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Former TMRS chief lands at new Auto Workers’ fund
Eric Henry, the former head of the Texas Municipal Retirement System, will drive the investment team of the newly created trust for retired auto workers’ health benefits, Pensions & Investments reports.
The $37 billion trust stems from labor agreements with the Big Three auto makers struck before General Motors and Chrysler filed for bankruptcy last spring. The United Auto Workers controls the trust, which is called the UAW voluntary employee beneficiary association.
Henry will serve as the chief investment officer.
In August, Henry resigned from TMRS after a two-year stint as the executive director and chief investment officer of the fund that serves some 800 small and midsized Texas cities. Henry oversaw a significant transition from an all-bond portfolio to gradually embrace stocks.
The search for Henry’s replacement — or replacements, given his two titles — is underway with a decision expected perhaps early next year.
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Three new trustees appointed to TRS board
Gov. Rick Perry on Friday named three new trustees to the Teacher Retirement System of Texas board.
Perry also made official that R. David Kelly, a trustee since 2007, will take over as chairman. Last weekend, the American-Statesman reported that Kelly would replace Linus Wright as chairman less than a year after Wright, a retired superintendent, took the helm. Wright said he was given no reason for the abrupt change.
Though no longer chairman, Wright will remain a trustee on the nine-member board until his term ends in 2011.
The new trustees, who will each serve a six-year term, are:
—Todd Barth of Houston, a real estate investor and a former appointee to the state board that manages the real estate portion of the Permanent School Fund;
—Seth Crone of Beaumont, the vice president of business development for The Bank of New York Mellon Trust Company N.A.; and
—Nanette Sissney of Whitesboro, a school counselor for the Whitesboro Independent School District and member of the Texas Classroom Teachers Association executive board.
Kelly and Barth are both members of the finance team for Perry’s re-election effort.
The new trustees replace financial professionals Dory Wiley of Dallas and John Graham Jr. of Fredericksburg as well as Mark Henry, the superintendent of the Galena Park school district. The terms of all three outgoing trustees expired in August.
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MacBride named to fill ERS board vacancy
Cheryl MacBride, a deputy commissioner at the General Land Office, has been tapped to complete an unexpired term on the six-member board of the Employee Retirement System of Texas.
A 25-year veteran of state service, MacBride will occupy one of three seats for members of the system until 2013. She replaces Don Green, who retired in May.
MacBride now oversees administration services for the GLO but will soon head over to the Department of Public Safety where she will be the chief financial officer.
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Former Statesman reporter vying for ERS board
Many loyal followers of Public Capital during its golden years are probably suffering from some Bob Elder withdrawal.
Now, they can get their fill here of the former Austin American-Statesman reporter and this blog’s founder.
A state employee for almost a year, Elder has applied to fill a vacancy on the Employees Retirement System of Texas board and has launched the blog as part of his campaign.
The board will pick the replacement for Don Green, who retired earlier this year.
Mary Jane Wardlow, an ERS spokeswoman, said she did not know who else filed for the open spot. The plan is to have someone in place by November.
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Former TRS deputy blasted for hefty contract
The San Diego Union-Tribune took a dig at the Teacher Retirement System of Texas in an editorial last week blasting the hiring of Lee Partridge, the former deputy chief investment officer for TRS, to serve as the new outside investment chief for San Diego County’s employee retirement system.
The editorial refers to TRS’ performance over the past year as “less-than-mediocre” as it called into question whether Partridge’s contract, from which he could reap more than $1 million as an independent contract, was justified.
Partridge recently resigned from TRS to start a new firm, Integrity Capital LLC. The San Diego County system is the firm’s only client at this point.
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Deputy CIO leaving Teachers Fund
The number two investment official at the Teacher Retirement System of Texas is striking out on his own and has already landed a major client.
Lee Partridge, deputy chief investment officer, will leave TRS later this month to launch Integrity Capital LLC. His first investor is the San Diego County Employees Retirement Association, which has outsourced its primary investment responsibilities to Partridge.
San Diego County’s $6.5 billion pension system had a tough time landing someone to fill its in-house chief investment officer job due to salary constraints, according to news accounts. Its previous CIO resigned under fire in March after the fund took a major hit from its investment in hedge funds.
In a statement released by TRS, Partidge said the following about his new endeavor:
The long-term vision is to create a cooperative organization that shares investment personnel and resources amongst sophisticated institutional investors.
