Ohio teachers' pension lost $520M on Panda Power — a decade of bad bets on natural gas

The State Teachers Retirement System of Ohio (STRS) was a $90 billion pension fund serving Ohio's public school teachers. Over a decade starting in 2011, STRS invested approximately $520 million in Panda Power Funds, a private equity firm that developed natural gas power plants.

Panda Power Funds built several large natural gas-fired power plants in the US, financing them with debt and equity from institutional investors. The strategy was based on the assumption that natural gas prices would remain high enough to make the plants profitable. However, a glut of natural gas from the fracking boom drove prices down, and many of the plants operated at a loss.

By 2021, Panda Power Funds had filed for Chapter 11 bankruptcy, and STRS's investment was largely wiped out. The $520 million loss represented one of the largest private equity losses for a US public pension fund. The loss was particularly damaging because it was teachers' retirement money that had been allocated to a single, concentrated investment strategy in an industry the pension fund had no expertise in.

The case highlighted the dangers of pension funds investing in complex, illiquid private equity strategies without adequate risk assessment. STRS's board had approved the Panda Power investments based on optimistic projections that did not account for the structural changes in the US energy market.