Arizona Pension Scolded After Racking Up $1.76 million Legal Bill In 2013-14

Entering Arizona

The Public Safety Personnel Retirement System (PSPRS) racked up $1.76 million in legal bills in fiscal year 2013-14.

To put that legal tab in context, consider the legal bills accrued by the state’s largest pension fund, the Arizona State Retirement System: ASRS is four times as big as PSPRS, but only paid $1.24 million in legal bills.

The state’s Attorney General’s Office is now saying that enough is enough. From now on, the Office says it must approve any legal work outside investment advice.

From the Arizona Republic:

The Arizona Attorney General’s Office has cracked down on the use of outside legal counsel by the financially troubled Arizona public-safety pension fund after the fund paid out $1.76 million to the Kutak Rock law firm last fiscal year.

The Public Safety Personnel Retirement System also is represented by the Attorney General’s Office and recently hired a full-time investment attorney who makes $215,000 annually. The pension fund has relied on Kutak Rock for administrative, litigation and investment advice, records show.

Under the Attorney General’s directive, Kutak Rock now may only provide investment advice. Any additional work must be approved by the Attorney General’s Office.

Eric Bistrow, chief deputy attorney general, recently wrote PSPRS that engaging outside counsel “when there is no need to do so constitutes a breach of fiduciary responsibilities.” Bistrow noted that he has instructed staff members to “be vigilant in requiring” PSPRS to adhere to proper standards.

Of the $1.76 million billed by Kutak Rock last year, just more than one-third related to investment advice, records show. The balance related to administrative and litigation matters.


“We took this action because they (Kutak Rock) were doing too much and were well beyond the scope,” said Stephanie Grisham, spokeswoman for Attorney General Tom Horne. “Basically, they (PSPRS) were using them instead of us, and that was not okay.”

Bistrow bluntly told PSPRS that large outside legal tabs would no longer be tolerated. He said in his directive that the same services “can be obtained with as much, if not more, expertise and at a much lower cost, at this office.”

Jared Smout, PSPRS interim administrator, said the pension fund is “working to make everything right. We are trying to figure out the balance. The AG’s Office will now provide review of public records requests, open meetings laws and personnel matters.”

What caused the high legal bills? The pension fund offers an explanation:

PSPRS has been particularly busy in [several] legal areas over the past 18 months. The system has been locked in litigation with former employees who allege it engaged in questionable financial practices, and its director retired this summer after The Arizona Republic disclosed that illegal raises had been paid to some staffers.

Those problems have invited close scrutiny by journalists and the FBI, which is investigating some of the whistle-blowers’ allegations.

Smout said PSPRS has until now relied on outside counsel because the trust’s investments expanded during the past decade and the agency needed legal expertise.

“We’ve only had competent in-house counsel since August,” Smout said.

Read more coverage of Arizona’s PSPRS, and the controversies surrounding the fund, here.

Japan Pension Called “Stupid” By Top Advisor For Prematurely Announcing Target Allocations


Japan’s Government Pension Investment Fund (GPIF) is in the process of increasing its domestic equity holdings from 12 percent of its portfolio to around 20 percent.

The pension fund announced the plan in June and the implementation is well underway – but one of the fund’s top advisors called the announcement “stupid”.

Why? Here’s his logic, explained by Chief Investment Officer magazine:

Takatoshi Ito, a vocal proponent of overhauling Japan’s $1.2 trillion Government Pension Investment Fund (GPIF), has been among those encouraging the giant fund to increase its allocation to domestic equities. But in an interview with Bloomberg this week, he warned against publishing target weightings before making asset allocation changes as the information could move markets before GPIF has a chance to access good prices.

Ito said: “Saying ‘we’re going to purchase as much as whatever percent’ before buying anything is a stupid idea. It’s tantamount to not fulfilling their fiduciary responsibilities and not appropriately investing the money entrusted to them. It’s wrong, and I’m against it.”

Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank, also hit out at the idea of announcing the allocation changes before acting. He said: “The market will front-run it, and our pension money will be invested at highs. It makes it pointless to entrust our savings to experts, and we should ask for it back so we can manage it ourselves. It makes those experts meaningless.”

The GPIF is currently reviewing its asset allocation, with Prime Minister Shinzo Abe having urged the fund to reach a decision this year. Ito said the fund has probably not started any shift yet, as it would become obvious through market data and filings when the trillions of yen expected to be reallocated start to move.

GPIF plans to slash its fixed-income holdings and shift more money towards domestic equities:

At the end of June the GPIF had 53.4% in domestic fixed income and 17.3% in Japanese equity. Ito’s personal recommendation, according to Bloomberg, was to slash the fixed income element to 35% of the portfolio and increase Japanese equities to 25%. This would involve the sale of roughly $220 billion in bonds and the purchase of roughly $96 billion in equities, based on the fund’s June 2014 valuation of ¥127 trillion ($1.2 trillion).

The GPIF manages $1.2 trillion of pension assets.


Photo by Ville Miettinen via Flickr CC License