Pennsylvania Public School Employees’ Retirement System‘s board approved a policy on staff travel following a local media report last year revealing some accommodations had been booked directly by Platinum Equity.
“This resolution says public pension funds should not be using investment managers as travel agents,” said Pennsylvania treasurer Joe Torsella at the $56.8 billion pension’s August 7 board meeting. “The questions we’ve been asking in connection with this resolution have been answered in this resolution: who went where, when and who paid for it?”
The policy requires that all travel-related expenses by investment staff and trustees be disclosed on a quarterly basis. The policy also mandates all travel arrangements are paid for by PSERS and not investment managers and that all travel expenses going back to January 1, 2017 be reported.
“I don’t think anyone at PSERS has been acting in other than good faith. I think everyone at PSERS has been following the rules that have been in place,” Torsella said. “What I am saying is I think those rules ought to change.”
Acting state banking and securities secretary Richard Vague, who worked in the investment industry before taking office, also supported the measure. He said the pension’s audit and bylaws committees looked at 11 state pension programs and found that six of them “prohibit any third party payment for travel by any party doing or seeking to do business with their system.”
Vague’s office told Buyouts the pensions studied included California Public Employees’ Retirement System, California State Teachers’ Retirement System, Washington State Investment Board and State of Wisconsin Investment Board.
“The private equity industry has aimed at state pensions and made billions of dollars in fees,” he said. “Yet, private equity returns have been under pressure as literally thousands of new funds have entered the field, causing deal premiums to increase markedly and putting downward pressure on those returns. So to compete against other private equity firms and also to help induce pensions to re-allocate more money from stocks and bonds towards private equity, some Wall Street private equity firms have added this benefit of paying for travel for state pension employees.”
Vague also argued that PSERS practices would be a violation of a state ban on gifts, but a waiver was provided because the travel payment is often written into contracts with managers.
“Formalizing conflict in a contract does not make it any less of a conflict,” he said.
The August 7 discussion went on for an hour and a half, with some testy exchanges between board members and designees.
Board member Susan Lemmo expressed skepticism that trips by investment staff constituted any kind of conflict of interest.
“How tightly scheduled are they?” she asked. “I can’t imagine there is a lot of down time for things.”
Private equity director Darren Foreman was asked to summarize a typical trip by an investment team member, which he said often involved long hours with little time for any potential frills.
“You’re working from sunrise to past sunset with two days on the ground and that’s really how it works,” he said.
The policy has been in the works for a while. Last December, the Pennsylvania Capital-Star published a story revealing that Platinum Equity had reimbursed PSERS for some staff travel costs but also booked some directly, leaving no public record of how much they had spent on the pension’s behalf.
The story clarified that Platinum Equity “uses investors’ money” to pay for trips, meaning the money was taken out of LPs’ contributions to the fund.
That led to a review by PSERS of travel expenses, at Ryan’s request.
An internal audit report dated August 4 and obtained by Buyouts said there were over $625,000 in travel expenses in 2019, with just under $224,000 paid by the state, $356,600 by third-party payments and $44,700 paid for by the state and later reimbursed.
Action Item: read the PA PSERS travel policy resolution here.
Update: this story has been updated to list some of the funds PA PSERS studied in coming up with its policy.