In the near term my focus will be positioning SDCERA’s portfolio to take full advantage of current market conditions and for the secular forces that will be impacting the market for the next five to ten years.
I will not be seeking any additional assignments until I am comfortable with SDCERA’s strategic portfolio positioning and SDCERA is happy with the results we achieve.
Integrity Capital’s contract with San Diego could pay as much as $1.2 million with performance incentives.
Britt Harris, the TRS chief investment officer, offered ample praise to Partridge, who has been with TRS for the past eight years.
“Lee is a wonderful friend and a very high character person, as well as a strong and wise investor,” Harris said. “San Diego is very fortunate to have him, and we at Texas Teachers will miss him.”
No word yet on the TRS plans to replace Partridge.
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TRS keeps incentive plan requiring positive return
The investment team at the Teacher Retirement System of Texas will not be getting any incentive payments until the fund produces a positive return, the Board of Trustees reiterated on Thursday.
In February, the board members modified the pension fund’s incentive policy — making the incentive payments contingent upon a positive annual return — amid a legislative firestorm over bonuses paid at the University of Texas Investment Management Company as the market plunged last fall.
The decision on Thursday keeps in place that policy.
More than 80 investment team employees were due a piece of the $2.5 million incentive pie based on the fund’s performance as of Aug. 31, 2008, even though the fund balance had fallen 27 percent.
The payments would have been delayed until 2010 anyway but, without the change, would have been paid out next year regardless of the fund’s condition.
Eventually, the employees will get last year’s share — assuming they stick around — as well anything earned based on the the 2009 performance.
Most likely, the earliest they could see that money, however, will be in 2011 given the unprecedented market declines over the past year.
The $82 billion fund as of the end of June was down about 22 percent compared to last year at the same time.
Investment results have been on the upswing of late with a 12.3 percent positive return in the second quarter of the year.
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Texas Teachers fund keeps hands off toxic assets for now
The Teacher Retirement System of Texas will not be gobbling up any toxic bank assets at this point but it might have the appetite for such investments later.
Spokesman Howard Goldman said TRS had looked at proposals by all the money managers that have been selected by the Treasury Department to help banks sell off their toxic assets and met with several of the managers.
“We do not plan to participate in this particular investment program at this time,” Goldman said. “However, we are continuing to monitor developments closely and will continue to look for opportunities to participate in what we perceive to be attractive investment opportunities in this area.”
Earlier this summer, TRS had been among the public pension funds and private equity firms invited to meet with the Federal Deposit Insurance Corp. about investing in failed banks.
And TRS recently committed $400 million to one of the firms that has been tapped by the Treasury Department as a money manager under the Public-Private Investment Program that is intended to help banks off-load some of their toxic assets.
At that time, TRS mentioned the possibility of the firm, Marathon Asset Management LP, using some TRS money to invest in the federal program.
But Goldman said there were several reasons for not investing in the federal program right now:
— TRS saw better opportunities for using their available capital;
— There was a concern about over-exposing the fund to risk since some of its existing investments are indirectly connected to the federal program; and
— The costs were relatively high compared to the expected returns.
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Texas Municipal Retirement System chief resigns
Eric Henry, executive director of the Texas Municipal Retirement System, has resigned after two years leading the pension fund for hundreds of small and midsize Texas cities, including Round Rock, Georgetown, Pflugerville and more than 800 other cities.
Henry is leaving to pursue other opportunities, said TMRS spokesman Bill Wallace, adding that he had no other specifics about Henry’s next endeavor. Henry will stick around until after the board meets Aug. 20 to decide its next step.
Despite his short tenure at the $14 billion fund, Henry accomplished what he was hired to do: steer the system through a difficult transition away from an ultra-conservative investment strategy.
The 60-year old fund had been solely invested in government and corporate bonds, a unique and unsustainable approach among large public pension funds.
In 2007, the TMRS board decided to change course and diversify its investments by adding stocks to the mix.
Henry was brought in to shepherd to that process, including getting legislation approved this past session that would allow TRMR to book unrealized income — such as the rising value of stock holdings — in the same way every other pension fund accounts for the investment gains.
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UPDATED: Lawsuit dismissed over TRS derivative investments
A Harris County judge has dismissed a lawsuit filed against the Teacher Retirement System of Texas over its investment in derivatives.
A group of TRS members, both retirees and working teachers, had filed the suit claiming the investment in derivatives was risky and led to significant losses.
TRS responded that members did not have standing to sue since their pension benefits are not affected by the losses.
