The Toledo Blade Recommends Legislators Investigate Ohio And Minnesota State Pension Fees, Not Just ESG

On Saturday, The Blade Editorial Board recommended Ohio Legislators investigate a far greater problem than ESG for state pensions: exorbitant fees secretly paid to Wall Street.

“As we found out when STRS leaders were called upon to help the Minnesota pension fund rebut critics, dubious financial records with impossible to believe fund management expenses are a problem way beyond Ohio. Congressman Jordan could inquire as to Minnesota’s $83 million reported fee for management of $134.7 billion in the context of IRS oversight failure.

ESG Not Enough

THE BLADE EDITORIAL BOARD

The anti-ESG legislation is part of a multistate Republican effort. Ohio Congressman Jim Jordan is using the House Judiciary Committee to investigate more than 60 Wall Street firms for collusion to promote this agenda.

Ohio Republican lawmakers and the DeWine administration aren’t totally ignoring the investment practices of the state’s five public pension funds. But they’ve addressed a culture war issue instead of pension solvency. The combined holdings of the Ohio public pensions total nearly a quarter trillion dollars. This month, on a straight party line vote, the legislature passed and Governor DeWine signed a change in law to bar state pensions, the Ohio Bureau of Workers Compensation, and university endowments from ESG investing.

That is shorthand for the political correctness of building a portfolio based on environmental, social, and governance issues.

Predictably, ESG is measured through a liberal lens, with environmental goals to minimize fossil fuel production and consumption, social goals to promote labor unions, and governance standards that emphasize diversity.

ESG has become controversial because the Wall Street investment managers for giant institutional clients like the Ohio funds routinely impose these requirements on corporate America through the power of dollars supplied by states that oppose the governance goals. Ohio’s new anti-ESG law simply requires all state investment funds “make investment decisions with the sole purpose of maximizing the return on its investments.”

The Blade Editorial Board finds it regrettable that Republican lawmakers and the governor don’t use the same all-that-matters-is-return-on-investment criteria when it comes to managing, or even monitoring, the exorbitant fees paid to Wall Street fund managers.

As documented by reform board members at the State Teachers Retirement System of Ohio and reported exclusively on The Blade Editorial page, fees paid to alternative fund managers by STRS over the last two years are nearly $1 billion more than reported on their Annual Comprehensive Financial Report. Pension expert Richard Ennis wrote in The Blade of his study showing higher than reported investment management fees caused STRS to trail the return they could have earned from a low-cost index fund by an average of 1.62 percent for 13 years. The $12.5 billion opportunity cost to STRS is a much bigger Ohio problem than ESG.

The anti-ESG legislation is part of a multistate Republican effort. Ohio Congressman Jim Jordan is using the House Judiciary Committee to investigate more than 60 Wall Street firms for collusion to promote this agenda. If the GOP was really interested in serving the retirement needs of pension beneficiaries as they are in blocking a liberal political agenda powered by the economic clout of massive state pension funds, they would also be investigating huge fees paid to Wall Street shielded from scrutiny by false financial records. As we found out when STRS leaders were called upon to help the Minnesota pension fund rebut critics, dubious financial records with impossible to believe fund management expenses are a problem way beyond Ohio. Congressman Jordan could inquire as to Minnesota’s $83 million reported fee for management of $134.7 billion in the context of IRS oversight failure (emphasis added).

All state pension plans are tax exempt as qualified plans, but fictitious reporting to the IRS on financial records is enough to threaten tax free status. Congress should take a look at the collusion between state pensions and Wall Street funds to hide true expenses. The Ohio General Assembly should require total transparency on all fees and expenses paid by all state funds covered by the new anti-ESG law.