You following the Kentucky Retirement Systems myriad scandals?
Then you’ll want to pay attention to this:
The state pension system’s investment officers say that the $52 million it has paid a British company in currency management fees has resulted in some lower rates of return, but is likely to stay because it has achieved its goal of reducing volatile ups and downs in foreign stock values.
Since 2009, the pension system has paid British company Record Currency Management to try to reduce the impact of rising and falling foreign currencies to the system’s international investments.
Without managing the exchange rate of the currency, foreign investments are subject to two large uncertainties: How the investment is trading and its price, and the current exchange rate between the dollar and the other currency. For example, if the state has invested in Volkswagen, the company’s stock could have a successful day of trading. However, if the value of the euro falls on the same day, gains on the stock value could evaporate.
Because of the weakness of the dollar during the recession, the currency management overlay has not saved the retirement system any money yet. In fact, it has lost money. Without currency management, foreign investments would have had a 12.66% rate of return. With the currency management, they had a 12.61% rate of return.
Record Currency Management is also the most expensive of the retirement system’s advisers and managers. According to the retirement system’s 2011 comprehensive annual financial report, Record Currency Management cost $13.4 million that year. The second most expensive manager was Marathon Asset Management, which was paid $5.4 million for the year.
Yep, Maryland paid a whopping $52 million in fees to a currency manager.
And Kentucky has paid that same manager some $7 million.
Making millions upon millions of dollars in fees while the pension funds actually lose money.