The TRS October Surprise -- based on year old, non-pursuable Teacher Retirement System allegations

Teacher Retirement System of Texas

Points to the Bill White campaign for getting the Texas media to breathlessly report for a couple media cycles on a possible new scandal at the Teacher Retirement System...when in fact the uncovered facts are more than a year old. Negative points to the Texas media for not figuring this out sooner.

I've read the Michael Green memo about the Texas Teacher's Retirement System (TRS). It is over a year old...and you know the only thing redacted, presumably by Bill White's campaign? Not Michael Green's name...the headers which show the date of the memo's writing. Seriously, the date is the only thing redacted. Somehow this didn't send off alarm bells for the media?

Although White called for an investigation based on the over a year old memo, Travis County prosecutors met with Green in early September 2009 and closed the matter almost half a year ago. Keep in mind that the Travis County DA is elected by a heavily Democratic constituency -- if there's smoke, there is an electoral incentive to go searching for fire. The Attorney General's office also passed. In short, it's pretty clear that prosecutors don't think Green's memo is worth pursuing.

The prosecutor's refusal to pursue the case is in addition to the third-party auditor report hired by TRS which could not find evidence of action worth pursuing.

[disclosure: I have some professional experience in this area, but as far as I know zero professional contact with anyone named in this story.]

As to Green's memo, what I read is similar to what I've heard in conversations with friends who were unhappy that their boss told them what the result should be for their research. Green sounds like someone who is trying to do his job, albeit one quite willing to believe the worst about his bosses' motivations. Indeed, TRS doesn't sound like a well-functioning investment team where internal dissent is encouraged for the purpose of making proper decisions. On the other hand, while I'm not certain of the TRS board members' exact responsibilities, it seems like they likely are obligated to push for managers who they think are proper for the fund. Also, in some ways, 10j is quite disturbing, if true, because it shows a lack of understanding by some management as to how an overcommitment strategy for private equity works, with regards to the need to diversify by vintage year. Likewise 10k -- among others -- might also be particularly disturbing, if true.

But how this connects to the gubernatorial race is far-fetched. I suppose you could come up with a scenario whereby Perry is appointing TRS boardmembers who he tells to invest TRS funds in private equity and hedge funds managers who then turn around and donate a portion of those profits to the Perry campaign. That doesn't really make sense though -- a private equity manager who is already quite wealthy is going to risk jailtime to get 0.5% richer? And why would Rick Perry come up with this relatively small scheme when Clayton Williams has previously said that he'll back Perry with whatever necessary and Bob Perry has repeatedly shown a willingness to give whatever Rick Perry needs? What Bill White or his campaign was alleging just doesn't make sense.

Now, a more likely Dem charge is: well, Perry appointed the wrong people. If we accept everything Green's memo says as unimpeachable fact (further investigation would be required for this), then you can say that Perry's appointees are less than great at being board members.

Unfortunately for White, his own Houston METRO board performed much worse than TRS. And TRS is just a small part of the governor's appointment portfolio, whereas METRO is a pretty major piece of the Houston Mayor's appointments. Moreover, White was known for being personally involved in METRO and transit issues, even running under the slogan "Let's Get Houston Moving." So it's hard to think that we're likely to get better board appointments by electing Bill White.

In short, having investigated this, there really is absolutely zero "there" there to the TRS story. It's surprising that the Texas media has spilled so much ink on what was a non-story...over a year ago. Less so now.

Posted by Evan @ 10/21/10 09:39 AM


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