Pension fund fees

by Scott Mooneyham, Capitol Press Association, published in Greenville Daily Reflector, March 6, 2014.

In North Carolina political circles, it is no secret that one of the largest employee groups in the state is coming after State Treasurer Janet Cowell.

The State Employees Association of North Carolina has long been unhappy that the state treasurer acts as the sole trustee of the $80 billion state pension fund. The group wants a board, with at least one member from its ranks, to have a say in how pension fund dollars are invested and managed.

Back in January, the state employees group announced that it was hiring an investigator to conduct its own review of state pension fund operations. The same consultant hired to conduct the review, Edward Siedel, had slammed Rhode Island pension fund managers under similar circumstances.

The review is not yet finished, but Siedel is already creating some headaches for Cowell. A letter that he sent to the treasurer accuses her and her office of understating fees paid to outside investment firms.

Siedel specifically questions fees paid to investment house Franklin Street Partners, based in Chapel Hill. The company reportedly received $2.6 million in fees in 2013 to manage $360 million.

Franklin Street Partners, though, was acting as what is known as a fund-of-fund manager, meaning that it is actually farming out the money to hedge funds doing the actual investing. Siedel says the result is that other fees being charged by those hedge funds don’t show up in the fees being reported by Cowell’s office.

Franklin Street called the claims “terribly inaccurate and misleading.” A Cowell spokesman said North Carolina management fees are below industry standards.

According to a report from WRAL in Raleigh, the treasurer’s office said that it is spending about $416 million in fees paid to contracted investment firms.

To Cowell’s credit, she has been cutting back on the pension fund’s use of fund-of-fund managers. Their hiring led to an obvious question: Why do you need them when you are paying a staff of permanent employees to make investing decisions?

But the review from SEANC, regardless of its motivations, is going to lead to more criticism for which Cowell might as well be prepared.

The most significant may be why, despite claims to the contrary, she hasn’t done a better job of being transparent about pension fund business.

A few years ago, Cowell’s office issued annual reports that included listings of management fees paid to each outside manager. Starting in the 2009-10 report, those fees were nowhere to be found.

Obviously, multi-billion dollar pension funds must pay people to manage that money. Whether it is uncomfortable or not, elected state treasurers must put those numbers out there to be accountable to pensioners and the public.

http://www.reflector.com/opinion/mooneyham/mooneyham-pension-fund-fees-2413707