State Employees Association of North Carolina has asked the Securities and Exchange Commission to investigate the fees paid to money managers doing business with the $86.1 billion North Carolina Retirement Systems, Raleigh, following a report issued Tuesday of a SEANC-commissioned forensic investigation of money manager contracts.
The report concluded that state Treasurer Janet Cowell, the sole trustee of the pension fund, has not accounted for the fees paid on $30 billion the pension fund has invested in funds of funds and with other alternative money managers. “We don't know who is managing the money, how it is being invested and what fees are being paid,” said forensic investigator Edward Siedle, president of Benchmark Financial Services, in an interview. “This involves hundreds of money managers, but we are not being allowed to see the offering documents.”
Ms. Cowell's spokesman Schorr Johnson said in a statement that current alternative investments represent 21.5% of the pension fund's assets, or around $18.7 billion, and that figure is included in the annual report.
He added: “Upon brief examination, there are a number of areas where the report is simply wrong. A full accounting of every dollar of the pension fund is provided in the annual report.”
A fiscal 2013 report from Ms. Cowell identified $416 million in external fees paid in the fiscal year ended June 30, but noted in a footnote that “consistent with industry convention, cost figures do not include the fees and expenses of investment managers that are held within fund-of-funds vehicles.” Mr. Siedle estimates that in addition to fund-of-funds fees, undisclosed fees for underlying managers, performance, real estate management and property fees and other trading costs bring the total closer to $1 billion in fees paid during that period.
In July, North Carolina legislators agreed to let Ms. Cowell raise the overall alternatives allocation to 35% from 34%, but also stipulated that her office report direct and indirect management and placement agent fees in quarterly reports, which have not been filed. SEANC spokeswoman Toni Davis said in an interview that the union will ask the state Attorney General Roy Cooper to investigate possible violations of that law by Ms. Cowell, and will seek legislation to end the sole fiduciary structure. “We want a governance structure that has all fees disclosed — direct and indirect,” Ms. Davis said.
In January, Ms. Cowell created an investment fiduciary governance commission to consider alternative structures and enhance investment oversight, but it does not include any representatives of state employees, who contribute 6% of their salaries into the pension fund. “It is our money and we believe we should have a right to know how much is being spent,” Ms. Davis said. “All we want is to put the public back in the public pension system.”
