Curtis M. Loftis Jr., South Carolina's state treasurer, recommended legislative action to increase transparency and accountability by the South Carolina Retirement System Investment Commission, in testimony Jan. 31 before the state Senate.
Mr. Loftis said in his prepared remarks that he has spent “an entire year” reviewing the state's $26 billion retirement system, which is managed by the Columbia-based investment commission, and “discovered that we have an underperforming pension fund that is expensive, overwhelmingly complicated and places the taxpayers and pension plan members at excessive risk.”
As treasurer, Mr. Loftis is a member of the investment commission. He said in his presentation to the Senate that as custodian of all state funds, his office should have custody of all public retirement system funds but now controls only 30% of state pension assets. The investment commission oversees the remaining 70%.
“This is unacceptable and needs to be remedied,” according to Mr. Loftis' remarks.
Mr. Loftis said in his speech that he also has had trouble getting information from the commission that he needs as the “statewide constitutional officer tasked with the oversight and careful watch of our state's most precious asset, the public's money.”
By way of example, Mr. Loftis pointed to the denial by investment commission staff in June 2011 of his request that they provide the calendar, travel schedule and entertainment expenses of the commission's former CEO and chief investment officer, Robert L. Borden. Mr. Loftis said in his speech that he was told to file a Freedom of Information Act request.
Mr. Loftis criticized the retirement system's 50% allocation to alternative investments that is “far greater than the average pension plan target of approximately 10% to 15%.” He also noted that the system has “investments that few, if anyone, truly understand. Many of these deals were constructed outside the normal framework of the pension plan, and if problems are found, they will take long periods of time to unwind.”
Mr. Borden defended the pension asset allocations in an interview with Bloomberg News on Tuesday.
“We ranked in the top third of our peer group over the last three years,” Mr. Borden said by telephone. “The plan was fairly defensively postured going into June,” he said, citing concerns that equities would decline because of issues tied to European debt.
Specific legislative actions Mr. Loftis proposed, according to his prepared remarks, were to “demand increased transparency, accountability and openness by the investment commission and investment commission staff; restore all retirement system assets under the custody of the state; do not change the organizational location, structure or composition of the (investment) commission.”
Mr. Loftis was not immediately available for an interview because he was still meeting with state legislators, said a spokesman from his office.
Allen R. Gillespie, chairman of the investment commission, said in an interview that the asset allocation of the pension fund is reviewed annually.
Mr. Loftis has not asked the commission's investment committee to conduct a new overall review or to specifically focus on the fund's alternative investment allocation, Mr. Gillespie said.
However, “it would be natural for the new CIO (Mr. Borden's replacement) and the consultant to review investment operations and the asset allocation of the fund when that position is filled,“ Mr. Gillespie said. n