Brent McKim | JCTA President
A recent guest editorial published by Insider Louisville was highly critical of the Kentucky Education Association and Jefferson County Teachers Association, accusing both organizations and their leaders of being opposed to transparency regarding the Kentucky Teacher Retirement System (KTRS) because of concerns the Associations expressed regarding one portion of Senate Bill 2, which would have essentially prevented KTRS from investing in private equity.
At the heart of the issue are questions of what KTRS investment and operating expense information is and should be publicly available and what information is not and should not be publicly available.
Information that currently is and should be available includes KTRS investment information (including information regarding KTRS private equity investments), as well as KTRS contracted and administrative investment expenses. If you would like to view this information, simply visit this website and click on the “FY Ended 2015” link in the KTRS Comprehensive Annual Financial Report section. This will download the 2015 annual report, in which you can see the system’s private equity investments on page 72 and its contracted and administrative investment expenses on page 74. In this document readers will find that, contrary to assertions the recent editorial by Jim Waters of the Bluegrass Institute, KTRS has no investments in hedge funds (and never has).
Information that is not and should not be publicly available includes confidential trade secrets shared with KTRS after KTRS investment analysts have signed non-disclosure agreements in order to review this information. Here is the background you need to understand why:
A small (approximately 4 percent of the KTRS portfolio) but successful (approximately 10 percent average annual return on investment since inception in about 2007) portion of the KTRS investment portfolio is comprised of private equity investments. Typically, these investments involve companies that approach KTRS seeking investment capital based on a business plan and/or confidential trade secrets that they believe give them a competitive edge on their competition. In order to judge these potential investments, KTRS signs a non-disclosure agreement in order to review the business plan and/or confidential trade secrets of these businesses. Informed by this information, KTRS then makes decisions whether or not to invest in these private equity opportunities.
Senate Bill 2 initially would have required KTRS to publicly disclose this proprietary information. Obviously, no business would be willing to share the information KTRS would need to make private equity investment decisions if the business knew this information would be made public, so this provision would have had the net effect of preventing KTRS from continuing to invest in this successful area of its portfolio. Fortunately, successful engagement by KTRS, JCTA, and KEA led to revisions in SB 2 by the bill’s sponsor to correct this problem. The Association appreciates these changes made by Sen. Joe Bowen, R-8.
In the end, these changes will help KTRS maintain a diverse portfolio and thereby maximize its investment returns over time. This is good for the state’s taxpayers because better investment returns mean fewer tax dollars are needed to sustain the retirement system.
It is unfortunate that the recent editorial chose to misrepresent these positive changes and use them to disparage two teacher leaders who were democratically elected by their peers to speak for professional educators across the commonwealth, as well as the more than 30,000 dedicated educators they represent.
About the author: Brent McKim is president of the Jefferson County Teachers Association and a high school science teacher in the district.