The wild west frontier, officially closed in 1890 with the advance of civilization, still has a remnant in the $20 billion Texas Permanent School Fund.
At one recent board meeting a money manager representative was accused of assaulting a consultant and cited for a misdemeanor, although the case ultimately was dismissed.
Board members, instead of working together on investment issues, line up against each other like rival camps of cattle and sheep barons fighting for grazing space.
Outsiders are reluctant to come into town, afraid of getting caught in the crossfire of disputing board members. Richards & Tierney Inc. of Chicago, for one, declined to pursue a recent winning investment consultant bid.
The Legislature ought to look at restructuring the board. Its 15 members now are elected from districts across the state. Perhaps the board should be appointed instead, with an investment background being a key requirement. In this case direct election seems to have brought different political and educational ideologies into what should be an investment-oriented board, producing conflict that has carried over into the investment decisions.
In addition, direct election does not ensure those elected have even a rudimentary understanding of investment principles. The board's prime responsibility is to see that the assets are invested efficiently. That's difficult with a united committee of experts, or at least knowledgeable individuals. It is virtually impossible with a divided board of rank amateurs.
In addition, there is no accountability for the board as a whole. Each member is accountable to his or her own electorate, voters who know even less about investing than most of the board members. As one told Pensions & Investments in September: "You can always count on six weirdo votes."
Without law and order, without some unity of vision and purpose, it's hard to see how the board can set and achieve appropriate goals. Ultimately that will hurt Texas public education, which receives, according to a report, $700 million a year from the fund.
Without stability, it will be hard for the board to attract top consultants and money managers to help it decide complex investment matters involved in managing $20 billion, such as the asset allocation study Richards & Tierney declined.
The conflict has been costly to the fund.
Among recent curious decisions by the board or its factions:
* Against staff recommendations, the board hired two banks for custody and securities lending, instead of one, adding, according to a report, an additional $1.2 million in fees.
* Six of the 15 board members asked last December for the Securities and Exchange Commission and the Association for Investment Management and Research to investigate marketing-related actions of a money manager.
* The board divested 460,000 shares of Walt Disney Co. stock in protest over objections to a film's content.
* A majority of the board, with some members dissenting, voted recently to hire Everen Securities Inc. for performance measurement, even though a key executive had been accused by the SEC of improper behavior while at another firm. An administrative law judge recently cleared the executive, but the SEC is appealing the decision.
The back-biting and infighting must stop. The future health of the fund may well depend on it. For that reason, the Texas Legislature must consider changing the structure, or the manner of selection, of board members.
