Ohio state Auditor Keith Faber said in a newly released report that the $87.8 billion Ohio State Teachers Retirement System's classification of private equity performance fees as trade secrets is plausible.
The report, released Dec. 29, says that while the Columbus-based retirement system follows state laws in classifying private equity performance fees and other documents as trade secrets, investment staff could elect to negotiate with external managers to allow more transparency.
Mr. Faber in his report said he found no evidence of fraud, illegal acts or data manipulation related to the investment of its assets and said the pension fund's "organizational structure, control environment and operations are suitable designed and well-monitored, both internally and by independent experts."
Mr. Faber's audit results from complaints in a June 2021 forensic audit by Benchmark Financial Services Inc., which was hired by the Ohio Retired Teachers Association in October 2020 to perform a forensic audit on the teachers retirement system.
Among the allegations of the BFS financial audit were that private equity managers might be charging the pension fund fees and expenses exceeding contract amounts.
Mr. Faber's report said that while "there are no absolute safeguards that management fee fraud cannot occur," private equity fund audits and the retirement system's controls reduce, if not eliminate, the risk that private equity funds are overcharging fees.
"Given the longstanding issues about (private equity) fee completeness, the Ohio legislature should consider legislation restricting the kinds of (private equity) funds the state pension funds can invest in, such as requiring state pension funds to obtain certain fee disclosures that can be made public as a precondition to using an external asset management firm," the report said.
"I appreciate the thoroughness of the special audit conducted by the auditor of state in response to complaints received from some teachers and retirees," said Bill Neville, STRS executive director, in a statement. "It is noteworthy that the special audit's findings refute much of the inaccurate information circulated about STRS Ohio over the past two years, and the report provides extensive detail and analysis in support of its conclusions. I want our members to know that STRS Ohio remains steadfast in our dedication to ensuring the sustainability of the pension fund and providing financial security to current and future generations of Ohio's educators."
The report also noted that the retirement system's most recent actuarial audit and fiduciary audit, both completed in 2022, were several years overdue. State law requires audits be completed every 10 years, and the most recent actuarial audit took place in 2009, and the most recent fiduciary audit, in 2008. The report recommends the Ohio Retirement Study Council and the retirement system work together to ensure future audits are performed in accordance with guidelines.
A May 2021 lawsuit filed in Ohio Supreme Court to force the retirement system to release unredacted reports related to the pension fund's alternative investments is still pending.
The writ of mandamus complaint was filed that month by Edward Siedle, attorney and president of Benchmark Financial Services Inc., against the pension fund and CEM Benchmarking Inc., seeking unredacted reports related to the pension fund's alternative investment management fees, costs and expenses.
Benchmark Financial Services said in that complaint: "CEM also redacted data about STRS's performance, including investment costs, outside money manager fees, and performance information on STRS's investments. All that information is provided by STRS staff to CEM , which CEM then analyzes. CEM offered no explanation as to how it can claim that STRS's own internal data can be CEM's trade secret."
At the time of the complaint, pension fund spokesman Nick Treneff said in an email: "STRS Ohio has provided more than 800 documents in response to the public records request we received in late February — totaling more than 22,000 pages. This includes documents from CEM Benchmarking. We have fully complied with the law in response to this request."
Mr. Siedle said in a phone interview Tuesday, "We're still pushing to see the top-secret documents they won't allow the teachers to see."
