COLUMBIA, S.C. -- A new panel of investment professionals will soon guide the $17 billion South Carolina Retirement System as it begins investing in the U.S. stock market.
The State Retirement Systems Investment Panel will be responsible for establishing an investment policy, hiring a consultant and, possibly, hiring or firing of investment managers.
The panel, expected to be named in a month, will be made up of five experts selected by the state's Budget and Control Board. That board's members are: Gov. David Beasly; state House Ways and Means Committee Chairman Henry Brown; state Senate Finance Committee Chairman John Drummond; Comptroller General Earle Morris Jr.; and Treasurer Richard Eckstrom.
The nominees are expected to be announced shortly.
It has been a long road to equity investing for the state system.
In November 1996, voters approved a referendum to amend the state constitution and allow the retirement system to invest up to 40% of its assets in U.S. stocks.
That vote was ratified by the Legislature in 1997, allowing 10% of total pension assets to be invested in the stock market each year until it hit the 40% cap.
But the bill authorizing the investments was stalled because House and Senate members could not agree on who should control the investments.
"It was an ugly display of politics," said Mr. Eckstrom.
In the highly partisan Republican House and Democratic Senate, the constitutional amendment was ratified the very last day of the 1997 session by legislators bowing to public pressure, he added. It was signed by Gov. Beasly and became law May 26.
The law calls for the panel to "diversify the investments of the retirement systems, unless the panel reasonably determines that because of special circumstances, it is clearly not prudent to do so; and make a reasonable effort to verify facts relevant to the investment of assets."
According to Louise Majors, spokeswoman for The Budget and Control Board, the earliest movement of investments will take place this fall. No specific timetable has been established.
After the Budget and Control Board receives a proposed investment plan from the panel, an annual investment plan will be adopted. According to the law, the investment plan will be implemented by the Budget and Control Board, although it is expected some ideas on implementation will come from the investment panel.
"My recommendation is that the panel hires external managers because the private sector has a very good track record," Mr. Eckstrom said.
Other Budget and Control Board members did not return phone calls by press time.
The fund now invests in domestic fixed income and cash. Internal staff members handle all of the investing, under the supervision of the treasurer.
The investment panel is expected to be ready to meet beginning in another month, the treasurer said. All five appointees are required to have "substantial financial investment experience" and are to serve a two-year term without compensation, according to the law. The group will meet at least quarterly for performance evaluations and compliance reviews.
Panel members will face a felony conviction up to 10 years in prison and a $1,000 fine for any form of self-dealing. Still, Mr. Eckstrom worries about a "good ol' boy" network developing. He hopes other Budget and Control Board members will be looking at competence as opposed to personal relationships in selecting appointees.
The treasurer expressed frustration over how long it took to finally pass the law. He first began to lobby for the legislation three years ago, after being elected treasurer.
He was able to convince lawmakers of the urgency of investing in U.S. stocks by pointing out that between 1994 and 1997 the fund lost an estimated $5 million a day by not investing 40% of fund assets in the market. Even if only 10% had been invested, it's estimated $1 million a day would have been lost. While Mr. Eckstrom would have liked to have seen both international and domestic equity investment permitted, he had to compromise.
"We must be careful with our expectations. We can't expect that kind of growth (in the stock market) to continue," he said.
