Why did you raise your hand for the comptroller's job? Given the challenges of this office, much of which revolved around ethical issues, I did feel at the time ... that I had a strong sense of what the public wanted to see. And I think that sense — about putting priority on not only getting good results (performance), but doing it in the right way — gets back to the issues of integrity and ethics.
This office does a lot. We're often thought of mostly from the pension side and investment side, but we do many other things that have an impact on state government. ...
When it comes to the investment side, contrary to what people sometimes think because we are a sole-trustee system, it is not a process whereby I'm sitting ... at that desk reading the Wall Street Journal or Pensions & Investments and then telling everyone how to invest our money. We have a very professional, highly trained, internal staff — I appreciate this even more than I did when I was in the Legislature ... — we have a host of paid advisers that guide us, advisory committees that work with us as well. So that sense of responsibility that ultimately is mine is one that I certainly feel; while I may be the final sign-off, I'm part of a very extensive team. That makes the burden of responsibility a bit easier.
After two years, are you comfortable with the investment process? The investment environment has changed radically ... I think whereas when I first got the position (in February 2007) there was some concern that I didn't come out of Wall Street, the reality is that so many of the “experts” were proven to be wrong and the old rule book ... was thrown out.
The fact that it's been a very challenging and changing and shifting investment environment has made it harder to approach it like saying, “OK, now that I've got it down, this is how we're going to do it for the next two or three years.”
It's been just the opposite ... It's a combination of trying to look for new opportunities in the changing environment, but also at the same time having a level of confidence that the asset allocation we've been using is one that we should let work over time. Because we do have the advantage of having a perpetual investment horizon so that gives us a little more of the benefit of being patient because (the fund is) going to be here forever.
How much pension fund investment reform did you expect you'd have to do when you took the job? I knew when I took the position (that) we needed to do some cleanup. I didn't realize how much until I got here ... We've had revelations with the indictments from the (State) Attorney General (Andrew M. Cuomo)'s office and from the SEC, so we certainly know more in our minds than I knew in December of 2006 when I put my name forward (for comptroller) ...
I think that because so (many) of the problems of my predecessor's tenure revolved around the relationship between placement agents and the office, that's been the most important area (of reform). We certainly saw that as a problem when I first came here. We put a priority on very clear, enhanced disclosure of any transaction involving a placement agent and having an internal committee vet those relationships to make sure there wasn't anything untoward happening.
With what we learned just a couple months ago when the indictments were announced, we made a determination that (disclosure) wasn't adequate, that we needed to do more. I do think the disclosure policy helped us to (prevent) some of those problems from happening again, but I think we needed to take the additional step, which was the outright ban of any transaction with an investment firm that involved a placement agent or a paid intermediary of any kind. ...
I think that was perhaps a bolder, more absolute reform than we were first contemplating, but I don't want to be involved in anything that four years from now someone's going to look and say “But how come you didn't know even though you looked at it?” Well, this is the only way we can be sure.
Other (pension) plans are looking at what we've been doing. Some plans that didn't have anything are doing the first step of the disclosure that we had, which I think worked well. But because we were kind of the epicenter for what's become a national discussion on pension plans and these relationships (with placement agents), we needed to take the extra step to do the placement agent ban.
Do you have any sense of how far along you are in clearing up the problems? I think in terms of what goes on today in terms of how people interact with this office, we've done an excellent job ... That doesn't mean the investigation is complete in terms of looking at some of those issues, but we have a lot of new personnel. A new CIO (Raudline Etienne), someone who was brought in from the outside.
One of the other changes that I think has worked very well, with the support of the CIO, is that our investment structure in terms of decision-making was very siloed, so ... the private equity analyst would recommend (an investment) to the head of the asset class who would recommend to the CIO who would recommend to the comptroller. Now, we have an internal investment advisory committee where the heads of all the asset classes discuss the recommendations within each of their respective responsibilities. That has the benefit of helping to develop knowledge across the portfolio ... it also has more eyes looking at the (investment) option. And those committee meetings (have) a very full discussion of recommendations before they come to me and have resulted in some changes.