(FRANKFORT, Ky.) – The Bluegrass Institute Pension Reform Team issued the following statement in response to the Public Pension Oversight Board’s recent discussion regarding transparency of Kentucky Retirement Systems (KRS) investment fees, which included a presentation by State Auditor Mike Harmon.
The Bluegrass Institute has always been a strong advocate for government transparency. To that end, we applaud the steps taken by Kentucky Retirement Systems executive director Dave Eager and board chairman Dave Harris to bring increased accountability to the KRS investment process. The days of opaque contracts with shadowy placement agents and ill-fated investments such as KRS’ investment in the Camelot venture capital fund are gone but not missed.
While progress has been made, more transparency is needed to protect the future integrity of Kentucky’s public-pension investments. Senate Bill 2 was passed in 2017 to accomplish this goal. One of the requirements is the public disclosure of the individual management fees charged by each outside investment advisor. Prior to SB 2, the fee structure that was publicly disclosed was an aggregate amount for all money managers and the fee structure for individual managers was typically not disclosed.
While we support individual fee disclosures for all investment advisors who compete to manage Kentucky’s pension assets, we believe that applying this requirement retroactively to contracts that existed prior to SB 2 would compromise the relationships between our public-pension managers and their outside advisors, making it more difficult for our managers to invest and exposing them to the risk of future litigation. Applying these new price-transparency laws only to advisors under contract after SB 2 was passed seems like the best way forward.
Our recommendation is to apply the new fee-disclosure requirement prospectively to the investment advisors approved after SB 2 was passed, and to allow those entities who entered into contractual agreements with our public pension systems prior to SB2 to have the option to disclose individual fees beyond the requirements of the original contracts. TRS and KRS should continue to publicly disclose the aggregate fee structure for all outside investment advisors as before.
Contact Jim Waters at firstname.lastname@example.org, 859.444.5630 ext. 102 (office) or 270.320.4376 (cell).
The Bluegrass Institute for Public Policy Solutions, Kentucky’s first and only free market think tank, has been offering commonsense ideas to solve the commonwealth’s greatest challenges since 2003.