December Board News

Gavel

Independent Audit Results in Clean Opinion on STRS Ohio Financial Statements

At the December meeting of the State Teachers Retirement Board, Crowe LLC, reported the results of its audit of STRS Ohio’s financial statements for the fiscal year ending June 30, 2022. Crowe’s report showed the retirement system’s financial statements were fairly presented in accordance with accounting principles generally accepted in the United States, and the firm found no instances of noncompliance nor any material weaknesses in internal controls. STRS Ohio received an unmodified or “clean” opinion, affirming the financial information prepared by STRS Ohio. Crowe LLC is the independent auditing firm selected by Ohio’s Auditor of State to conduct the annual audit of STRS Ohio’s financial statements under the oversight of auditor Keith Faber’s office.

Crowe also shared with the board the results of its testing of STRS Ohio’s Performance-Based Incentive program for selected eligible Investment staff. Crowe’s recalculations and testing identified no exceptions and confirmed compliance with the board-approved policy and benchmarks. Crowe also shared that alternative investments values are appropriately handled by STRS Ohio for both monthly performance reporting and annual financial statement reporting.

STRS Ohio’s financial statements are included in the 2022 Annual Comprehensive Financial Report (ACFR), which will be posted on the system’s website by the end of December.

CEM Benchmarking Report Shows STRS Ohio Investment Costs Among the Lowest Compared to Peer Funds, While Returns Rank High

CEM Benchmarking presented the results of its annual Investment Cost Effectiveness Analysis, comparing investment performance and costs for the five-year period ending Dec. 31, 2021. CEM is an industry leader in providing investment and pension administration benchmarking and its analysis compared STRS Ohio with 146 U.S. pension funds. CEM’s costs analysis showed STRS Ohio’s costs were low compared to peers, primarily due to a low-cost implementation style (managing about 70% of assets in-house) and paying less than peers for similar services. CEM estimated this approach saved STRS Ohio about $134 million in 2021.

The study also showed STRS Ohio’s five-year annualized net total fund return (Jan. 1, 2017–Dec. 31, 2021) was 12.4%, above both the U.S. public median of 11.2% and the similar sized U.S. peer median of 11.9%.

Investment Performance Review Shows STRS Ohio Returns Near the Top of Callan Public Fund Sponsor Database

Callan LLC, one of the board’s investment consultants, shared the results of its quarterly performance report that compares STRS Ohio’s investment returns to its database of more than 200 public pension funds. Callan’s data shows that STRS Ohio investment returns for the quarter ending Sept. 30, 2022, ranked in the top 10% of the database for the trailing three-, five- seven- and 10-year time frames.

The report also showed STRS Ohio outperformed its benchmark returns for each of these time periods, and these benchmark returns were among the top 25% tracked in Callan’s database. Callan shared that STRS Ohio’s five-year return ranked in the top 6% of the database, while exhibiting less risk than the median of the fund sponsor database.

Callan Reviews STRS Ohio’s Investment Benchmarks

The Retirement Board conducted a thorough review of asset class performance benchmarks in early 2021. This month, Callan provided the board’s Investment Committee with a benchmark refresher. Investment performance benchmarks are standards or measures used to analyze performance. They are typically market indices that are investable and measurable. Callan’s refresher identified the benchmarks that the board unanimously approved in February 2021. After reviewing benchmarks for each asset class, Callan also shared benchmarks used by some of STRS Ohio’s peers.

Investment Committee Discusses Active Management of Investment Assets

The board’s Investment Committee also heard a comparison of active versus passive management of STRS Ohio investment assets and discussed the strengths of each approach. Passive management can be compared to index investing — simply trying to earn the return of a benchmark index. Active management seeks to outperform the benchmark. STRS Ohio, like many institutional investors, currently uses both strategies in its investment portfolio, and Callan explained that each method can be appropriate for certain circumstances. Callan also reviewed STRS Ohio’s active management performance for various asset classes.

STRS Ohio staff shared that active management of the pension fund’s assets has outperformed passive indices and increased the total fund market value by billions of dollars over the July 1, 1999–June 30, 2021, period. As the Retirement Board considers its investment beliefs, staff shared that many large North American pension funds embrace active management as a core investment belief. The committee indicated it would like to discuss active management further at its February 2023.

Board Recognizes Chief Benefits Officer for Outstanding Service

The Retirement Board recognized Gary Russell, deputy executive director — Member Benefits and chief benefits officer, who is retiring after 31 years of service at STRS Ohio. Under Russell’s leadership, STRS Ohio has ranked as the top service provider among U.S. public pension plans in CEM Benchmarking’s pension administration survey for 12 of the 24 years the survey has been conducted. The board thanked Russell for his commitment and dedication to serving STRS Ohio members, board and staff.

Retirements Approved

The Retirement Board approved 54 active members and 55 inactive members for service retirement benefits.

Happy Holidays

The State Teachers Retirement Board and STRS Ohio staff wish all of you a safe and happy holiday season.