Here are the additional laws Ryan says leaders have agreed to support when the legislature returns later this summer:
—Transparency:State Rep. Brett Miller, R-Lancaster, and his cosponsors have resurrected what’s now House Bill 1671. It would force the plans to make video records of their public meetings available for seven years, post easy-to-compare returns for private as well as publicly traded investments, and detail five kinds of fees paid to money managers, who collect hundreds of millions from SERS and up to $1 billion from PSERS each year. They’ll also have to disclose travel paid for by investment managers. The plans have already agreed to some of those steps.
The bill includes significant loopholes for “sensitive” investments and other concessions to Wall Street demands for secrecy. And it does not renew a call to make all investment contracts public.
Still, Ryan says the compromise bill rates a “95” on a transparency scale of 0 to 100.
—National standards: Ryan’s House Bill 1698 imposes the Global Investment Performance Standards (GIPS) ethics and disclosure norms on state pension staff and trustees. These standards, developed by the Chartered Financial Analysts Institute that certifies investment analysts, are designed to ensure users fully disclose their actual returns and expenses.
Most large stock and bond managers — such as BlackRock, Fidelity Institutional and Wellington Management — say they endorse GIPS. But many private real estate and hedge fund managers do not. These include Apollo, Blackstone, Bridgewater, Carlyle, KKR and LLR funds, which have each invested billions for Pennsylvania pensions.
Only one other state — Ohio — has adopted similar rules, and Pennsylvania should learn from Ohio’s experience that higher standards may not be enough to boost performance if the state keeps hiring outside investment managers who don’t also observe those standards, warned public pension consultant Chris Tobe.
“Almost no ‘alternative investment’ managers comply with GIPS, and dozens of the private equity and hedge funds that manage money for the Ohio teachers’ plan refuse to be GIPS-compliant themselves,” Tobe said. “They use what I call the ‘Bernie Madoff policy’: if you ask too many questions, you are not allowed to have the ‘hot’ investments.”
—Fraud audits: Ryan’s House Bill 117 gives the state’s elected Auditor General the power to perform fraud or investigative audits of PSERS, SERS and other state agencies — if requested by the agency, the governor, or appropriations leaders from either party in the state House and Senate. Ryan says this year’s state budget includes $1.5 million to train new hires to do these audits.
—‘Collars’: HB 1578, from State Rep. Dawn Keefer, R-York, removes old limits on how much taxpayers have to pay PSERS and SERS if their investment values suddenly collapse.