In just the past year my ERB fund has lost everything it gained over the past eight years according to the State Treasury James B. Lewis. The deals that cost the fund $90 million and caused an increase of 1.5% payments by employees (nothing for employers no matter how much money that was given to the school systems to build new buildings) were made before Lewis took office. The questions are about third party marketers and their influence when it comes to how past members of that board decided to make investments. Why is the fund management not more transparent to the voting public and who is influencing how those decisions are being made in the first place? This is not just a large investments funds for the state but this is the retirement of every past, present, and future educator in this state. I most certainly have a big dog in this fight as they say in this state.
State Senator Tim Keller is concerned about this issue and is working with voters to try and provide a system that would support open and honest government. He has over the last few weeks spoken to the voting public and this has been a major concern for educators in this city. The following has resulted from working with investment field experts. It also will help that Senator Keller himself has experience in the field of investments and oversight.
“On Monday in the Investment Oversight Committee Senator Keller will submit recommendations to work with the executive branch, legislature leadership, state funds and the broader finance community to preserve the sanctity of our state funds and work to restore public faith in our investment process. After discussions with numerous individuals in the investment field in and out of our state and legislative council services Senator Keller has consolidated potential solutions to consider for the interim committee on investment oversight including:Redesign the governance structure of the state investment funds based on the separation of stakeholders, experts and staff.
- Creating formal committee structures and requiring investment qualifications to reduce conflict of interested, improve oversight, effectiveness and accountability.
- Require a public fund “prospectus” similar to other fund that outlines allocations, goals, and processes for each fund each year.
- Determine the right balance of diversification of financial advisors (i.e. having a different advisor and fund partners vs consolidating advisors into a few relationships with full service financial institution)
- Specify clear delegation of authority to oversight boards (approval requirements) for staff and advisors based on investment size, liquidation preference and other risk factors to create clear lines of accountability for any investments
- Require tracking of not just benchmarks but allocation and performance comparables for a basket of “peer” funds (Endowments, other states etc)
- Consider writing down Private Equity investments based on implied market value to ensure ‘real value’ of the fund for expected returns and planning purposes
- Discontinue allowing individuals and entities from playing the role of advisors and fund managers, and across funds by to reduce conflict of interest and reduce risk
- Specify and “arm’s length” for all transactions, meaning the market would determine all related fees and associated advisors and all relationships would disclosed in advance of any decision
Further details will be outlined in an Investment Policy Considerations Memo distributed at Monday’s Investment Oversight Committee meeting in Santa Fe. Senator Keller carried HB876 (M. Garcia) in the Senate this year which made it a felony for 3rd Party marketers not to disclose fees. After signage by the Governor, this legislation has enabled the state, and the public, to uncover fees charged. Senator Keller has professional experience in corporate governance, securities and alternative investments.”
