In my continuing serious on the use of alternative assets in public pension fund, we now turn our eyes to South Carolina
This is not a new story, but comes from 2013 — while the story of hedge fund/private equity fees have been around for a while, it is currently becoming more prominent.
South Carolina’s $27 billion pension dove into private equity and hedge funds in 2008, hoping to increase returns that were at the bottom tenth of public- employee retirement funds.
Five years and $1.2 billion in fees later, its annualized gain of 1.3 percent still trails the median among public pension-systems, according to data compiled by Wilshire Associates Inc. In neighboring Georgia, the $53.5 billion teachers’ pension buys only stocks and bonds. It paid money managers $119.5 million over the same period and its annualized returns of 2.95 percent were in the top quartile.
No state has rushed into the loosely regulated investment pools as South Carolina has. As of June 30, the pension had invested 56 percent of its portfolio with firms including Goldman Sachs Group Inc. (GS), Bridgewater Associates LP and Apollo Global Management LLC. (APO)
Diversifying the portfolio reduces risk and provides the best opportunity to capture higher returns, wrote Reynolds Williams, chairman of the South Carolina Retirement System Investment Commission, in a Jan. 13 letter accompanying the fund’s annual report.
Yeesh. That was from over a year ago.
What are some more recent developments?
COLUMBIA, S.C. (AP) – For the second time in three months, the agency investing South Carolina’s pension portfolio has named an executive director.
The Retirement Systems Investment Commission voted 4-2 on Tuesday to hire Michael Hitchcock, who takes the job Sept. 8. Hitchcock has been the chief attorney and assistant clerk of the South Carolina Senate since 2001. His salary will be $230,000.
Hitchcock takes over from Sarah Corbett, a 15-year agency employee who was promoted to the new position June 3. She resigned earlier this month.
Creating the post was among the recommendations Funston Advisory Services made last spring. The job overseeing the entire agency eliminated the role of chief operating officer. Former Sen. Greg Ryberg had held that job since last October, when Darry Oliver resigned after seven months.
What state agency can hire a $200,000-a-year (not counting benefits) executive director without advertising the position? And without notifying its board members until two working days before the decision is to be announced?
Could it be the same agency that doled out $1.4 million in bonuses to its top executives last year? The same agency that paid out a record $427,000,000 in fees and expenses last year? The same agency that’s had three chief operating officers in one year (not counting the present interim executive director)?
Yes, we’re referring to the S.C. Retirement System Investment Commission (SCRSIC) – which boasts the highest fees and some of the lowest returns of any large pension fund in America.
According to our sources, SCRSIC leader Reynolds Williams – whose law firm profits from commission deals – has chosen a crony of liberal S.C. Senate leader Hugh Leatherman to serve as the new head of the agency.
Leatherman’s crony – current S.C. Senate staffer Michael Hitchcock – will be nominated for the position at a hastily called Monday meeting. Hitchcock will replace of Sarah Corbett – who resigned last month after only one month on the job.
So let’s get this straight: The best person the SCRSIC can find to manage this multi-billion dollar fund is a glorified legislative errand boy? One who has no financial background? And who does the bidding of the most liberal politician in the state?
S.C. Treasurer Curtis Loftis has been trying to change the culture of corruption at the SCRSIC for the better part of the last four years – arguing that its high fees (the highest fees in the nation, actually), low returns and rampant cronyism are imposing undue burdens on South Carolina retirees and taxpayers.
Exorbitant pay raises and bonuses to commission bureaucrats have also raised questions …
But the most troubling part of the story is the extent to which those entrusted with the best interests of the state’s citizens are instead looking out for their own interests.
Take former SCRSIC Harris Chewning – who left the commission in August 2013 just a month-and-a-half away from a $50,000 bonus.
Should we pat Chewning on the back for this?
No. Not even a little bit.
During his “public service,” Chewning was responsible for managing the American Timberlands account – which he successfully steered through an unprecedented four rejections by the SCRSIC’s internal investment panel.
I am sure this will end well.
But this really points out the issues with private equity and hedge fund investment — the inherent opacity of the investments makes for pay-for-play (and less direct) opportunities. It’s bad enough that politicians mess about with public pensions in the first place. Now they can give their buddies in the investment sphere some business. In many cases, it’s legal, even if questionable.
And note, this is not a partisan issue — it’s a “people in power” issue. In some of these cases, you have politicians from different parties coming together to pull off the cushy deals.
Of course, they figure it will never hurt themselves, even if their own pensions are invested in questionable deals. After all, the taxpayers can always be counted on to make the pensions whole, right?
South Carolina Pensions: Investment Returns Recalc
Requesting a Public Hearing on Public Pension Actuarial Practice
Vladimir Bukovsky Makes the New York Times