To oversee how a massive Pennsylvania pension fund invests its money, an elite band of Harrisburg-based finance experts traverses the globe.
They head to Wall Street, of course, but also to San Francisco and Boston, London and Hong Kong, Paris and Sydney, and Beijing and Bermuda.
Now The Inquirer has learned the cost of these trips by the staff of the $62 billion retirement plan for Pennsylvania teachers and school employees. The bills for some are startling.
One taxpayer-paid investment manager flew to London in 2019. His fare was $15,627.
Another official ran up a fare of $14,849 in a trip to Florence, Italy, in 2018. His four-day hotel stay cost $2,770.
The same man flew to Paris the year before. The fare: $13,394. His hotel bill for three nights: $2,742.
Another staffer’s fare to get to an advisory meeting in Zurich, Switzerland, was $12,558.
Two officials stayed in Boston hotels for a pair of nights. Their lodgings cost a total of $4,575. Another spent two nights in New York at $1,407 per night.
These extravagant travel charges and many more like them were often paid by the teachers and taxpayers who support the state’s biggest pension fund, the $62 billion Public School Employees’ Retirement System, known as PSERS. The system sends pension checks to 250,000 retirees.
In all, the plan spent more than $1.5 million over three years on travel before COVID-19 kept everyone home. Most of the money went to cover about 500 trips by about 40 staffers in the investment office, a unit with some of the most highly paid employees on the state payroll. Many trips had routine flight and hotel bills, but scores had hefty airfare and luxury hotel charges.
The bills are high because PSERS for years has operated under a system in which it often never knew the true costs of travel. The fund repeatedly left the job of booking tickets, hotels, and meals to the outside money managers who invest the fund’s money. The charges were later buried in overall travel bills that the managers submitted to the fund to be paid by taxpayers and teachers.
In recent years, the fund has been roundly criticized for its lagging investment performance, especially given that the plan, underfunded by many governors and legislatures, is $44 billion short of the money to pay all future retirees
Critics say the staff is too cozy with the money managers — the firms who in many cases have been picking the destinations, booking the flights, choosing the hotels, and catering their meals.
Despite the unexciting returns, the fund pays among the nation’s highest fees to the managers, more than $700 million in 2019, and invests far more money in their private-equity recommendations than other plans.
In a statement Friday, former state Treasurer Joe Torsella, recently nominated to return to the PSERS board, condemned “this outrageous and scandalous” travel spending. He also faulted the fund leaders for fighting “disclosure of these trips at nearly every step of the way.”
“PSERS public pension staff make decisions that impact the futures of every public school teacher and support staff in the Commonwealth,” Torsella said. “When the biggest and richest money managers on Wall Street fly them around the world, putting them up in extravagant hotels like the Beverly Hills Hotel and the Ritz, and wining and dining them on trip after trip, it isn’t to serve the interests of taxpayers or retired teachers, but the interest of Wall Street.”
As The Inquirer has reported, the FBI recently questioned the agency after its board admitted it had endorsed an exaggerated figure for its investment results. The board blamed the mistake on the fund’s own staff and an unnamed consultant.
The outside money managers are billionaire hedge funds and investment houses such as Apollo Global and BlackRock. While they booked the travel for many trips, the managers, in a circular process, often ultimately billed the fund for the travel expenses.
And they haven’t been dunning it for the actual cost of fares and rooms for individual PSERS travelers. Instead, all investors have paid a share of overall travel costs based on the size of their investment stake, regardless of individual costs.
This billing practice has now ended. After The Inquirer raised questions last month, the fund newly declared that “PSERS management will begin the process of direct booking all future travel arrangements.”
For many years, the fund’s spending on travel has been secret to the public. Under pressure from reformers on the board, the pension plan produced its first breakdown of 2019 travel late last year. Reports for 2017 and 2018 were only made available in March.
The staffers in PSERS’ investment shop are paid somewhat like their counterparts in private high finance. James Grossman, the chief investment officer who has worked for PSERS for nearly 25 years, is the highest-paid employee in state government, making $485,000 yearly. His deputy is paid $399,000. The average salary in the unit is about $190,000.
Grossman and most of his staff are often on the road. Their most frequent destination has been New York, followed by London, then Boston. Philadelphia was the fourth most listed destination.
Itineraries have included Dublin, Edinburgh, Lisbon, Macau, Madrid, Saudi Arabia, Singapore, Seoul, and Stockholm. They have gone to meetings in such American hot spots as Beverly Hills, Orlando, and Park City, Utah, along with dozens of other U.S. cities.
The task before them is to check on fund investments. So, for instance, when Luke Jacobs, a PSERS private-equity manager, flew to London on March 4, 2019, for a round-trip fare of $13,025, he attended annual meetings for two funds of Apax Partners, called Apax Digital and Apax Europe VII. PSERS has put more than $300 million into the two Apax funds.
The pension plan has invested heavily in private equity, betting on enterprises not available on the stock market. These deals have prompted criticism for high fees and middling performance. Fund reports show such investments lagging behind its U.S. stock buys for the last decade. Last year, its private-equity portfolio fell 4.2% in value while its public stocks rose 3.2%.
While PSERS has overhauled its travel policy, the fund also defended its spending.
“PSERS has been a global investor for decades,” its spokesperson, Steve Esack, said in a statement. “Its investment team must be willing to travel in order to properly perform their fiduciary duty of monitoring existing investments or conducting due diligence on prospective investments.”
