If the $34 billion price tag on Kentucky’s public pension crisis weren’t enough for our elected officials to strap on their boots and get to work on some real reform, perhaps the recent news that Kentucky Retirement Sytems’ placement agents pay little to no regard for the price tag on new investment consultants will get their attention.
This report ought to be especially jarring to our hometown politicians because the report comes straight from a trustee who recently left the KRS.
According to Christopher B. Tobe, who served as trustee for KRS from 2008 to 2012, “All of the managers that secretly promised to pay nearly $15 million to placement agents for KRS were not selected by an RFP process,” a process designed to ensure that public pensions are “run for the benefit of taxpayers and beneficiaries, not for the convenience and/or profit of consultants, money managers and pension staff.”
If this story holds up, then the unfortunate reality is that the corruption in Kentucky’s public pension system goes deeper than previously reported – and $34 billion worth of corruption is already pretty darn deep.
Commonsense – and the Government Finance Officers Association – says that the hiring process for a public pension investment manager should prevent corruption and ensure the lowest possible fee for taxpayers. It doesn’t take a Ph.D. in public finance to realize that taking bribes in exchange for money manager positions does not fit that category.
Even according to the Report of Independent Counsel to SEC: Placement Agent Abuses at Kentucky Retirement System, “contrary to prudent investment practices for public pensions, KRS does not utilize RFPs seeking competitive bids from prospective money managers. Failure to solicit bids undermines the integrity of public pension contracting. RFPs ensure that contracts for investment management services are competitively bid and that requirements related to such contracts are clearly and publicly stated.”
KRS’ current price tag for their 66 money managers totals over $56 million. At what price tag will the Kentucky legislature take notice?