PIERRE, S.D. (KELO) — State law requires an annual independent audit of the South Dakota Retirement System and the three reports for the past year came back as “clean opinions,” according to the Eide Bailly partner whose four-member team did the financial check-up.
Lealan Miller told SDRS trustees on Thursday there were no breakdowns in internal controls, there were “really strong controls” over the significant number of alternative investments and nowhere was management found to be overriding those controls.
“You’re in the upper echelon,” Miller said.
The audit showed SDRS assets declined from about $14.6 billion as of July 1, 2021, to about $14.1 billion as of June 30, 2022.
Karl Alberts, an SDRS trustee who serves as Aberdeen city finance director and represents municipal employees in the system, chaired the board’s audit committee. “I thought it was really showing there was no even trivial uncorrected errors,” Alberts said. He said the audit pointed out “a quality system.”
The trustees also received the quadrennial investment-performance review that Eide Bailly performed. It too is required by state law. The review found discrepancies in several areas but the bottom lines matched overall.
State investment officer Matt Clark commented, “We all want to know, have that extra look, to make sure there are no big mistakes.” Clark said the four-year review gives more confidence to legislators, trustees and the public that the numbers were right. “It’s important that we know they are at least close,” he said.
SDRS senior actuary Doug Fiddler was asked whether four years was often enough. Fiddler said SDRS has the outside firm look over the shoulder of SDRS during the interim years. Clark noted that the state Department of Legislative Audit heavily monitors the Investment Council’s actions as well.
SDRS investments for the first five months of the current fiscal year returned an estimated 3 to 4% gain, according to Clark. That is up from the 0.69% loss that SDRS took last year but down from the 22% gain SDRS reported for the previous year.
SDRS operates on an assumed 6.50% annual rate of return. Clark takes a contrarian approach in managing SDRS investments. That means more money is held back, as cash, when markets are overvalued, as Clark believes they are now and have been for some time, and then putting cash back into the markets when prices fall far enough to become attractive.
He’s not ready to buy yet. The S&P 500 closed at 4,076.57 Thursday. “But we’re still a long way from fair value,” Clark said. “Four-thousand is quite a ways from fair value.”
State Senator Jim Bolin, a Canton Republican and retired school teacher, asked Clark whether SDRS had invested in cryptocurrency. Replied Clark, “We do not believe that there’s a legitimate institutional investor case for cryptocurrency.”
Clark said his cynicism overpowered whatever else he maybe felt about the somewhat recent format. “It seems like a scam to me,” he said. “It’s good for bribes, it’s good for cyber-frauds.” He added, “It reminds me of the chain-letter things when I was a kid in the 70s.”
Replied Bolin, “It would be similar to Jerusalem artichokes.”