The judge issued a one-sentence order on Friday dismissing the case.
UPDATE: Plaintiff’s lawyer Donald Wilhelm said he will appeal the decision.
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Perry asks feds to raise bond guarantee limit
Gov. Rick Perry is once again making a plea to the U.S. Treasury Department to raise a cap that limits how much debt the state’s Permanent School Fund can back for local school districts.
Twice, Perry’s call to the Bush administration fell on deaf ears. But the hope is the Obama administration might be more willing to listen.
School districts are able to use the value of the Permanent School Fund to back bonds used to pay for new facilities and that lowers to the cost of borrowing. The state estimates that the program saves districts $100 million.
State law sets the bonding capacity at five times the value of the fund, now about $19 billion. But the federal limit is half that much.
By lifting the cap, Perry writes, “you would be helping improve Texas school facilities and protect Texas taxpayers against unnecessary costs and potential tax increases.”
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ERS lends heft to argument for $500 payment to retirees
As the Office of the Attorney General mulls the legality of a $500 supplemental payment to retired state workers and teachers, the general counsel of the Employee Retirement System of Texas says it would be “reasonable” to determine that payment does not run afoul of the state constitution.
Legislative budget-writers asked the attorney general to determine if the payment, which would come from the state’s general fund and not the retirement trust funds, would violate a provision of the Texas Constitution that prohibits the payment of extra compensation for services already rendered.
As expected, retiree and employee groups argue in legal briefs that the payments are not a problem.
But the ERS brief adds some additional weight to that argument since a decision against the one-time payment would actually better serve the retirement system’s obligation to both current retirees and future retirees.
If the $155 million does not go directly to the retirees, it will be split among the trust funds of ERS and the Teacher Retirement System of Texas.
“An increase in the state’s overall contributions to the trust fund will bring the fund closer to actuarial soundness, and, therefore, will increase the fund’s long-term financial stability. Such a result inures to the benefit of both annuitants and active employees,” according to the brief.
Even so, Paula Jones, the ERS general counsel, writes in a brief submitted to the attorney general that the $500 payment would not be considered compensation under federal tax law. Nor would it fit within the definition of “compensation” under state law, Jones wrote.
“ERS believes it is reasonable for the (Office of the Attorney General) to determine that the one-time payments described in the (budget) are not ‘compensation’ being paid in contravention of” the state constitution.”
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TRS derivatives’ investment draws lawsuit
A group of retired and active teachers has sued the Teacher Retirement System of Texas and some members of the Board of Trustees over the fund’s investment in derivatives.
The TRS trust fund lost more than $400 million as of last August stemming from investments in derivatives, which the teachers’ lawyer likened to “betting on black or red in Las Vegas at the roulette table.”
“These million of dollars should have been invested in a secure investment such as U.S. Treasury bonds, and accordingly would have never been lost forever,” wrote Pearland lawyer Donald Wilhelm.
The Legislature in 2007 granted TRS the authority to invest in derivatives as part of its portfolio overhaul. For an interesting discussion on derivatives, check out this New York Times piece from Friday.
TRS argues in its response that the members have no standing to sue because they have not been harmed.
“The premise of the suit is that because the net value of assets of TRS trust fund has declined as a result of the historic upheaval in the world economy that plaintiffs have somehow been damaged. That is simply not the case,” TRS lawyers wrote.
“Members and annuitants have no investment account or interest in the pension fund; their interest is in the benefits as defined by law,” and those benefits have not been threatened, the brief says.
A hearing on the lawsuit is scheduled for Monday in Harris County. The Texas Attorney General, which represents TRS, has asked for the case to be dismissed.
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New appointments to Pension Review Board
Gov. Rick Perry on Tuesday announced two new members and reappointed one sitting member to the board that oversees public retirement systems in Texas.
Wayne Roberts, associate vice president of public policy at the University of Texas Health Science Center at Houston, will fill the government finance position on the nine-member Texas Pension Review Board. Roberts has served on the budget teams of Perry, George W. Bush and Bob Bullock.
Scott Smith has already stepped into one of the investment professional slots on the board. Smith is vice president of investments for Wells Fargo Advisors.
Lawyer Paul Braden will continue as the pension law expert on the board.
The board, made up of seven gubernatorial appointments and two legislators, is responsible for monitoring the state and local pension systems for compliance with state law and fiscal requirements.
