Reporting Pension Results: Too Much P.R., Not Enough Consistency
We’ve entered the season when public pensions report their fiscal year results. There’s a funny pattern to these reports. When the annual results are strong, the press releases uniformly tout short-term results and the fact that they exceeded their assumed rates of return. When the annual results are weak, the press releases focus on long-term results in order to distract attention from recent performance. The inconsistency results from the fact that these releases are crafted by public relations experts who are interested in short-term messaging rather than the long-term interests of the pension plans.
I’m not sure why every public pension plans needs its own press office because all of the releases are nearly identical. The actual numbers are the only things that differ. For example in recent weeks, CALPERS reported a 12.5% return, Minnesota announced a 14.2% result, and North Carolina trumpeted its 9.5% return. When all the results are available, pension consultants will issue a report showing who won and who lost the annual horse race. Endowments and foundations go through a similar exercise in which short-term results are emphasized.
Ironically, the same pension plans that feature short-term results chastise their investment managers for emphasizing near-term returns. There’s virtually no significance to the annual results except in extreme circumstances, and yet that’s all that is highlighted. Moreover, the horse race between pension plans is plain silly. North Carolina wasn’t a loser due to its 9.5% return, anymore than Minnesota is a winner with a 14.2% return. To make any meaningful judgment, you’d have to look at many years of investment results and the amount of risk incurred to generate those returns. Clearly the pension plan’s performance over five and ten year periods is much more important than the last twelve months.
While public pension plans are reporting their annual returns, the Rhode Island treasurer is making a practice of withholding information. Any number of news organizations and public employee unions are seeking performance data on Rhode Island’s hedge fund program. Treasurer Raimondo is making it as difficult as possible for them to get the most basic information about Rhode Island’s hedge fund exposure. She’s even employed the specious argument that the returns are “proprietary” information. There’s absolutely nothing proprietary about investment results. In fact, there are only two types of returns: great numbers that pensions and money managers like to tout and embarrassing results that they prefer to bury. Ted Diehl, a contributor to Fortune, does a great job of summarizing the situation in Rhode Island in a post called “Rhode Island Treasurer Misleading the Public Is Worse Than Withholding Hedge Fund Information.”
Public pension plans face huge challenges. However, they are not well served by emphasizing short-term results or hiding their investment performance.