Public pension fund boards need to start paying the full cost of sending trustees to those exclusive resorts they attend from Moscow to Tokyo. They need to pay for the dinners and desserts. They need to pay for those big bar tabs some trustees run up, too.
Not to do so is disastrous for public pension funds in two ways.
Every so often in just about every city, the local press blasts trustees of public pension funds for being unduly influenced by money managers. The local press deftly uses innuendo to suggest the trips, gifts, dinners and drinks money managers provide for trustees assure the managers of business. They suggest the trustees are making their investment decisions based on the quality of the dinners they eat, the luxury of the hotel rooms in which they sleep and the quality or quantity of the drinks they consume.
The vast majority of trustees and pension administrators won't sell their funds out for a few trips or drinks. It's a shame the public doesn't know that. But it is understandable the public could have doubts.
Trustees of the California Public Employees' Retirement System have come under recent public criticism, attracting the attention of federal investigators over subsidized travel and other potential conflicts of interests, according to a news report.
The public is right if it suspects money managers buy access. The managers do get chummy with trustees when they pay for those golf outings. It undoubtedly is hard to fire a manager with whom you have hoisted drinks and shared family stories. When you are a trustee, the managers couldn't be more thoughtful. On your bus ride to the ocean, they will give you a $100 pair of Nikon binoculars so you can see better. At those manager-paid conferences, you can meet the president of Poland. It is thrilling.
But when the local press stories come out, and they always do, about which trustee did what and where with the managers, it always looks bad. The trustees are blamed if an investment goes wrong. They are even blamed when things go right. A Los Angeles newspaper blasted CalPERS for getting a 20% return in 1997, saying it could have gotten much higher from S&P 500 stocks, not knowing a pension fund can't put all of its money in one asset class. The writer also didn't report some other public pension funds had much lower investment returns for the year.
Trustees have other headaches. Some public fund staff members believe trustees should only set policy -- meaning rubber-stamp staff recommendations -- and not ask questions. Money managers often act the same way. So having a little fun for all the work trustees do seems only fair. But there is a more important reason trustees should visit resorts, play golf and deliver after-dinner toasts.
Valuable information does come to trustees at conferences at resorts. Trustees make some of the best relationships at the golf course or on other outings. Some of the best information often comes during dinner or at drinks afterward. There, tongues are loosened and trustees share information about horrible bungling that goes on inside the plans from time to time because they really didn't know what their staffs or managers were doing. Trustees learn what to watch out for, who to watch out for, what questions to ask, which investments went bad, which managers just aren't capable anymore and which managers are good.
Large sums of money might have been saved or investment losses lessened because of what they heard. However, these trips of trustees probably would be far more productive if trustees -- not money managers -- could set the meeting agendas, because the managers pay for most everything.
But before public funds can pay for these trips, their trustees need to have the courage to say they are worthwhile. Trustees fear the public will be upset if they spend money on trips. Withstanding a little misguided ridicule is better than being unfairly branded as sleazy because the managers are buying.
