US - The Teachers' Retirement System of Louisiana (TRSL) does not adequately monitor its investment managers' use of affiliated brokers and its policies do not adequately ensure that decision makers avoid the appearance of conflicts of interest, according to a report by the state Legislative Auditor.
Legislative Auditor Steve Theriot recommended that TRSL prohibit investment managers from using affiliated brokers and review trading activity post-hire to make sure that affiliated brokers are not used.
The system’s managers partly agreed with that recommendation, saying that affiliated broker relationships should be prohibited in most cases, but noted that best execution can be harmed with regards to international investment managers if such a prohibition is applied.
TRSL’s staff, trustees and managers accepted meals from investment managers, consultants and custodians worth $51,598 and travel reimbursements totalling $6,159 from alternative investment managers. While these examples do not violate state ethics laws, they represent a potential conflict of interest, the report said. The system’s staff may have violated state ethics laws by accepting Christmas baskets worth $160 in total from investment managers.
The auditor recommended that TRSL obtain a judgement from the Louisiana Board of Ethics regarding the gifts and strengthen its policies and procedures to ensure that all potential conflicts of interest are avoided. TRSL’s management disagreed with both conclusions.
However, the Legislative Auditor’s report did find that the system monitors compliance with the system’s investment policy. While the majority of fees paid to managers of traditional asset classes are lower than average, about half of the fees paid to all asset managers are higher than the median established by consultants Greenwich Associates.
The audit found that the $11.9bn (e$9.2bn) pension fund has bested its 10-year assumed rate of return - 8.25% - turning in a 9.59% annualised rate of return, with 11 of 14 asset classes outperforming their benchmark over the long term.
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