Retirement Systems Investments Suck

Kentucky Retirement Systems (KRS) and Kentucky Teachers Retirement System (KTRS) have a performance shortfall over $550 million in Fiscal Year 2007. That translates to a $2,000,000,000.00 (that’s billion with a capital “B”) over 3 years.

As a reader of this blog you may not be surprised by a large investment shortfall from the Kentucky Retirements Systems of $285 million in FY 2007, but you may be surprised that the Kentucky Teachers performance shortfall in FY 2007 of $280 million was almost as bad.

Over the 3 year period Kentucky Teachers hit $1.4 billion in investment shortfall and KRS had “only” a $565 million loss. These numbers are calculated from a report presented to the Governor’s Blue Ribbon Pension Commission yesterday.

While KTRS may not be as ethically challenged as KRS they seem to be caught in an 80’s time warp as far as their investment strategy. They are so conservative; they’re scared of their own shadow.

KTRS has not changed consultants in over 17 years and their consultant Becker Burke is seen as out of date and has few large institutional clients.

KRS sticks with low performing managers for years as well. For 15 years they have stuck with Weaver Barksdale which has been fired by every major client except Pennsylvania, where KRS CIO (Tosh) used to work. What a coincidence.

Retirement systems nationwide that have out performed KRS and KTRS have larger allocations to alternative assets. KTRS is so chicken they have not even tried. KRS meager attempts to invest in alternatives have ended in disaster.

In April 2006 they forced out CIO John Krimmel and COO Gordon Mullis on an ill fated mistake with an alternative asset. Worse they hired as their Chief Investment Officer Adam Tosh who while at MDL was involved in the worst alternative investment disaster in history with an Ohio public plan.

This horrible performance has not hampered salaries at KRS. Bill Hanes had his board give him a raise to $239,000 a year since he could not double-dip on his pension.

One final point:

During the entire meeting, on multiple occasions, different members of the Governor’s Commission went to great lengths to make the statement that they “Didn’t want to assign blame for past mistakes.”

Maybe someone should be held accountable.