An effort to beef up the board, launched by Senate Finance Chairman Steve Ogden, R-Bryan, failed during the legislative session. Ogden said when he filed the legislation that board had been a “shell organization” with little funding or authority to monitor the nearly 400 state and local pension systems.
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Perry nixes revamp of TRS board
Gov. Rick Perry vetoed a bill that would have given more voice to retirees on the board of the Teacher Retirement System of Texas.
That additional voice for retirees would have meant one less financial professional on the nine-member board, which would have been “an inappropriate adjustment in these uncertain economic times,” Perry said in his veto statement.
“The significance and ramifications of the board’s decisions on the futures of those who steward our children’s education make it imprudent to dilute the board’s financial expertise with House Bill No. 2656,” Perry continued.
The final House Bill 2656 was a much more watered-down version of the measure that easily cleared the House. That version would have stripped Perry of much of his authority to appoint members of the nine-member board.
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Teachers Fund hires key legal adviser after two false starts
The board members of the Teacher Retirement System of Texas Friday found themselves once again weighing replacements for a key legal adviser they had jettisoned last year in a divided vote.
And once again, the board split over hiring as fiduciary counsel the Groom Law Group of Washington, D.C., which had served the mammoth pension fund for 12 years before losing the job last July.
Instead, the board voted 5-4 to select Reinhart Boerner Van Deuren S.C., of Milwaukee, Wisc., to advise them on ethics and governance issues. The firm also represents the state teacher retirement systems in New York, Kentucky and Pennsylvania.
The fiduciary counsel position is viewed as a critically important and more complex job, as pension funds such as the Teacher Retirement System invest more in private equity, venture capital, natural resources and other alternatives to stocks and bonds.
This was the board’s third try in the past 11 months to fill the jobs. Conflicts of interest - both real and potential - had scuttled the hiring of two other law firms.
In that time, some legislators and other critics had questioned why the board had ended the tenure of Ian Lanoff, the Groom lawyer who served the teacher fund.
On Friday, Lanoff was once again before the board and the fraught history was palpable during the 45-minute public interview.
Lanoff laid out the treacherous legal and investment landscape facing public pension funds in the wake of the last fall’s economic upheaval and several high-profile scandals at other funds.
He said the board members needed a legal adviser who understands they “operate in a fish bowl.”
Legislators, teachers, retirees and the media are “all watching what you do, all watching your decisions…all watching that you’re operating on the up and up,” Lanoff said.
Trustee R. David Kelly of Dallas said the board needed someone with “humility” who would not proffer his own opinions as law.
The question was never Lanoff’s qualifications. He represents many of the country’s major public pension funds, including the Employee Retirement System of Texas.
TRS Executive Director Ronnie Jung argued in favor of Lanoff and said he had the most practical experience.
One of the member representatives on the board, Galena Park Superintendent Mark Henry, said Lanoff was the one person he would choose to watch over his retirement fund.
But it was the board’s newest member who succinctly expressed the narrow majority’s view.
“There just seems to be a whole lot of consternation about the gentleman,” said Eric McDonald, who was appointed in March by Gov. Rick Perry and had not worked with Lanoff.
The new firm will now negotiate its contract and fee, which will need the approval of the Texas Attorney General.
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Governor to keep TRS appointment powers
Retired members would get one more voice on the nine-member board of the Teacher Retirement System of Texas under a bill passed by the Senate Tuesday.
But the governor retains the ability to appoint that person and the other trustees as well, under the Senate version of House Bill 2656.
The bill that cleared the House allowed active members and retired members to directly elect representatives to the board.
Tim Lee, executive director of Texas Retired Teachers Association, said there was a good chance that Gov. Rick Perry would veto a bill that stripped him of so much authority.
“You pick your battles,” Lee said, adding that that he was happy to get an additional voice for retirees on the board.
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State employees’ retirement contribution to rise
State employees will soon be chipping in more for their retirement under a bill that passed the Senate Tuesday on a final vote of 26 to 5.
Members of the Employee Retirement System of Texas will now contribute 6.45 percent of their pay to the pension fund, an increase over the current 6 percent contribution rate. For an employee making $50,000 a year, the annual increase would be $225.
The new rate matches what the state contributes to the fund.
The change in the contribution rate along with some benefit adjustments for new hires are needed to address a persistent gap between the combined contributions and the annual cost of the benefits being earned - known as the normal cost.
