Public fund trustees facing host of difficult challenges
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Blackstone assets increase 6% for quarter, 8% for year
      Jeffrey Epstein and Leon Black
      Apollo Global CEO Leon Black to retire after Epstein review
      Coller Capital collects $9 billion with latest secondaries fund
      Directional signs respresenting types of traditional and alternative investments
      Setter: Alternative secondary deals drop 27.7% in 2020
    • Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
      Amy Hsiang
      Meketa picks new public markets manager research director
      Will Martindale
      Cardano Group chooses group head of sustainability
    • World economic growth ‘a race between a mutating virus and vaccinations’ – IMF
      Fred DeSerio
      Commentary: A new era for manager due diligence
      CalSTRS participant retirements jump in second half of 2020
      COVID-19 hinders emerging Europe's hopes for DC boost
    • Signage outside the Blackstone Group Inc. headquarters in New York on July 13, 2019
      Blackstone to sell Alight to SPAC in $7.3 billion deal
      Jan Jacobson
      High-court ruling thwarts ERISA stock-drop lawsuits
      Joni Tibbetts
      Principal counts on advisers to get word out on PEPs
      Kenneth J. Munro III
      Empower names new national sales director
    • Indhira Arrington
      Ares Management adds chief diversity officer
      U.K. to require large plans to align climate-change reporting with task force standards
      BlackRock’s Fink urges others to join in net-zero commitment
      Global business leaders commit to stakeholder metrics
    • Gifford Fong
      Old ties help bring local version of JOIM to mainland China
      Ryan Tedder
      Strike up the band: KKR fund takes majority stake in Ryan Tedder catalog
      Helen Dean
      NEST’s Helen Dean earns U.K. recognition for service
      Hawk's Nest dam
      Brookfield donates golf course for firefighter training center
    • Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
      The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
    • Blackstone assets increase 6% for quarter, 8% for year
      New Jersey discloses up to $475 million in commitments
      San Mateo fund revises asset allocation
      A case of Tootsie Roll Industries Inc. Pops Halloween candy is pictured before being distributed to stores at the Associated Wholesale Grocers distribution warehouse in Goodlettsville, Tenn., on Aug. 14, 2015
      Tootsie Roll gets the GameStop treatment
    • Technology Crossover Ventures raises $4 billion for latest fund
      The Bank underground station in the square mile financial district of the City of London
      U.K. seeks input on boosting its allure to money managers
      River and Mercantile chooses head of infrastructure
      Leon Black, chairman and chief executive officer of Apollo Global Management at the annual Milken Institute Global Conference in Beverly Hills, Calif., on April 27, 2015
      Black hangs on at Apollo as Epstein links cost him CEO role
    • New Jersey Division of Investment chooses deputy director
      San Mateo fund revises asset allocation
      Chicago Park Employees names new executive director
      Wisconsin state fund racks up 15.2% annual return
    • New Jersey Division of Investment chooses deputy director
      Chicago Park Employees names new executive director
      Credit Suisse brings on head of origination for direct lending
      Indhira Arrington
      Ares Management adds chief diversity officer
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
      EQT inks deal to buy real estate manager
      Chiang Ling Ng
      Hines hires first head of Asia-Pacific real estate investments
      Brand new apartment building on sunny day in spring with blooming trees
      Real estate returns forecast to trend lower – report
    • Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Retirement in emerging markets
      Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • New Jersey discloses up to $475 million in commitments
      Minnesota State Colleges seeks record keeper for 3 DC plans
      New York State Teachers assigns $375 million to 3 buyout funds
      GPIF hires Hamilton Lane for global private equity fund-of-funds allocation
    • New Jersey discloses up to $475 million in commitments
      Minnesota State Colleges seeks record keeper for 3 DC plans
      New York State Teachers assigns $375 million to 3 buyout funds
      GPIF hires Hamilton Lane for global private equity fund-of-funds allocation
    • Co-Administration, Financial Advisory, Transfer Agent, and Custodial Services
      Maryland State Retirement and Pension System
      Master Custodian and Related Services
      Transition Management Services
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      2020 in editorial Cartoons
      view gallery
      25 photos
      Cartoons depict a year like no other
    • GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
      Gold Outlook 2021
      Bond ETFs show maturity during Covid market mayhem
      2021 Outlook: A rousing recovery
    • Fred DeSerio
      Commentary: A new era for manager due diligence
      Charles E.F. MIllard
      Commentary: It’s time to make 401(k) plans into real pension plans
      Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:33
      A look at hiring activity in 2020
      watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      The Institutionalization of Retail Part 3: Building a Successful Distribution Effort
      What might a Biden DOL and SEC mean for retirement plans?
    • POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for January 2021
      Graphic: A look at hiring activity in 2020
      Riskwatch for Q4 2020
      Taiwan Semiconductor’s No. 1 in the emerging markets book
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      The Institutionalization of Retail Part 3: Building a Successful Distribution Effort
      What might a Biden DOL and SEC mean for retirement plans?
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. GOVERNANCE
June 26, 2017 01:00 AM

Public fund trustees facing host of difficult challenges

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Keith Ambachtsheer believes it's vital that trustees base stewardship on a long-term outlook and always be ready to ask questions.

