Monday, July 16, 2012

KRS Responds on Currency Hedging Program

In response to a blog comment of mine, Beware of Currency Managers, William Thielen, the newly appointed Executive Director at Kentucky Retirement Systems, sent me a link to a public document they just posted on the currency hedging program at KRS.

The information was compiled by KRS Chief Investment Officer T.J. Carlon and his team of investment professionals. It is is a detailed response supported by minutes from KRS board meetings examining why KRS hired Record Currency Management (RCM).

I invite my readers to read this response very carefully by clicking here. According to this response, the pros and cons of RCM Dynamic Currency Hedging Program were discussed in detail prior to its approval. The authority to hire RCM was ratified by the full KRS Board of Trustees on February 19, 2009 and Chris Tobe who was then a board member acknowledged knowing about the currency program well before he indicated in the article published on my blog.

For his part, Chris Tobe sent me this response:
My experience is that KRS always seems to be in the position having to defend actions by people who leave before the controversy gets discovered. CIO Tosh, who was mostly responsible for hiring Record, left before the placement agent controversy broke. Current CIO TJ Carlson told me he did not believe in adding a currency manager to an international allocation, but was kind of stuck trying to defend Tosh . RV Kuhns told me they do not recommend currency overlay for any clients, but seem to have gone along. It seems that Tosh knew this was going to be controversial so from his position at his new employer (Rogers Casey) he drafted a defense of this position. I wonder if he recommended Record Currency to any Rogers Casey public clients or was it just CYA for what he did at KRS?
I don't want to comment on this topic any further. I thank KRS Chief Investment Officer T.J. Carlon and his team of investment professionals for drafting this detailed response and Bill Thielen for notifying me so I can post a link on my blog.

One thing I will share with you is this case proves the importance of publicly disclosing board meeting minutes at public pension funds. KRS posts board minutes on their site and they will soon post committee minutes too. Many US state funds (Alaska and Missouri come to mind) have such board meeting minutes publicly available but most US public pension funds and all Canadian public pension funds keep these board minutes secret, violating pension governance 101.

Anyone can claim whatever they want. If they can back it up with proof and board minutes, it makes their claims legitimate. But we live in an era where lawyers advise their clients to disclose as little as possible publicly to cover their asses if and when the shit hits the fan.

I've participated in enough board meetings to know the drill. Most of the time, they're boring as hell. Board members are required to pour over volumes of documents and then meet to approve major investments as well as go over financial and HR matters. But once in a while, you get some heated exchanges between board members and even between management and the board. Those were the fun and memorable board meetings (got to write a book or movie script on all this).

Below, leave you with the movie trailer of Margin Call. If you haven't seen it, watch it. Great movie, shows you exactly how the sleazy slimeballs on Wall Street operate, unloading trash on their clients.

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