The seesawing stock markets have left the Arkansas Teacher Retirement System with a flat investment return so far in the current fiscal year that ends June 30, investment consultants advised the system's trustees Monday.
The trustees also discussed looking for security-monitoring firms and changes in board membership.
The Teacher Retirement System is state government's largest such agency with more than 100,000 working and retired members. Its portfolio was valued at $17.3 billion through the end of April, based on a preliminary report from the system's financial adviser, Aon Hewitt Investment Consulting of Chicago.
These holdings increased in value by $1.15 billion in the quarter that ended March 31 to $17.2 billion, Aon Hewitt said in the written report to the trustees.
The investment return was a strong 7.8% for that quarter, as the system benefited from a 14% return on stocks and positive returns on other assets, including a 2.7% return on bonds, said Katie Comstock of the consulting firm.
During April alone, the system's investments increased in value by $149 million to $17.35 billion, Aon Hewitt said in its preliminary report.
The report noted changes in stock, bond and opportunistic/alternative investments, but doesn't include information -- because it wasn't available yet -- about changes in other investments, such as private equity, real estate, timber, agriculture and infrastructure investments.
The system's investment return for fiscal 2019 from July 1 through April 30 was a strong 4.5%, Comstock said.
But "May was a tough month for probably a few reasons," including comments about trade from President Donald Trump's administration and "the reaction of the investment community," Comstock said.
Stock market investments in May dropped by about 6% in value. Bond investments "did hold up," as the broad United States and global bond market was up by about 1.8% for the month, she said, "so in aggregate we are anticipating about a flat return for the total fund in the fiscal year-to-date period.
"But what we are seeing in the global economy [is] still positive growth, slowing but global growth. Corporate earnings are there, so it's a lot of tension that we are seeing in comments about our trade," she said.
P.J. Kelly, also of Aon Hewitt, said a good portion of the system's investment return of 4.5% from July 1-April 30 was probably "wiped out in May.
"All these market movements seem to hang on trade talk and on tariffs," he said. If there is any silver lining, there may be pent-up energy in the stock market and hopefully that leads to good investment returns in June, he said.
Rod Graves, the system's deputy director, said, "A lot for the entire [fiscal] year's return is going to come down to this one last month of June."
"It's tough that a whole fiscal year is going to come down to one month," said trustee Danny Knight of Sherwood.
In other action, the system's trustees authorized up to $90 million in private equity investments.
These private equity investments include putting up to $30 million in JFL Equity Investors V LP, a private equity buyout fund managed by New York-based J.F. Lehman & Co., that invests in the defense, aerospace and maritime industries and related businesses.
The trustees also agreed to put up to $30 million in the Franklin Park Venture Fund Series 2109 LP, a fund managed by Pennsylvania-based Franklin Park that invests in venture capital private equity funds, and up to $30 million in the Franklin Park Corporate Finance Access Fund LP, a fund managed by Franklin Park that invests in smaller buyout, growth and turnaround private equity funds.
The trustees also learned from the agency's executive director, Clint Rhoden, that the system's draft request for qualifications for securities-monitoring firms is being reviewed by Republican Gov. Asa Hutchinson's office.
"We completed the document per se," Rhoden said. "We sent it over to the attorney general's office. As far as the document, the attorney general is OK with our [request for qualifications]. But we have sent it over to the governor's office to get an approval from that office."
But trustee Andrea Lea, who is the Republican state auditor, said, "The governor doesn't approve our policy, if I am not mistaken.
"All you are doing is sending over what this autonomous board duly elected by the people wants to do, just as a courtesy, if I am not mistaken," Lea said. "Is that the correct way to put that?"
Rhoden said he agreed with Lea that "it's a courtesy that we are submitting to the governor's office for review."
Afterward, Rhoden explained that "since this RFQ deals with contracting the services of outside counsel, it was suggested by the Attorney General's office that we send notice to the Governor's office." Republican Leslie Rutledge is the attorney general.
Board Chairman Jeff Stubblefield told his fellow trustees that these securities monitoring firms will represent the system in class-action lawsuits "in the event that some investment scandal was going to take our money."
Knight said, "I might report that I had a call from one of these agencies and I referred it to our executive director" because the board "doesn't get into that process.
"I'm sure some of you received a call and didn't say anything. It is a matter of ethics," Knight said. At the trustees meeting, he didn't name the representative of the securities monitoring firm that contacted him. He could not be reached for comment by telephone late Monday afternoon.
In February, the trustees decided it was time to update its list of securities monitoring firms; these firms represent the system in class-action lawsuits.
The current list includes: Bernstein, Litowitz, Berger & Grossmann LLP; Kaplan Fox & Kilsheimer; Kessler, Topaz, Meltzer & Check LLP; Labaton Sucharow; and Nix Patterson. In February, Rhoden said the agency's contract with Nix Patterson that ends June 30 won't be renewed.
Stubblefield, who has served on the board since 2009, said he will stop serving as a trustee because he is retiring as superintendent of the Charleston School District. After Stubblefield's post becomes vacant after June 30, the board must decide whether to fill the position by appointment or by special election through June 30, 2021, Rhoden said.
Also, Arthur "Chip" Martin of Fayetteville will replace Deborah Thompson of Springdale on the board, Stubblefield said. Thompson is retiring from teaching on June 30. Martin was unopposed in the past election for the member trustee of the 3rd Congressional District, Rhoden said.
Metro on 06/04/2019