Be careful in changing how public pensions are invested

by Tom Campbell, Executive Producer and Moderator, NC SPIN, January 9, 2014.

Investing 83 billion dollars for more than 875,000 current and retired public employees is an awesome responsibility, one North Carolina delegates to our State Treasurer. There are some who wish to change who makes and how those investment decisions are made for the 11^th largest pension fund in the country.

The late State Treasurer Harlan Boyles, was acutely aware of that responsibility and potential for conflict. During his tenure powerful legislators, employee groups and even governors wanted to share in or have sole authority to make those investment decisions. I was part of many discussions on the subject and studied how other states handled pension investments, but we were unable to find another state that provided clear responsibility and accountability with fewer conflicts of interest.

The State Employees Association of North Carolina (SEANC) has announced a study to determine if present or past conflicts of interest exist and we welcome their study if it is transparent and impartially conducted. Part of their concerns arise from the fact the State Treasurer, as a Constitutional Officer of North Carolina, must stand for election every four years, depending on campaign contributions to wage that statewide campaign.

I well remember meetings with officials from large investment houses; often they would drag me aside to ask why Treasurer Boyles never asked them for frequent campaign contributions, as was the case in other states. Harlan always believed those contributions came with implied or implicit obligations to reciprocate with pension investments and he didn’t want to feel obligated, which is why none of his election campaigns ever raised more than 500,000 dollars. In today’s environment that is a paltry sum but Boyles did so because of his long tenure in office and the respect for his integrity among public officials and public employees.

Some also question the state’s investment returns. Many armchair quarterbacks want to compare the state’s investment rates of returns with their personal portfolios or other benchmarks. In any given year one could likely find some mutual fund or index that outperformed the state’s investments but Treasurer Boyles often responded those investments might be far riskier and just as frequently could yield less in other years. He repeatedly said the risks he took for his own investments was one he assumed, but his fiduciary responsibility demanded he not take irresponsible risks on behalf of public employees.

It is beneficial to shine light on officials making large investment decisions for public employees. Our State Auditor regularly conducts independent reviews, as do several rating agencies. They have repeatedly praised the Teachers and State Employees Retirement System as one of the soundest in the nation, aided by sufficient funding from our legislature and good investment strategies.

Perhaps we should entertain other options for investment decision-making. Maybe we should consider an alternative to having our chief investment officer stand for election every four years. But we must never compromise on holding someone accountable for those decisions. Neither can we endanger the retirements of public employees by chasing risky or unproven investments. Our evaluations should be made over time rather than just over one or two years, and we must remove potential conflicts of interest wherever and whenever we can.

North Carolina’s track record in public pension fund investments has been excellent and should not be changed unless a better system upholds these fundamentals can be assured.