Legislators Should Question Cowell Before Trusting Her To Take More Risk With Pension Fund

State Treasurer Janet Cowell is at it again, sending a letter to legislators urging the passage of SB 558 – a bill that would allow the Treasurer’s office to invest a higher share of the pension fund in “alternative” investments.

State Treasurer Janet Cowell is urging lawmakers to give her more flexibility to invest the state’s pension money, warning that is is “very unlikely” returns will meet projections without the change.

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A Senate bill to allow the treasurer to increase investments in real estate and alternatives such as hedge funds, commodities and asset-backed securities. Cowell said the new flexibility won’t guarantee the state can meet its returns but “we’d have a fighting chance.”

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Under the measure, Cowell could move away from publicly traded stocks and bonds and invest up to 40 percent of the state’s pension in alternative investments. The current limit is 36 percent. The bill also would allow any one category of investments to equal as much as 15 percent of the fund’s investments.

I wrote previously about SB 558, making it a “Bad Bill of the Week,” describing the legislation as a desperate move to engage in more risky speculative investments in order to try to make up for poor returns in recent years and to try to live up to unrealistically rosy projected returns in future years.

But most interestingly, is a look at the pension funds’ current portfolio of investments. According to the latest report, “alternative” investments make up only 20 percent of the pension fund’s portfolio (under current definitions, “alternatives” being discussed here refers to investments classified on the report as real estate, alternatives, credit and inflation). As noted in the N&O article, the current limit is 36%

So why is Cowell so adamant about raising the limit when she appears to be nowhere near the current limit? Are there “alternative” investments (like hedge funds) tucked away in the “global equity” category and are not being disclosed in her reports?

Moreover, the minutes from the latest Investment Advisory Committee meeting in May show that North Carolina’s pension fund returns – less management fees – have been deteriorating. For large public pension funds, NC ranks in the 83rd percentile (being in the first percentile is best for this measure) for returns, gross fees, in the last year. That puts NC as one of the worst performing funds in the nation. Why aren’t legislators questioning this performance, especially in light of Cowell’s desire to engage in even more risky investments?

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