A scathing 147 page report on North Carolina’s Teachers’ and State Employees’ Retirement’s (TSERS) alternative assets portfolio may draw unwanted media and regulatory scrutiny on public pension plans’ relationship with the private funds industry.
The report, filed by trade union The State Employees Association of North Carolina (SEANC) and investigators Benchmark Financial Services, alleges the pension plan has been involved in pay-to-play schemes and has not properly disclosed fees.
North Carolina State Treasurer Janet Cowell’s “political manipulation of the state pension fund has cost North Carolina $6.8 billion in fees and lost investment opportunities during her tenure”, the report said. “The same situation exists at countless other public pensions around the nation, in states such as Illinois, Kentucky, Rhode Island and South Carolina.”
“On the whole, the report is simply wrong,” said Schorr Johnson, spokesman for TSERS, in an email to PE Manager. “A full accounting of every dollar of the pension fund is provided in the annual report.”
The report also took issue with a placement agent fee policy that has led to the plan “secretly squandering $180 million in avoidable placement agent fees for conflicted and unreliable investment advice” that is not properly disclosed.
“That is simply wrong [too],” said Johnson in a separate email. “TSERS pays zero dollars in placement agents. By policy and practice, external investment managers – not the State of North Carolina – bear all placement agent fees and expenses.”
Benchmark’s report also accused TSERS of not disclosing all of the fees it pays its fund managers. “We estimate total TSERS annual fees and expenses will increase to approximately $1 billion — almost twice the disclosed amount projected by the Treasurer,” said the report.
“There are no hidden fees paid directly by the retirement fund. We report fees according to conventional, accepted industry standards and as required by law,” said Johnson in response to the allegation in his email.
This is not the first report of its kind produced by Benchmark. Late last year the group, in tandem with a Rhode Island trade union, reached similar conclusions against the Employee Retirement System of Rhode Island that culminated in a complaint filed with the US Securities and Exchange Commission (SEC). Benchmark filed a similar complaint with the SEC’s whistleblower officer after allegedly discovering a missing $30 billion in North Carolina’s public pension fund. The SEC declined to comment.
The report claims Cowell “mushroomed” the pension plan’s alternatives allocation to 35 percent of its total $87 billion portfolio, or over $30 billion, which became hidden in “secret accounts”, presumably limited partnerships investment vehicles that do not publicly disclose their records for competitive purposes.
“The $30 billion number is incorrect and I cannot speculate as to how they arrived at that,” said Johnson. “Total alternative investment is 21.5 percent, around $18.7 billion.”