Cultural Revolutions

Alternative Investments

Arkansas' Teachers Retirement System was the only government retirement system in the United States to lose money by investing in the offshore limited partnerships at the center of the Enron bankruptcy.  The Cayman Islands-based partnerships “engaged in derivative transactions with Enron,” according to a November 2001 SEC filing, allegedly “to permit Enron to hedge market risks.”  ATRS might never have invested funds if a state audit of the system in 1998-99 had been taken seriously.  The audit reported that “Investment department management’s failure to establish effective controls over investments resulted in inadequate supporting documentation for market values on alternative, real estate and Arkansas related investments totaling $581,245,825.”  “Alternative investments” is a broad term that includes derivatives and the Enron offshore limited partnerships.  The audit also stated that “the accounting department did not maintain adequate accounting records and documentation to support differences between the general ledger and their published financial statements.  Due to the lack of administrative review, inadequate staff training and absence of written policies and procedures, the general ledger was understated $1,107,931,345.”  That is revealing, given that ATRS, Arkansas’ largest government retirement system, controls more than...

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