Is there a problem with MN teachers pensions?
The phrases “cooking the books” and “Madoff miracle” appear in a New York Post headline from last month (August 10) on the state Teachers Retirement Association (TRA) pension fund.
The Post had interviewed Edward Siedle, a former attorney with the U.S. Securities and Exchange Commission, now in private practice in Florida.
AlphaNews took up the story a few days later.
The Center’s Catrin Wigfall wrote about the Post‘s piece and Siedle’s work here.
Siedle is working on behalf of an independent group of teachers concerned about the health of their retirement fund.
He’s a serious man making some serious claims. Here are two. Quoting from the Post:
The state-run Teachers Retirement Association, or TRA, has publicly disclosed less than 10% of an estimated $2.9 billion spent on fees in the past 10 years, said Edward Siedle, a former US Securities and Exchange Commission lawyer and independent pension investigator.
What Siedle is referring to is the line item “investment expense” in TRA’s 2023 annual report (p. 25). The fund records investment expense of $27 million on an investment base of $28 billion. That works out to an expense rate of less than 0.1 percent, comparable to the largest, most efficient index funds.
But Siedle notes that the fund contains a large share of “private,” “alternative” investments, as shown in this TRA pie chart:
That private markets piece typically involves annual investment fees of 2 percent of the investment. So, blending in two-percent fees on one-quarter of your portfolio would result in vastly higher figure for the “investment fees” line item. Undoubtedly, the fees are being paid, but buried within a different line item, likely investment return.
In another curious item about the “private markets” piece of TRA’s portfolio, TRA includes this figure on page 31 of its 2023 annual report:
If I’m reading this figure correctly, the portfolio item with historically the highest fees is expected to produce the worst return. All of which raises a series of questions: who (individuals and firms) is getting this money and what are they investing it in?
As for the second question raised by Siedle, we again quote from the Post:
The TRA also posted gains claiming it beat its own custom benchmark over periods of one, five, 10, 20 and 30 years by exactly 0.2%, which Siedle called “virtually impossible.”
What he’s referring to here is a chart published in a different 2023 annual report (page 6), where I’ve highlighted, in yellow, the bottom line showing the consistent 0.2 percent “beat.”
Minnesota is not the first state in which Siedle has performed such work. Back in April, the Minnesota Star Tribune noted Siedel’s hiring and discussed his previous work in Ohio and Rhode Island.
The editorial board of the Toledo, Ohio, Blade (that city’s daily newspaper) wrote favorably about Siedle’s work back in July. Curiously, that editorial included a Minnesota angle. The editors wrote back on July 17:
Following the high-profile Ohio reform effort a Minnesota teachers group has hired Mr. Siedle for the same mission. A public records release from Minnesota shows Ohio STRS [State Teachers Retire System] Acting Executive Director Lynn Hoover and Ohio lawyers and lobbyists communicating with their Minnesota counterparts to undermine the impact of the investigation.
Wut? The Blade continues:
As Rachel Barth, legal and legislative director of the Minnesota Teachers Retirement Association wrote, “TRA’s reputation as a trusted government agency is going to be questioned.”
And, perhaps it should be. As the Post notes, Siedle has been searching for answers to those questions:
As part of his probe, Siedle filed public-records requests with the TRA and the state for investment documents, but the agencies have not yet complied, he said.
Minnesota taxpayers need answers.