Former SRHS Trustee Morris Strickland is set to be deposed in the pension plan litigation tomorrow at 9 a.m.
Last week saw Strickland fire off a letter to editor of The Sun Herald defending the investments of the SRHS Retirement Committee. The Sun Herald is not alone in alleging that the committe made “poor and risky investments.” Those words originally came from Billy Guice.
Stickland points to the committee’s track record showing “annualized returns: one year — 9.9% ; three years — 13.9%; five years — 10.7% ; 10 years — 7.5 %.”
As a comparison we look at a broad market fund return and the S&P 500.
Strickland states his personal account didn’t see such returns. He might need to “talk to Chuck.”
The simple fact is that SRHS could have put the money in low cost mutual funds and would have seen superior performance. Instead, the investment committee hired myriad expensive, illiquid, and risky hedge funds only to underperform market returns.
Mr. Strickland was able to quote very specific numbers. That suggests he has retained documents from his time on the SRHS board and various committees. Hopefully he produces such documents upon his arrival at the deposition.
3 thoughts on “Strickland Defends Pension Plan Investments”
Something else which ought to be considered is that the lack of contributions in certain years to the plan by SRHS were essentially a perverse form of market timing.
The years where the missing contributions would have earned significant and compounded returns if invested competently can never be gotten back.
It would be interesting if Mr. Strickland is asked about market timing in the course of the litigation. If you know how to change the oil in your car you already know about timing. (Be sure to put the drain plug back in before refilling with the new oil.)
Somewhere in the released SRHS documents the goals or purposes of the SRHS pension plan were stated. If I remember correctly minimizing the need for SRHS contributions was one of the goals. Finding and posting this might be something SRHS Watch or someone else can do.
After reading Strickland’s letter to the Sun-Herald editor (dated July 16, 2015), one can only wish that the author had heeded his own advice to “purposefully refrain(ed) from commenting” and, by “set(ing)…the record straight”. One is reminded of two time honored adages: 1.) you often learn more by what is NOT said, as you do by what is said, and 2.) when you find yourself in a hole, the first thing you do is stop digging.
Trustee Strickland begins his setting the record straight discourse by outlining recent 4 year current average yields for U.S. Bonds of 10 and 20 year maturities. But, as fixed income investors know, it’s not current yield, it’s total return ( to include the price appreciation derived from the long term current rates trending downward which cause bond prices to increase). So please Trustee Strickland, don’t confuse your readers with low 2% and 3.5% numbers, when in fact total bond returns should have been significantly higher. The Trustee’s explanation then shifts to Total Retirement Fund Portfolio performance. Total portfolio performance would include not only fixed income securities, but also equities (large capitalization, small capitalization, foreign, as well as domestic), and other assets (limited partnerships, hedge funds, tangible assets, etc. (all less liquid with higher degrees of risk).Since the Trustee was silent, one should ask, what are/were the asset allocations (the percentage mix of fixed, equity, and other) over time? Did they change? How often were they reviewed? By Whom? Where is the documentation for the process? Did the Retirement Committee hire asset allocation advisors independently from the investment advisors (that is generally accepted industry procedure standards for a fiduciary trust of this magnitude)? What was the criteria for selection and retention of the investment managers? Where is the documentation for this process?
Next Trustee Strickland tells of his and other Retirement Committee members diligent work to maximize returns. Does not Trustee Strickland know that in a Defined Benefit Plan, the investment performance returns are only one half of the equation. He and his Co-Retirement Committee members apparently utterly and completely FAILED to consider the other half of the formula—that being the contributions. It is simple math: for example, if you start the year with $1 and your plan actuary tells you that you have to end the year with $5, then it must be a combination of contributions and earnings that total $4. To this extent, this whole discussion of investment performance is irrelevant ( whether earnings are plus $2 or negative $2, the contribution has to be enough to make that total of $4). What is relevant— is the fact that Trustee Strickland appears not to have provided equal due diligence to the lack of contributions over a significant number of years as he did to the review of investments.
Since the Trustee continues to use his shovel, perhaps he can do some spade work and explain to the public how he seems to be oblivious to his violations of all the fiduciary obligations of a trustee ( as outlined in my previous reply).Perhaps Trustee Strickland could excavate for us how Supervisor McKay (as well as the others) failed to review and approve budgets of SRHS. Some might suggest this oversight alone should be enough to control the actions of SRHS. How Supervisor McKay (as well as the others) failed to read and/or comprehend the audited financial statements of SRHS, in addition to those of their own Jackson County. Perhaps Trustee Strickland and/or Supervisor McKay could negate the theory that the failing posture of the retirement plan has nothing to do with the plan itself, but everything to do with the actions of the management of SRHS and the Board of Trustees that supposedly provide oversight. Finally, Trustee Strickland and/or Supervisor McKay should explain to the public if they believe that Board of Trustee members are working for the benefit of management or whether management is working for the benefit of the Board of Trustees? (In all honesty, this is the crux of the entire underlying problem.)
In any event, the transcript of Trustee Strickland’s deposition will be most enlightening. Unfortunately, it will not be entertaining.
Great post that asks real questions of Strickland’s actions as a member of the SRHS BOT and Pension Retirement Committee. I also wonder with all of the real estate he has been involved in, did he also oversee the illegal purchase of any properties for the SRHS? As Attorney Guice has stated, no authorization was ever given to the SRHS or BOT to make any real estate purchases as required by law, from the JCBOS. Is he not only the McKay proclaimed investment guru for the pension fund but also the real estate expert who taught the BOT how to buy without the legal authority to do so? I hope they also ask him if he did the valuations for all of the doctor practices that were purchased with pension funds. He will have a hard time massaging the lawyers for the retirees I would bet.He might need to bring in his ladies from 777.