Let’s return to the topic of the Kentucky Retirement Systems (KRS). The impetus for looking at KRS was the egregious property investment and the subsequent departure of John Krimmel and Gordon “Don” Mullis.
Let me be clear here, I don’t think either Krimmel or Mullis did anything wrong, nor do I think they suddenly got stupid, but I do think there is more to how investments are being made by KRS than is being shared with the members and taxpayers that support the system.
Here are the questions that need to be asked, preferably by someone with subpoena power, and answered by KRS officials. The questioning should be done individually and not in a group.
Questions to Chair of Investment Committee
Now, I am not sure who the chair of the Investment Committee is since it is a secret on the KRS website. However, the organizational chart in the CAFR (Annual Financial Report) clearly states that the Chief Investment Officer bypasses the William P. Hanes, Executive Director on investment issues and reports directly to the Investment committee, so here are the questions.
How often were investment committee meetings held? Can we see minutes?
Did Krimmel ever meet alone with the committee or were Hanes and/or General Counsel Eric Wampler always present?
How many one on one phone calls and/or meeting did you have with Krimmel as the chair of the investment committee?
Were their any disagreements with Executive Director Hanes? If so could you elaborate?
If not, why not, were you not his direct supervisor?
Did you feel that in practice Executive Director Hanes acted as Krimmel’s supervisor?
You have been without a CIO for 6 months. Who is making the investment decisions, The Chair of the Investment Committee, consultants, the Executive Director, or the Investment staff?
If buying local real estate is part of your investment strategy, did Krimmel or anyone contact their investment consultant for advice?
Questions for Todd Coleman, CPA Internal auditor
Coleman is supposed to report directly to the audit committee, not the Executive Director.
How often were audit committee meetings held? Who is the chair of the Audit Committee? Can we see minutes?
Did you ever meet alone with the committee or was always Hanes and/or Wampler present?
How many one on one phone calls and or meetings did you have with the chair of the audit committee?
If any did he discuss any disagreements with Executive Director Hanes and could you elaborate? If not, why not, were you not reporting to your direct supervisors?
Did you feel that in practice that Executive Director Hanes acts as your supervisor?
With the land transaction, did you make an independent report (without input from Wampler or Hanes) to the board? Why or why not? Can we see the report?
Why do you think this happened? Was it willful misconduct or a lack of controls?
In 2004 then Chief Operations officer Lauren Stewart and Director of Accounting Glenn Valley left KRS after reported questionable cash management practices.
Did you produce an independent report on this to the board, if so can we see it?
Why was this not reported, or referred for criminal prosecution?
Was a claim filed for Fiduciary insurance?
Questions for the Executive Director
The 98 report by auditor showed underperformance in direct real estate by over $61million in the early to mid-90’s, but it showed an investment decision to get away from direct real estate and invest in REIT’s.
What caused a reversal to make direct local real estate investments in 2006? Did the investment committee approve direct real estate investments of any kind?
KRS and KY Teachers (KTRS) are roughly the same size in assets at over $14 billion.
Can you explain why KRS at $9.026 million pays nearly twice the fees to investment managers as KTRS at $4.6 million?
Can you explain why KRS has a payroll of $10.139 million in Frankfort again over double that of KTRS at $4.872 million?
Can you explain why KRS pays nearly $8 million in brokerage commissions while KTRS pays less than $4 million?
A 1994 audit report talked of staff and trustees being flown around in private jets.
Can you comment the use of private jets to fly staff and trustees and other issues like the use of limousines, travel to resorts etc. that have been raised on on-line blogs since this report?
In 2004 then Chief Operations officer Lauren Stewart, and Director of Accounting Glenn Valley left the KRS after reported questionable cash management practices. Why was this not reported, or referred for criminal prosecution?
Was a claim filed for Fiduciary insurance?
KRS has hired a number of out of state attorneys. Were you aware that your attorney Robert Klausner has been portrayed negatively for his role with public plans in Forbes (9/20/04) ?
Can you provide a full detailed breakdown by firm of the commissions paid by KRS?
Can you provide a full detailed breakdown of any proceeds you have received from class action suits and detailed accounting of all attorneys fees directed on your behalf?
In early press reports you said the losses on the land sale would not affect retirement assets? Could you explain this?
If this was not an investment issue, but an administrative one, why was the Chief Investment Officer even involved?
Why did a major administrative land purchase not involve the Executive Director and/or the full Board of Trustees?
Does this not suggest a major control issue, or more of a criminal issue?
Your counsel gave the following reasons for the breach of fiduciary duty “involve the failure to ascertain the value of the (Holly Hill) property, to evaluate its potential for current and future investment return, to exercise due diligence in the purchase of the property and the expenditure of funds, to adequately negotiate concerning price, fees and expenses, and exceeding the authority provided by the investment committee of the board of trustees."
This seems to suggest that this was an investment for the system, can you explain?
How long has your wife worked for the House Democratic Caucus?
Are you aware of any donations to the House Democratic Caucus or any other public official in Kentucky, from any vendor who has received investment fees, commissions, or legal fees from class action suits?