By Andrew M. Silton
I recently resigned as chief investment adviser to the state treasurer of North Carolina. The treasurer, Richard H. Moore, is sole fiduciary of $56 billion in assets of the North Carolina Retirement System and $9 billion in other state assets. While we managed to navigate the equity bear market with some noticeable successes and remain fully funded, the state treasurer could not, despite overwhelming evidence and repeated efforts, convince the Legislature to increase the staffing and salaries of the investment division, which manages the pension and other state assets.
Remarkably, North Carolina devotes less than $850,000 to employ 13 individuals, who internally manage $33 billion in securities and oversee $32 billion in just less than 100 external portfolios. After overseeing these assets for just more than two years, I am leaving because it is impossible to sustain a high level of responsibility and oversight given the available resources.
Among large pension plans, North Carolina might represent the most extreme example of an investment organization starved of resources. However, there are all too many public pension plans that have not been given the funding or flexibility to hire and retain seasoned investment professionals.
When I accepted the position of chief investment adviser, I thought the deepening bear market, revelations of improprieties at Enron, WorldCom, et al., and the emerging environment of lower expected returns would make a compelling case for expanding our staff. I could not have been more mistaken. The treasurer has fought vigorously for our needs in the Legislature, but to no avail.
In the past two years, our state's budget division and appropriations committees have insisted that we cut our budget as part of the state's deficit reduction effort. These actions are patently illogical, since all our expenses are borne by the funds we manage, rather than our taxpayers. How could this happen? Why would government officials and legislators ignore the state treasurer's case for increasing staffing and salaries, and in fact make cuts?
Although retirees and public employees are sympathetic to, and even concerned about, the plight of the investment division, they have bigger issues to confront. Retirees have cost-of-living adjustments, health care and benefit enhancements to protect. State employees have job cuts, increased insurance premiums and low wages to battle. Our finance and banking community have had their own regulatory and tax issues to pursue. Professional management of our public funds does not enjoy the support of powerful interests.
As I pointed out earlier, we have generated strong investment performance, and managed to avoid many of the pitfalls of the last several years. As a result, there is not a problem that would provide the impetus for reform.
The Legislature has not had the vision to rectify the gross inadequacy of staffing and compensation in the investment division, as I noted in my letter of resignation. In my 25-year professional career, I have never seen an investment organization so inadequately staffed or compensated.
We do not have the financial resources to conduct formal studies. However, from various public summaries and our own internal surveys, we know our employees are compensated at roughly 50% of other large public funds; we know our staff is less than half the size of comparable plans; and, we know our budget is less than one-third that of similar funds. As a result, it is a virtual certainty that the existing staff will disappear with time, and that our state will not be able to meet the investment challenges of the next 10 years.
The public funds represent one of the largest pools of capital in the country. In my two years I have met scores of investment professionals who work tirelessly on behalf of public funds under trying conditions. I urge the investment community to take up the cause of state investment officers and their staffs.
Andrew M. Silton plans to leave in January as chief investment adviser to the state treasurer of North Carolina.