEO Marcie Frost and her key allies on the board, Board President Henry Jones and board member Rob Feckner repeatedly and falsely present Meng as a victim of secrets having been tossed over the transom to the press. Not only was everything that embarrassed Meng out in the open for competent reporters to write up, but in at least one and arguably two cases, Meng’s defensiveness made his situation much worse.
As we’ll show, Frost used the bogus idea that CalPERS is full of traitors as an excuse for continuing to keep the board in the dark about crucial matters like Meng being investigated for his financial conflict of interest. Frost and Feckner also claim that Meng believed that his bad press was due to saboteurs. That suggests that Frost and other senior staffers stoked Meng’s paranoia and helped precipitate his departure.