Wednesday, July 3, 2013

Carolinas pension funds cited for paying large Wall Street fees

Check the bottom for an update. The N.C. treasurer's office disputes the figures.

The Carolinas are cited in a new report taking a look at how much state pension funds pay to Wall Street firms for managing investments. North and South Carolina each rank among the states paying the most as a percentage of their assets.

In general, state treasurers divvy up the billions paid in by teachers, police officers and other state and local employees toward their retirement among dozens or even hundreds of investment companies. Each of these companies puts the money into a number of investments, and takes a cut off the top.

South Carolina paid 1.31 percent of its pension fund assets in management fees -- more than any other state -- in the most recent fiscal year, researchers from the Maryland Public Policy Institute found.

North Carolina ranked fourth by paying 0.71 percent of its assets in fees to Wall Street, the report found.

The report found no link between the percentage of fees paid and their fund's performance. North Carolina ranked No. 11, and South Carolina No. 29, in five-year fund performance.

Payments to Wall Street firms has long been a controversial topic.

In North Carolina, candidates to replace State Treasurer Janet Cowell have brought them up several times. Cowell, for her part, has defended the fund's performance and pushed for more flexibility. An independent evaluation report posted on the state treasurer's website found manager fees to be "competitive" and "reasonable."

The New York Times wrote a feature on South Carolina's investments in particular last summer. It placed the blame on a former chief investment executive, who the story says steered the pension fund into higher-risk areas. The current S.C. state treasurer appears to agree with that characterization. He posted the article onto the agency's website.

Update: The N.C. state treasurer's office disputes the figures the researchers used, claiming some fees were double-counted. In an email, operations manager Christopher Morris writes that figures in a quarterly report issued in June instead referred to an entire fiscal year.

The treasurer's office said the state paid $317 million in fees to Wall Street in the last fiscal year, which would equal 0.42 percent of assets. That would instead rank North Carolina as paying the 18th-most of the states.