Washington State Investment Board officials are examining whether the $83 billion investment unit should be reorganized — possibly even spun off as an independent board.
Washington's review, which began in July, is one of two recent efforts by U.S. public plans to see if more returns can be generated by revamping investment processes and board structures to make them more like private investment corporations.
New York City Mayor Michael R. Bloomberg and Comptroller John C. Liu announced on Oct. 27 a proposed consolidation of the city's five pension plans, which have nearly $120 billion in combined assets.
On Nov. 17, Washington State Investment Board staff and board members are expected to hear an update to an ongoing study examining potential changes to the governance structure of the $83 billion system.
Among the changes being studied by an ad hoc board committee are ways to speed up approvals for investments — the current state request for proposal process can now take months — and whether the board should have more flexibility in setting investment staff salaries, said Theresa Whitmarsh, executive director.
She said investment staffers, like other state employees, have faced salary freezes and benefit reductions, highlighting pay discrepancies between them and employees of money management firms.
“Washington is a good-government state and we are trying to ensure that we have the best processes possible,” Ms. Whitmarsh said in an interview. She would not go into detail.
But she added that Washington is going slow on any changes, and the full review could take two years or longer.
During discussion at the board's July 19-21 retreat, Chief Investment Officer Gary Bruebaker said the state's rules on hiring external investment managers have meant the Washington system has not been able to take advantage of investment opportunities until it was too late, according to minutes of the meeting.
Victor Moore, chief operating officer, said at the same meeting that solutions to the current restraints could range from spinning off the investment board as a stand-alone corporation — as plans in other countries have done — to asking the Legislature for exceptions to current rules.
However, board member and state Rep. Sharon Tomiko Santos said during the retreat that the investment board was a creation of the Legislature and she would be resistant to making it anything but a public entity, the minutes show.
At the retreat, the investment board also heard from Keith Ambachtsheer, a consultant and director of the Rotman International Center for Pension Management at the University of Toronto. Mr. Ambachtsheer said in a presentation that current challenges include the investment board's organizational model, along with the state's budget squeeze.
In New York City, the proposed changes would include a single board to oversee all five plans and an independent investment staff that would be allowed to operate without some of the normal constraints such as extended RFP processes, said Eric Eve, first deputy New York comptroller, in an interview.
The investment corporation would be headed by a star that investment manager officials hope to recruit, he said. “There is no excuse that 10 blocks north of Wall Street, New York City's pension plans aren't run as world-class investment organizations,” he added.
Details of the new structure still need to be worked out, but New York City officials want to model it after the best practices of top pension organizations throughout the world, Mr. Eve said.
He said the plan is expected to be presented next year to the state Legislature, which would need to approve consolidating the existing separate pension boards.