“The money going in is slower than the money going out,” said Sen. Robert Duncan, R-Lubbock, chairman of the State Affairs Committee. “Eventually the fund will erode and it will be a serious problem for our retirees.”
The modifications would have a significant impact in moving the fund toward actuarial soundness, according to the bill analysis for House Bill 2559. Similar changes were made in 2005 to the Teacher Retirement System of Texas that improved the fiscal condition of the fund, enabling it to pay a 13th check to retirees last year, Duncan said.
“We’re going to turn this thing around for our retired state employees,” Duncan said.
Sen. Kirk Watson, D-Austin, voted against the measure because he said the state is doing too little while asking more of the employees.
“This half-step is being made almost entirely by our state employees,” Watson said.
Employee groups have mixed feeling about the changes.
“We’re not thrilled about it, but how long do you let a problem like this fester?” said Andy Homer, director of government relations for the Texas Public Employees Association. “It’s What you have to do to get the fund back into shape.”
Employees would prefer to increase their contribution rate from 6 percent of wages to 6.5 percent to bolster the trust fund’s long-term health rather than enact a major change in retirement eligibility, according to a survey by the employees association.
But Mike Gross, vice president of the Texas State Employees Union, said the change would amount to a pay cut for employees since many are getting no raises or bonuses in the upcoming budget.
He said the state should bump up its contribution rate by the same amount as the employees.
That might just happen — by accident — depending upon how the attorney general rules on proposed $500 bonus for retirees.
Questions surfaced recently about whether a one-time bonus to retirees from state money would run afoul of a constitutional provision that prohibits extra compensation.
If the Attorney General finds the bonus to be legal, the retirees will get a little extra walking around money. If not, the state will increase its contribution to the trust funds.
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Legal limbo for retirees’ bonus in state budget
See more at: http://www.statesman.com/postcards
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AG oversight of TRS counsel affirmed
Last summer’s kerfuffle over the hiring of new outside counsel at the Teacher Retirement System of Texas led the House on Monday to affirm that the attorney general has the authority to approve or reject such a hiring.
House 1259 by Rep. Lois Kolkhorst, R-Brenham, clarified that the TRS cannot circumvent the attorney general’s oversight authority even though the system would pay for the legal contract out of trust fund money and not from appropriated state dollars.
The oversight question surfaced last summer when TRS sought to hire a new fiduciary counsel whose hourly rates and potential conflicts of interest had raised concerns among legislative leaders and the attorney general.
“We were all concerned about what happened and the intent of your bill is to eliminate that sort of circumstance again,” said Rep. Vicki Truitt, R-Keller, chairwoman of the committee that oversees the state’s pension systems.
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More say for members on Teacher Fund board
Active and retired members of the Teacher Retirement System of Texas would get a direct say in who represents them on the pension system board under a bill that breezed through a preliminary House vote Friday.
House Bill 2656 diminishes the voice of the governor in determining who serves on nine-member board that oversees one of the largest retirement funds in the world.
The governor, who now has a say in all of the appointments, would have his or her influence reduced to only four of the spots under the bill carried by Rep. Doug Miller, R-New Braunfels.
The remaining five positions would be filled by people directly elected by TRS members: — two seats for active members working in public education; — two seats for retired members; and — one seat for an active member working in higher education.
Under the current system, the governor would appoint the members’ representatives from a slate of people elected by the membership.
The State Board of Education also would lose a bit of clout. It now recommends people to the governor to fill two positions on the TRS board but the Miller bill gives the Board of Education only one spot.
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It was very interesting for me to read that blog. Thanx for it. I like such themes and anything that is connected to them. I definitely want to read a bit more on that blog soon.
... read the full comment by Escorts in London | Comment on Former Statesman reporter vying for ERS board Read Former Statesman reporter vying for ERS board
Great blog you got here. It would be great to read a bit more about that matter.
... read the full comment by Mobile blocker | Comment on Former Statesman reporter vying for ERS board Read Former Statesman reporter vying for ERS board
The decision about the 13th check is supposed to happen in December, but don’t hold your breath.
I sure would like to see the value of the TRS fund compared over the last 3 or 4 years. If my memory serves me, my cursory following of the fund’s
... read the full comment by Jeannon Kralj | Comment on TRS keeps incentive plan requiring positive return Read TRS keeps incentive plan requiring positive return
Cool post as for me. It would be great to read more concerning this theme.
... read the full comment by PhillDoc | Comment on Former Statesman reporter vying for ERS board Read Former Statesman reporter vying for ERS board
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