“PSERS investment staff works during these flights to prepare for their meetings,” the statement also said. This sentence was underlined.
Esack also noted that under some contracts, the outside money managers directly pay the agency or reimburse it for specific travel costs. The fund itself does not ultimately pay that set of expenses.
He also said the airfares reflected business-class seats, though not first-class ones.
Asked about 17 fares over $10,000, the retirement plan addressed two. It said both were expensive because they were last-minute bookings.
In general terms, Esack said higher bills might reflect the purchase of refundable tickets that cost extra. Money listed as being spent on fares could include not just airfare, but also trains, buses, Uber, taxis, and ferries, he said.
PSERS has yet to release figures for 2020 travel. It was greatly reduced due to COVID-19.
Of the $1.5 million in travel expenditures between 2017 and 2019, about $300,000 was spent by the agency’s non-investment staff and $100,000 by the 14 board members. The volunteer board was reimbursed for travel to meetings in Harrisburg and to conferences in California, Arizona, and Washington, D.C.
The bulk of the expense was run up by the investment officers — $1.1 million. In all, that staff had more than 30 trips in which the airfare was more than $7,000 in the three years. In 2019, nightly hotel bills exceeded $1,000 seven times and $500 two dozen times.
Even with the new disclosure, the real total remains a mystery. The reports had more than 150 trips in which either airfare or hotel spending is left blank. Information on meals was often blank or unreliably low.
Esack had said earlier that “100% of vendors” had replied to queries about the trips. Asked about the hundreds of blank responses, he wrote Friday: “These are the records the managers provided.”
Gov. Tom Wolf has imposed tough controls on state travel. Among other restrictions, he has decreed that state employees whose expenses are paid directly by the state should book the “lowest logical airfare.”
His written policy says travelers may spend no more than limits in federal guidelines for air tickets and hotels.
The PSERS travel routinely spent more than those.
In addition, eight PSERS executives, including chief executive Glen Grell and Grossman and his deputy, have been exempted from the state’s ceilings on spending on hotel and food.
In statements, PSERS said its travel spending was proper under state laws, and contracts were reviewed by the agency’s lawyers and the Attorney General’s Office.
Still, Torsella and a new board member, State Sen. Katie Muth, a Democrat from Berks, Chester, and Montgomery Counties, said the travel costs raised questions about the fund’s leadership.
“It’s hard to imagine how any person, much less a state employee, hired to serve the public, is even permitted to spend more than $10,000 for airfare, or thousands of dollars in hotel costs for a single trip,” Muth said in a statement
“But what’s more important here is that the Wall Street money managers flying investment office staff to Paris and Hong Kong are the same ones turning around and asking for huge, shady contracts to manage public money,” she said.
PSERS wasn’t alone in following its complex procedure for investment travel. So has the other big Pennsylvania pension fund — known as SERS, for the State Employees’ Retirement System. This is the $35 billion plan for 240,000 workers and retirees. Its travel spending is unknown at the moment.
Spurred by a pension reform commission led in part by Torsella, it says it will reveal the spending in December. It is lagging a year behind PSERS in its disclosure. Nor will it disclose earlier years, as PSERS has done.
Most states appear to permit what PSERS and SERS have done in turning over booking to outside managers. However, Ohio ended that practice in 2004 after a scandal involving trips to Hawaii for a teachers’ pension fund.
PSERS acknowledged that it never kept any records of what trips cost. To satisfy the reform bloc, it had to ask the outside firms to dig through receipts to belatedly say what specific charges were passed on.
At a PSERS meeting last spring, another board member, Nathan Mains, said regarding travel: “We really don’t have a sense of what some of our funds or managers or others have actually spent.”
Grossman replied: “That is correct.”
Even now, the fund can’t generally name the hotels where staff stayed. The fund also has no reliable figures for the cost of many meals, it said. The food was often catered free for groups, making it hard to come up with a cost.
Of the almost 500 trips, 80 have fares listed as zero, including four flights to London, as well as flights to Beijing, Hong Kong, and Zurich.
Even more trips had nothing listed for hotel costs. One was a trip that investment chief Grossman made in the summer of 2018 to Jeddah in Saudi Arabia. The report says his airfare was $7,015 but lists his hotel bill as zero.
Esack said: “These are the records the manager supplied.” He said the trip’s costs, including Grossman’s up to two nights at the Ritz-Carlton Jeddah, were covered by BlackRock. Esack provided no figure for that.
The new transparency, incomplete as it may be, was prompted in part by an article published by the Pennsylvania Capital-Star website. The 2019 story disclosed that a PSERS investment official had stayed at the iconic Beverly Hills Hotel to attend a conference of Platinum Equity. PSERS had invested more than $800 million in Platinum at that time. Platinum specializes in taking over other firms.
While confirming that the official stayed there, the reporter was unable to find out the specific room charge. The article did note that rooms there could go for more than $700 a night.
The stay is listed on the new records. The room cost $955.26 for one night.
Wolf’s Commonwealth Travel Guide calls for state travelers to Los Angeles in 2017 to spend no more nightly than $173.
At a PSERS board meeting last spring, staffer Darren Foreman, director of private-equity investments, described the business trips as “no joyride.”
“You’re working from sunrise to past sunset,” he said.
The records show that Foreman took about 40 trips for the agency in recent years, including 11 to London and four to Paris.
After he spoke, a board member, state banking secretary Richard Vague, remarked: “I’m thinking perhaps we should be giving folks medals for going.”
Staff writer Joseph N. DiStefano contributed to this article.