PPOB Hears CERS Investment Update

The Public Pension Oversight Board (PPOB) met for the first time since the 2022 session adjourned on April 14. County Employees Retirement System (CERS) CEO Ed Owens III testified alongside Kentucky Public Pensions Authority (KPPA) Executive Director David Eager and Kentucky Retirement Systems (KRS) CEO John Chilton. They discussed preliminary plan returns, recently passed legislation, and environmental, social, and governance (ESG) reporting.

KPPA Chief Investment Officer Steven Herbert updated legislators on investment returns. He said preliminary data through March 31 shows the CERS nonhazardous market value down 3.16% for the first three months of 2022. However, the plan is up 1.42% for the fiscal year. The CERS hazardous market is down 3.16% through March but up 1.37% fiscal year to date.

Herbert stated the current economic environment is making it hard for KPPA to find appropriate investments for CERS, resulting in higher amounts of cash on hand than preferred. Real estate investments, he explained, were particularly hard to identify.

Owens thanked the PPOB for asking him to testify and commented that the CERS Board of Trustees recently marked its first anniversary. “In that time, we have made great strides under the leadership of our chairman Betty Pendergrass and our vice chairman Jerry Powell,” Owens said. “Change in the asset allocation for CERS has been driven by our board as we look very closely and very intently on what we need to do moving forward.”

He commended the legislature for passing House Bill 297, a KLC initiative that addressed several KPPA issues. “You gave us the ability the hire four to six additional investment staff people who Steven (Herbert) will utilize to implement the cash that he has been given back and to start TIPS programs so that we are bringing more in-house than we have ever been able to do in the past.”

Members spent a large portion of the meeting discussing environmental, social, and governance (ESG) reporting. During a previous hearing, legislators asked those testifying on Monday to prepare remarks on the topic. ESG calls for investors to consider potential investment recipient’s environmental, social, and governance practices.

Owens explained fiduciary requirements and duty when citing the ESG policy CERS Board members amended in November. The policy states: “The CERS trustees recognize the importance of responsible investing. Accordingly, the trustees acknowledge that integrating ESG policy principles that engage the issue from a risk, opportunity, and fiduciary duty perspective will enhance investment results. The overriding consideration for the trustees will continue to be investing to maximize the long-term returns for plan beneficiaries.”

Representative Jerry Miller (R-Louisville) complimented Owens on his ability to help PPOB focus on the issue as he voiced concern about ESG policies.

“This is a really big deal that people need to be paying attention to,” said PPOB Co-Chair Representative Jim DuPlessis (R-Elizabethtown). “I think you are right that you need to be thinking about what’s best for your members. But it’s a big deal when you can start socially constructing our society using a financial hammer, and it’s just not a good thing.”