    U.S. pension boards are under scrutiny — from fees to salaries to investment performance.

    Critics frequently point to the composition of the board as a key factor in system effectiveness, while defenders point to crippling legislation or meddling politicians. The list goes on and on.

    Out of those discussions, governance has become a hot topic at conferences, retirement boards and statehouses alike.

    Every public pension system and trustee is unique, and only the pension system itself can determine what governance approach works best for it, sources said. However, common questions must be asked, they added.

    "Fundamentally, governance is decision-making," said Rick Funston, Naples, Fla.-based partner at Funston Advisory Services LLC. "What are the key decisions? Who makes them? What intelligence and insights do (you) need to make ​ the best decisions under the circumstances?"

    "Good governance is decision-making aligned with fiduciary duties, and that means having the authority to carry (those duties) out," Mr. Funston said.

    Put another way, good governance is a four-legged stool, he said. The first leg is setting the direction of the organization, followed by directing staff and prudently delegating, overseeing what has been delegated, and correcting course when needed.

    When it comes to trustee selection, "you want a board that has the requisite skills and experience plus people who can think strategically," said Keith Ambachtsheer, Toronto-based director emeritus of the Rotman International Centre for Pension Management and president of KPA Advisory Services Ltd.

    It's important to find trustees who focus on long-term issues, think them through and question management about the degree to which they're doing things, Mr. Ambachtsheer said.

    That includes asking questions, he said, such as, "What kind of people are you hiring? Why?" In investments, "Are you insourcing or outsourcing? Why?" In audits, "Are we getting the information as an organization we need to satisfy stakeholders? What kind of information is required to do my fiduciary duty?"

    In the past year, governance concerns have been raised at New Mexico Educational, Dallas Police & Fire and Kentucky Retirement Systems.

    One concern at the $12 billion New Mexico Educational Retirement Board, Santa Fe, is the system's limited role in investment staff hiring and salary decisions. Currently, the state Legislature sets the headcount, and the state personnel system approves job postings, sets application criteria and gathers applications before passing candidates to the pension fund.

    A bill proposed by the pension fund for the 2017 legislative session would have given the executive director the ability to hire and set the salaries of various investment staff members, including the chief investment officer, investment analysts and investment division supervisors, within ranges approved by the fund's board of trustees. The bill died in committee.

    "For someone who is in the field, it's easier to assess what we need and how candidates fit into what we need," said Bob Jacksha, chief investment officer at NMERB.

    The salaries for the pension fund's investment staff also lag those of other comparable state pension plans "quite severely," which has hampered investment staff retention and the fund's recruitment efforts, Mr. Jacksha said.

    One of the fund's two core fixed-income portfolio managers left about a year and a half ago and it has taken that long to find a replacement, Mr. Jacksha said. Although several candidates were offered the position, they turned it down partly because the salary was not competitive, he said. Pension fund executives would like to raise investment salaries to the level of other states.

    Mr. Jacksha added the current situation has "definitely constrained (the pension fund) from going any further in internal management or more sophisticated approaches."

    Investment staff currently manages internally about $1 billion in fixed income, $2.2 billion in domestic equity and also makes some private market co-investments.

    If changes were to be approved by the Legislature, the pension fund would expand its internal management, which could help reduce fees and produce better results, Mr. Jacksha said.

    However, "the first goal here is to maintain what we're already doing," he said. Other investment positions outside of fixed income have taken a long time to fill, and the pension fund is not fully staffed, he said.

    Jan Goodwin, executive director of the educational retirement board, said the board is determining its next steps.

    The experience at New Mexico Educational is not unique and does raise governance concerns, sources said.

    When a legislature establishes authority to set a full-time employee count, limit salaries, or restrict the ability of the system to make appropriate decisions, "it makes it difficult to hold the system and its trustees accountable," said Keith Brainard, Georgetown, Texas-based research director at the National Association of State Retirement Administrators.

    Rebuilding trust in Dallas

    To address concerns about board composition at the $2.1 billion Dallas Police & Fire Pension System, the Texas Legislature last month made major changes. Among them: non-members will make up a majority of the new board. Previously, there were 12 trustees — eight were pension fund members and four were City Council members.

    Kelly Gottschalk, the pension fund's executive director, said she believes legislators sought to limit the number of plan participants on the board because of concerns over some of the investment and plan design decisions made under previous boards. She expressed concern, however, that members might now have too little representation.

    "Typically it's those people (who) their life depends on their pension in the future that are most conservative and most thoughtful," whereas outsiders might only be involved for a short time and lack a long-term view, Ms. Gottschalk said.

    The new board will have 11 trustees — six appointed by the mayor, two who are members of the plan, and three appointed by a nominations committee made up of representatives from each of the pension fund's 11 labor associations, but who cannot be system participants. Elected officials and current city employees — outside of the two member trustees — are prohibited from serving on the new board and all trustees must have demonstrated financial, accounting, business, investment, budgeting, real estate or actuarial expertise, which has yet to be defined. Previously, there were no expertise requirements.

