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 Bad Investment Advice
by Tom Campbell
April 26, 2007
The proposal to strip the State Treasurer’s authority to invest public employee pension and state surplus funds is bad investment advice. As former Assistant State Treasurer to the late Harlan Boyles I feel qualified to speak to the issue.
It is an awesome responsibility to allow one person to have ultimate authority to make decisions over billion in funds; however the Treasurer has a staff of excellent employees and advisors who devote their entire energies to this effort. And yes, there is the concern of undue political influence in the investment decisions that affect the lives of some 750,000 current and retired public employees. For the record, however, there is no evidence any undue influence has existed.
The topic and concurrent concerns are not new. But despite some very good minds debating and considering alternatives, nobody has yet devised a plan which is better than what we currently have.
The legislation now being considered would remove the Treasurer from sole responsibility for investment decisions and vest that authority with a committee. Instead of holding one person accountable are we now to have a committee? With committees, everyone is responsible and no one is responsible. A similar analogy would be in having a committee perform your brain surgery.
Who would pick the membership of this committee? The proposed legislation would have the Governor pick one-third, the Senate pick one-third, and the House one-third. How is this going to eliminate political influence in picking investment advisors? There is no office more political than that of the Governor and recent events certainly prove that our legislature is subject to political influence. Too many similar selection processes we could name have yielded too little results.
But take this a step further. How can we be assured anyone selected by this process would be qualified to make informed decisions involving billions of dollars? Every member would need to spend countless hours on research, analysis, asset allocation strategies, charting, and oversight of fund and manager results. These members would need to constantly be watching the various investment markets to keep up with market trends. And what would remove them from being subject to the same undue political influence? Our experience suggests few would be qualified or willing to do the almost full-time work involved, especially on an unpaid basis.
Next, consider the risk factor. In your personal investments you can take as much risk as you want, but investing public pension funds demands a fiduciary responsibility to those who are beneficiaries, almost dictating a more conservative and risk-averse strategy. A seven percent return might not compare favorably with your personal portfolio but, in all likelihood, neither does the degree of risk. The investment performance of the department of state treasurer has been solid year after year, absent of scandals, and without major embarrassments.
If you want a discussion about reforming our system for investing state pension funds we welcome the debate, but recent comments (especially by state employee association officials) are highly biased, contain partial truths, and are unfair in alarming current and retired state employees. Show us a better, more effective, less political, and more accountable plan and we will gladly consider it. Until then, the best investment advice is to stay the course.
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