10/19/2010 6:13 PM
Today, Democratic Gubernatorial nominee Bill White blasted Gov. Rick Perry over the management of the Teacher Retirement System. He distributed to reporters internal memos from staff at the Teacher Retirement System (TRS) that allege staff were encouraged to support giving contracts to preferred vendors.
The timing of the event is obviously political, but TRS received more than the usual amount of legislative attention in 2009, and the publicity accorded to this event makes it likely it will receive continued scrutiny in 2011.
Specifically, White said that several of the TRS Board members are part of Perry’s campaign finance committee and questioned whether principals in investment firms with TRS contracts should be allowed to contribute to the governor’s campaign. White called for changes in state law that restrict the ability of the governor to solicit campaign contributions from vendors of the Teacher Retirement System.
"Perry and his people have milked our teachers' retirement for campaign cash,” said White. “What was leaked today shows the use of political pressure to reward Rick Perry's friends. This is wrong … Our teachers' retirement fund should not be for sale to help a political campaign.”
“TRS hired an independent external legal consultant to investigate the complaints raised by this employee, and the independent consultant found no improprieties, responds Katherine Cesinger with the governor’s office. “That review was then turned over to the State Auditor’s Office, as would be standard in such matters, and they have taken no further action. We expect TRS to continue to be good stewards for Texas teachers and the taxpayers of this state.”
The report Cesinger references was prepared by Roel Campos
, an attorney who is a former prosecutor and member of the Securities and Exchange Commission. In 2008, the board hired Campos and his law firm as its fiduciary counsel. The proposed fiduciary counsel arrangement was the subject of hearings before the Senate Finance Committee, and several Senators questioned both the hourly rate charged (which was higher than the previous firm which performed that duty) as well as the replacement of a firm which specialized in representing public pension funds. In Oct. 2008, Atty. General Greg Abbott
declined to approve the hiring of the firm as fiduciary counsel.
The Campos report said it found “no definitive evidence that any Trustee improperly influenced any investment decision” and “no definitive evidence that any Trustee improperly influenced the [Chief Investment Officer] with respect to any TRS investment decision.”
The report does make recommendations for improvement. It finds that communications between staff and the Chief Investment Officer “could be improved to reduce unproductive friction and stress and to create an environment that, in practice, fosters relative debate and maintains a professional fiduciary process for evaluating investment opportunities.”
The report does find that a TRS trustee “may have violated Section III.J of the Trustee Ethics Policy” for using TRS information in the trustee’s investing business. Campos’s report characterizes any breach that may have occurred as “inadvertent.”
Campos’s report recommends that the board adopt new procedures and training on appropriation relationships between staff and trustees as well as a process to “memorialize professional disagreements” between staff members on deciding which managers and investments to hire.
TRS defended its actions. “The Teacher Retirement System manages a trust fund valued at $102.4 billion – a fund that has experienced a dramatic recovery of 53 percent from a March 2009 value of $67 billion,” said the agency spokesman Howard Goldman.
On the specific allegations in the memo distributed by the White campaign, Goldman said, “When made aware of these concerns, TRS Executive Director Ronnie Jung hired a highly qualified and respected external party to investigate them. The investigation found no improprieties with respect to how the investment decisions in question were made. The results of this investigation were also forwarded to the State Auditor’s Office.”
Perry’s staff argued the report shows the fund is being managed properly. “While professional staff and oversight boards will disagree from time to time, the performance of TRS has been both professional and appropriate, and the fund has seen large gains in recent months, with returns in the top 5 percent of all U.S. public pension funds for the past quarter,” Cesinger added.