By Mike Connolly
When most teachers wake up in the morning, they don’t think about the city of Kirkuk, in Iraq. They get ready for the day, handle the incredible difficulties of teaching during a pandemic, and then prepare to do it all over again. They endure the low pay and the tough working conditions, with the belief that there’s at least one solid financial benefit to the job: the state pension they get to enjoy when they retire.
And yet, a big chunk of that retirement money just happened to be in Kirkuk a few years ago, whether our teachers knew it or not. It was there because of a shadowy backroom deal, one of the hundreds of such deals that our Public School Employees’ Retirement System (PSERS) love to make.
I know Kirkuk well, having spent almost two years fighting in Iraq before I was old enough to buy a legal drink. My infantry unit travelled through Kirkuk and the semi-autonomous Kurdish regions often, just a few years before Pennsylvania teacher money found its way into the area.
I also know the public pension world quite well. Over the past four years, I served as the Deputy State Treasurer for Communications at the Pennsylvania Treasury department, and closely monitored where our public money was going and what we could do about it.
The story of where that money went, and what happened to it, is almost too bizarre to follow.
After the financial crisis, the people running the money meant for our teachers went on a deal-making spree, diving headfirst into the world of so-called “alternative” investments, including private equity. Month after month and meeting after meeting, men from Wall Street deign to come down to Harrisburg and make their pitches to receive tens, and often hundreds, of millions of dollars of public pension money.
In this case, the money in question went to the inscrutably named “Oilflow SPV 1 DAC”. That fund leads into the worldwide marketplace for fossil fuel commodities. The money would eventually find its way into one of the riskiest places in the world: the disputed territory around Kirkuk and the oil it contains.
At the time, Kirkuk was temporarily controlled by the Kurds. That Pennsylvania teacher money ended up being loaned to the provisional Kurdish government, secured against the future proceeds of oil sales in the region.
What happened next might not have been on the radars of the people teaching our kids math or how to spell, but it should be pretty obvious to anyone who knows the region well. The Kurds lost control of Kirkuk to the Iraqi military, and with it, the ability to sell the oil that would have paid back the retirement fund of our teachers.
To be sure, this is just one investment among the hundreds of investments that PSERS makes every year. Some of them make money, and some of them are certainly less baffling than this one. But this is by no means an extreme outlier in a $60 billion school pension system that is dreadfully underfunded.
Our teachers deserve far better than this. The people investing on behalf of those teachers are floridly delusional to believe that this is the path to pension salvation. One thing that someone who spends a significant amount of time in Iraq learns is that there are no real “experts” on Iraq. The place is confoundingly volatile and makes fools of those that bet on stability.
The broader point is not that PSERS made a gamble on a region in Iraq and lost. It’s that they shouldn’t be gambling with our funds at all.
My old boss from Treasury, ex-Treasurer Joe Torsella, taught me what the founder of Vanguard taught him a long time ago. Investments work best when they’re cheap, liquid, and boring. New members of the PSERS board have a chance to lead on these issues, and perhaps take us further away from investments in areas like fossil fuels.
The investing world isn’t just where rich guys go to get richer. It’s also where we see our public investments grow or be squandered. The fact that this happens in little-noticed meetings—which only recently began to be livestreamed—only adds to the problems we face.
Our public investments should be boring enough to put us to sleep, not cause us to lose it. Let’s stop chasing phantom profits into areas where our money managers have little expertise and get back to a model that better serves our teachers and taxpayers.
Opinion Contributor Mike Connolly is the principal of Salthill Communications, and former Deputy State Treasurer for Communications under Treasurer Joe Torsella. He served two tours in Iraq as an Infantryman. His work appears biweekly on the Capital-Star’s Commentary Page. Follow him on Twitter: @MD_Connolly.