    A new investment advisory committee made up of non-members also will be established; its role also has yet to be determined. Currently, investment staff and consultant recommendations are sent straight to the board for their approval.

    Ms. Gottschalk said the prohibition on active city officials serving on the board was driven by pension fund participants.

    "There is a lot of distrust right now" between the city and pension fund participants, she said. The members believe outside trustees, even those appointed by the mayor, "will do the right thing," while city employees could be conflicted if the mayor wants them to vote in such a way that is not in the best interest of the pension fund, she said.

    Sources shared participants' concerns about elected officials or city employees presenting potential conflicts of interest and were in favor of their exclusion on the new board.

    Robert D. Klausner, Plantation, Fla.-based principal at law firm Klausner, Kaufman, Jensen and Levinson, said that it remains to be seen if having six mayor-appointed trustees will reopen political issues, but he was optimistic those trustees would focus on their fiduciary mission.

    Mr. Funston agreed with Ms. Gottschalk on the importance of having participant trustees, provided that they are thinking not only of their own retirement security, but the retirement security of future generations, he said.

    Kentucky moves uncertain

    Citing governance and transparency concerns at the $15 billion Kentucky Retirement Systems, Frankfort, Gov. Matt Bevin issued an executive order last year overhauling the retirement system board. The future of those changes, which were mostly codified by the Kentucky Legislature earlier this year, remains uncertain, however, in light of a pending lawsuit against the governor's actions and anticipated recommendations from PFM Group.

    PFM Group was hired by the state earlier this year to provide a performance and best practice analysis of all of the state's retirement plans, not just KRS. Final recommendations are expected this summer.

    Through his executive order in June 2016, Mr. Bevin disbanded the Kentucky Retirement Systems Board of Trustees, replacing it with the Kentucky Retirement Systems Board of Directors. The new board has 17 directors: the 13 who were on the previous board of trustees and four new appointments by Mr. Bevin, which includes the state budget director. On the previous board of 13, six were appointed by the governor, six were members and one was secretary of the personnel cabinet.

    Shortly after the reorganization, two board members and state Attorney General Andy Beshear filed a lawsuit against the governor challenging his power to restructure the board.

    While a ruling is pending, the Kentucky Legislature earlier this year codified most of Mr. Bevin's order, including the part of his order that called for six of the 17 directors to have investment experience. Under the previous board, two trustees were required to have investment experience.

    David L. Eager, interim executive director for KRS, said he was pleased with the increased number of directors with investment experience.

    As a result of their addition, the board now has an asset allocation subcommittee of two trustees interacting with staff almost weekly, he said.

    Mr. Eager said he did not consider this micromanagement by the board. The board is providing "very intelligent oversight and guidance," he said.

    Mr. Eager was also positive on the expanded size of the board. The retirement system has several committees. On a larger board, it's easier to spread committee responsibilities out so trustees are not overtaxed, he said.

    Keith Johnson, Madison, Wis.-based chair of institutional investor services at law firm Reinhart Boerner Van Deuren s.c., said the governor's expansion of the KRS board through an executive order was "highly unusual."

    Messrs. Brainard and Klausner said they could not recall any other governors taking the actions Mr. Bevin took last June.

    A 'balancing act'

    The big governance issues today are "balancing acts," Mr. Funston said.

    "How do you balance autonomy with stakeholder engagement? How do you balance oversight by the board with prudent delegation?"

    According to Randy Miller, Bloomfield Hills, Mich.-based principal at Funston Advisory, one of the big challenges trustees have is learning to trust, which "culminates in whether trustees have confidence in their staff and their consultants," and see that as a prudent way of carrying out their fiduciary duties, he said.

    "Largely in my experience, I find boards of trustees try to do the right thing," Mr. Klausner said. "As long as they are assisted by competent professionals, and as long as the plan sponsor isn't an absentee in the governance of the plan and stakeholders (plan participants) aren't absentees in the management of the plan, it will succeed," Mr. Klausner said. "When one of the major players is uninvolved or disinterested, that's where I see a governance problem." Mr. Klausner's law firm represents more than 150 U.S. public pension plans.

    KPA's Mr. Ambachtsheer said while some plans are not addressing governance challenges, he believes that pension funds, overall, are moving in the right direction.

    "I think we've gathered enough evidence that makes it increasingly clear that bad governance is very costly, and good governance creates value," Mr. Ambachtsheer said.

    Related Articles
    CEOs join initiative to improve workplace diversity
    Enhancing your institution's governance model
    South Carolina taking 3 years to complete system overhaul
    State pension funding falls 4 points in fiscal year 2016
    The slow road to state pension reform
    South Carolina taking 3 years to complete system overhaul
    CII conference covers public funds, governance and IPO dearth
    NCPERS: Public pension funds going more conservative in assumptions, keeping co…
    Recommended for You
    Public funds press BlackRock on political spending
    Public funds press BlackRock on political spending
    New York State Common challenges Tyson’s dual-share stock structure
    New York State Common challenges Tyson’s dual-share stock structure
    Investors tell social media companies to curb disinformation
    Investors tell social media companies to curb disinformation
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    2021 Outlook: A rousing recovery
    Climate change and emerging markets after Covid-19
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center