Dueling bills address transparency of NC pension fund investments

06/26/2014 5:36 PM

06/26/2014 5:37 PM

The ongoing feud over the transparency of state pension fund investments between state Treasurer Janet Cowell and the State Employees Association of North Carolina has spawned dueling bills in the state legislature.

A bill backed by SEANC would make a wealth of investment information available as public records – including all fees related to investments made by the $87 billion pension fund.

The Cowell-supported bill would keep confidential and “trade secret” information about investments made by money managers under wraps until five years after an investment contract has concluded.

So far, the bill backed by Cowell, a Democrat, has gained more traction in the Republican-led legislature. The House State Personnel Committee endorsed it by a voice vote on June 18; it’s now in the Appropriations Committee. Three of the four primary sponsors of the bill are Republican.

The competing SEANC bill is in the House State Personnel Committee but hasn’t been voted on. All four of the primary sponsors are Republican.

The long-standing hostilities between SEANC and Cowell ramped up earlier this year when a report commissioned by the employees group blasted the treasurer for an extensive list of alleged wrongs, including potentially violating investment disclosure laws and concealing investments from the public. Cowell’s office contends she has done nothing wrong, that the report strayed from the facts, and that the pension fund is “one of the most transparent in the nation.”

The two sides have clashed especially over the treasurer’s contracting with “fund of funds” that hire other money managers to invest the pension fund’s money. SEANC complains the underlying fees charged by those money managers aren’t disclosed.

SEANC members contribute 6 percent of their paychecks to the state pension fund.

Proponents of the Cowell-supported bill point out that it would provide more transparency than is available today.

Kevin SigRist, chief investment officer at the treasurer’s office, told lawmakers that right now “proprietary, confidential or trade secret” information can be withheld from the public forever.

But Ardis Watkins, SEANC’s legislative affairs director, has argued that, given that contracts can last 10 years or more, keeping them from public view for an additional five years after the contract expires is unacceptable.

“A generation goes by before we know if we got ripped off,” she told legislators.

The bill originally called for a 10-year moratorium on making investment fees available after contracts expired, but was reduced to five years in the face of objections that the information wouldn’t be available before the statute of limitations on securities fraud claims expired.

SEANC complains that whittling five years off the time schedule isn’t enough to fix that problem. But Schorr Johnson, a spokesman for the state treasurer, said the clock on the statute of limitations wouldn’t start ticking until a problem is discovered.

SEANC argues that nothing less than its full-disclosure bill is needed.

Given the financial support the pension fund receives from state employees, “our members deserve openness and transparency from the government,” said SEANC spokeswoman Toni Davis.

In a letter to lawmakers, Cowell contended that the SEANC-backed bill would require disclosure of sensitive information that would hamper its ability to hire the best money mangers.

“Few if any such investment managers would work with us knowing that sensitive or proprietary and confidential information related to their other clients and investments was not clearly protected,” she wrote. She also said the state would be vulnerable to lawsuits for violating secrecy agreements.

The Cowell-backed bill also includes other provisions that arose from a bipartisan committee appointed by the treasurer. Among other things, the bill mandates an annual audit of the pension fund by an independent auditing firm hired by the state auditor and gives the treasurer greater flexibility to hire investment staff.

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