Apr 1 2014
On April 1st, our special Senate Finance Subcommittee (Bryant (ch), Lourie (ch), Jackson, Cleary) reported out our report. Click here to view the full report, here’s the summary;
Report of the Special Subcommittee to Review the Investment of State Retirement Funds
Senators Bryant, Lourie (co-chairs), Jackson and Cleary
Senator Bryant Presentation:
Chairman Leatherman tasked the Special Subcommittee to review:
Inspector General’s Report.
Investment Management Fees.
Securities Lending Agreement with the Bank of New York – Mellon.
Consider whether legislation was warranted to change the System.
The Subcommittee met seven times from December 5th through March 4th.
The Subcommittee received over 12 hours of testimony.
The Subcommittee received numerous documents.
All documents and recordings of testimony are available for viewing on the Finance Committee location of the legislative website.
The Inspector General’s Report is an accurate roadmap for understanding the history and current status of the Retirement System Investment Commission and its interaction with the State Treasurer. The attached Appendix lists the Inspector General’s findings from his investigation.
Communication between the Commission and the State Treasurer is dysfunctional.
Fiduciary roles are currently muddled and need to be streamlined and clarified.
Based on testimony received, accusations of criminality at the Investment Commission by the State Treasurer are unfounded.
Senator Lourie Presentation:
Operational infrastructure to ensure due diligence was sorely lacking during the nascent stages of the Investment Commission. In recent years, operational infrastructure has markedly improved and continues to improve as the Investment Commission is authorized more resources.
The investment strategy of the Commission is purposely weighted towards alternative investments to minimize risk. The Subcommittee is somewhat uncomfortable with this approach but recognizes the legitimacy of the strategy. By the nature of alternative investment structures, fees related to those investments are higher than traditional bond/stock portfolios. Further, the Investment Commission’s disclosure of fees may be the most transparent among its peer group, so any comparison of fees with peers should be carefully reviewed.
The State Treasurer’s settlement with the Bank of New York Mellon over the administration of a securities lending contract was procedurally acceptable but managerially perplexing. The State Treasurer’s responsibility to serve as custodial banker for the Investment Commission is organizationally misaligned.
The Special Subcommittee recommends that its assignment continue so that the Funston fiduciary audit be received, reviewed and translated into legislation for consideration.
The Special Subcommittee recommends the immediate consideration of legislation to add members to the Investment Commission. These new members would be chosen from among the constituent groups the Investment Commission is designed to serve and they would hold qualifications. This proposed change should help reduce the fear these groups of public servants are experiencing from the acrimony exhibited at Commission meetings and in the media.