FBI Investigates Asset Owner’s Returns

May 3, 2021

WHAT HAPPENED?

A Pennsylvania pension fund is caught in a legal inquiry from the FBI that led to an investigation. The trouble began when the fund’s board members noticed the plan reported yearly investment returns that were barely over the threshold to avoid an increase in payments from its participants. The pattern of these close numbers over nearly ten years sparked suspicion among board members, who announced the figures were incorrect.

The fund stated publicly the bad data came from an outside consultant. It is unclear whether the consultant performed calculations using incorrect information provided by another of the pension’s service providers, or if the pension’s staff provided faulty data at the outset. A third service provider conducted a secondary check of the performance calculations. The FBI got involved in the case earlier this month when the agency subpoenaed records from the fund’s executives.

WHAT DOES THIS MEAN FOR ME?

The pension fund could have mitigated the risk of miscalculations were it following a set of performance principles like the Global Investment Performance Standards (GIPS^®). The GIPS standards are a voluntary set of principles based on fair representation and full disclosure that are gaining traction with asset owners across the financial industry.

Adopting the GIPS standards as an asset owner includes benefits beyond keeping out of regulatory trouble, such as:

• Demonstrating to members, oversight boards, legislative boards, and the general public that the asset owner supports an accepted set of best practices for calculating and presenting investment performance.
• Showing a commitment to follow best practices for valuing investments, creating comprehensive performance policies and procedures, and calculating and presenting investment performance that is consistent and transparent.
• Improving operational and recordkeeping procedures and enhancing communication throughout all impacted departments.

If you are interested in learning more about how the GIPS standards can help your organization, Fairview Performance Services can provide guidance. After a short informational discussion to assess your needs, we will provide a proposal for implementation and estimated cost. Contact us today for more information about what we can do for your institution.