BATON ROUGE, La. - The four largest state pension funds have agreed to a proposal by the state treasurer to form a task force to study economically targeted investments in the state.
The $140 million Louisiana State Police Retirement and Relief Fund, the $4.5 billion Louisiana State Employees' Retirement System, the $1 billion Louisiana School Employees' Retirement System and the $7.6 billion Louisiana Teachers Retirement System passed resolutions in the past two months supporting the formation of the Strategic Louisiana Investment Task Force.
Crucial to gaining the pension funds' support was a stipulation that the task force's activities be advisory. "The task force would be a non-binding source of information and not an actual fiduciary for any of the systems," Treasurer Ken Duncan stated in a memo about the task force.
"We affirmed our support for the task force provided that we are represented, that it's advisory, (that) our fiduciary responsibility isn't breached and the decision for investing remains our decision," said James Hadley Jr., director of Louisiana Teachers.
It also is unlikely a pool of pension money to make investments will be formed, at least not at the outset.
"Each opportunity has to be looked at individually by the (separate) boards," said Mr. Hadley. "So the chances of putting money in a blind pool are slim."
James Wood, executive director with the state employees' fund, said the only way his board would be willing to approve funding a pool is if the board retained the right to decide on individual projects the task force would present.
Mr. Duncan said the task force is needed because he senses there are opportunities for the retirement systems to make solid Louisiana investments and generate more than acceptable returns.
"At the outset, let me be clear," Mr. Duncan states in his memo. "I don't have a specific project I am trying to sell nor am I proposing this effort at the behest of another person or people with projects to sell," the memo said.
"But the time had come to educate public officials and entrepreneurs about how the pension funds make investment decisions because many had proposed 'great deals' and expected to be able to 'dip into the honey pot' this $16 billion pool of money seems to represent.
"My personal philosophy is that if you can invest in a building, for example, in Louisiana that is brick-for-brick the same building in Alabama, and both investments offer the same return, you should invest in Louisiana, not because you owe anyone anything, but just because it makes sense," Mr. Duncan states.
"My vision of this project is not a complicated one. The group would convene, decide what its study goals are, how the work will be accomplished and at what pace.
"In the end, any guidelines the task force developed as tests for system investments, for example, would not be binding," he stated. "The members of the task force would drive the process."
Other members of the task force might include the governor, representatives from the Legislature, the state office of economic development and representatives from banking, finance, economics, insurance and private sector economic development, Mr. Duncan stated in the memo.
"This proposed membership is by no means set in stone," he said
Mr. Hadley envisions the task force serving as a clearinghouse for the numerous investment proposals that his and the other state funds receive from Louisiana entrepreneurs.
"I get calls from people to invest in crawfish farms, waterslides, amusement parks and golf courses," said Mr. Hadley."Many of them will probably not be a venture worth looking at.
But, "we don't have a way to ascertain if they are good investments," he said. "This is an attempt to create an entity to service investment concepts.
"We will get to hear and see something other than the phone call-type requests."
Mr. Duncan's proposal to form a committee to study the issue and set guidelines is the proper approach to starting an ETI program, said Richard Ferlauto, policy co-director for the Center for Policy Alternatives, Washington.
"They (Louisiana) are really copying the best practices of other states that have taken the lead," said Mr. Ferlauto. Massachusetts and California are considered to be at the vanguard of proper execution of an ETI strategy, he said.
"We recommend a panel," Mr. Ferlauto said. "We recommend performance (expectations) be similar to the asset class in which the investment would normally fall."
When these steps are taken, noted Mr. Ferlauto, ETIs have a tendency to perform as well or to outperform similar traditional investments.