CEM Benchmarking Study Shows STRS Ohio Investment Returns Rank in the Top 10% While Investment Costs Remain Low
At the March meeting of the State Teachers Retirement Board, CEM Benchmarking, a leading global research company, presented the results of its annual Investment Cost Effectiveness Analysis Report to the Retirement Board. The report compared investment data — both performance and cost data — from more than 300 pension funds, including about 150 U.S. pension funds. The study showed that for the five-year period ending Dec. 31, 2019, STRS Ohio’s net total fund return of 8.2% placed in the top 10% of CEM’s database.
The report said STRS Ohio’s performance was due in part to having a higher allocation to one of the better performing asset classes of the past five years (U.S. stocks) and a lower allocation to one of the weaker performing asset classes during this time span (fixed income). The report also noted STRS Ohio’s active management, rather than relying exclusively on passive management added an estimated $900 million in value to the fund during the five-year period.
The study’s cost analysis shows STRS Ohio’s costs were lower than most peers due mostly to STRS Ohio’s low cost implementation style (managing about 70% of assets in-house) and paying less than peers for similar services. The report estimated STRS Ohio saved about $115 million in calendar year 2019 by using the internal management approach. This figure is based on the peer group’s median external management costs.
Callan Updates Board on its 10-year Capital Markets Assumptions; Projects Lower-Than-Normal Returns
One of the board’s investment consultants, Callan LLC, presented its capital markets projections as part of the March investment update. Callan’s discussion indicated that forecasts for gross domestic product growth (GDP) in both the United States and international markets are all below their long-term averages. Callan also lowered its U.S. inflation forecast. Its resulting projections point to a lower-than-normal investment return environment over the next decade, noting its 10-year projections represent the midpoint of a range, rather than a specific number. When applied to STRS Ohio’s target asset allocation, the 10-year expected return midpoint was 6.02%. Callan also noted this process does not reflect active management decisions — just projections for broad asset class exposures. Callan calculated the probability of STRS Ohio’s portfolio (at neutral weight) achieving its assumed 7.45% return over the next 10 years is about 37%. These projections will help inform the upcoming asset-allocation study that is expected to begin later this year.
Retirement Board Election Materials to Mail April 1; One Contributing Member Seat, Two Retired Member Seats to be Filled
The 2021 State Teachers Retirement Board election will take place beginning April 1, when ballots are mailed to all STRS Ohio members who are eligible to vote. One contributing member seat is up for election, along with both retired member seats. The 2021 Retirement Board election packets will include information about each of the candidates who qualified for the ballot and instructions for casting your vote online, by phone or by mail. The deadline for voting is 4:30 p.m. on Monday, May 3. STRS Ohio will announce the results of the election following presentation of the results to the boards of tellers on May 8. The four-year term for these seats begins on Sept. 1, 2021.
Three candidates qualified for the contributing member seat election. Those candidates are Carol Correthers, Benjamin Pfeiffer and Matt Sheridan. Those eligible to vote for the contributing member seat include STRS Ohio contributing members (except for reemployed retirees), individuals who have contributions on deposit with STRS Ohio and disability benefit recipients.
Four candidates qualified for the election of the two retired member seats. Those candidates are Rudy H. Fichtenbaum, Elizabeth Jones, Robert Stein and Rita J. Walters. Those eligible to vote for the retired member seats include all retired members of the system (including reemployed retirees).
STRS Ohio is using Election Services Co. to conduct the election. Board members are not compensated for board service but may be reimbursed for actual necessary expenses incurred while serving on the board.
The Retirement Board approved 76 active members and 60 inactive members for service retirement benefits.
Other STRS Ohio News
Auditor of State awards STRS Ohio audit contract to Crowe, LLP
The Ohio Auditor of State has selected Crowe, LLP, to conduct the financial audit of STRS Ohio for the fiscal years ended June 30, 2021, through 2025. The audit covers financial reporting that is included in STRS Ohio’s Comprehensive Annual Financial Report. This audit is just one layer of independent oversight of STRS Ohio. Crowe replaces CliftonLarsonAllen who served as the independent auditing firm for STRS Ohio for the last nine years.