By Paul Gable
A complete audit of the S.C. Retirement System Investment Commission and its internal policies should be undertaken by an outside firm as a result of last week’s discussion before the state Budget and Control Board. This discussion came only days after commission chairman Reynolds Williams became the focus of investigations by both SLED and the S.C. Ethics Commission.
The commission is responsible for making the investment decisions for the state’s $25 billion public retirement investment fund. In addition to tracking the funds themselves, an audit of risk assessment, due diligence, evacuation and cross trades, among other things, should be looked at by outside professionals.
The commission is at an unusually important time in its history as they are about to hire a new Chief Investment Officer with the potential to make nearly a million dollars annually in salary and bonuses. The commission is also set to hire a Chief Operating Officer and a new general consultant that will source, perform due diligence on, and help manage all investments.
The B&CB approved a motion by S.C. Treasurer Curtis Loftis last week to “hire a counsel to determine the fiduciary and statutory responsibilities of all trustees, custodians and commission members” with regard to investment decisions and contracts of the pension fund.
That is a good start, but it may not be enough. SCRSIC chairman Reynolds Williams strongly voiced opposition to any audit or investigation of past investment contracts approved and executed by the commission. Why?
Williams tried to say that doing so would breach contracts with the investment partners with whom the commission contracted.
Further oversight of publicly raised and invested dollars would breach contracts? Seems to me it would be prudent action on the part of state government.
Over this past weekend, Williams took his battle against oversight to the next level with a comment he posted on a media internet web site.
“The treasurer said he needs members of his senior staff to help him go over contracts (of the investment commission) before he approves the use of funds, which under current state statutes he cannot do,” Williams wrote. “The problem is he does not have the power or right to approve the investment. He is a mere custodian, one who should follow orders when he is dealing with someone else’s money.”
This is a quasi-arrogant way of saying go sit over there in the corner Mr. Treasurer, don’t say anything and just do what you’re told. It is an opinion shared by Senate Finance Chairman Hugh Leatherman during last week’s B&CB meeting. Williams was appointed to the commission by Leatherman.
Are we playing political games here gentlemen or are we seriously interested in the safety of South Carolina’s pension funds?
There are problems with Williams’ logic. This is not the investment commission’s money – it is a combination of public tax dollars and contributions from government employees throughout the state. If the state treasurer, a publicly elected official, wants to assure himself that a commission of political appointees is making wise decisions, he should be applauded not blocked!
It must be pointed out that South Carolina’s public pension fund is generally underperforming when compared to other state pension funds throughout the country. According to investment professionals we have consulted, the South Carolina public pension fund is consistently in the bottom 10 percent, often the bottom five percent, of performance of similar pension funds.
According to sources with knowledge of the investments, it is also one which is much more heavily invested in exotic rather than traditional investments. Exotic is used here for investments in hedge funds, real estate, oil, gold and the like as opposed to traditional stocks and bonds.
The possibility of a greater potential profit exists with these types of investments, but so does greater risk. With the state facing an approximate $10 billion shortfall in its pension fund to meet future requirements, maybe the risk is warranted. However, greater oversight of such investments is not only warranted, it is needed in our opinion!
Investment professionals we have consulted say the use of our state funds in these types of exotic investments can provide fund managers, commodities brokers, and such with extra leveraging power with which they may increase their profits. Is this proper use of the state pension fund and does South Carolina experience a proper return from its funds being used in such ways?
With a historically low rate of return, higher risk investments and little transparency, the treasurer is to be commended for his position last week. If Williams can’t understand that, maybe it’s time for him to resign.