Investment policy needs a dose of sunshine

August 7, 2012 

FOR MONTHS now, state Treasurer Curtis Loftis has been trying to convince South Carolinians that our $25 billion pension portfolio is being invested recklessly.

His latest complaint — that he is being prevented from getting the expert advice he needs from his staff to determine which investments to support — actually bolsters critics’ argument that he shouldn’t be a member of the expert investment panel that oversees the fund.

In fact, the only thing that stops us from endorsing the argument that he should be required to appoint an expert to the panel, like the other four members of the Budget and Control Board must do, is the nagging fact that financial experts are the people who nearly destroyed our economy.

But while we don’t necessarily buy the reason the treasurer gives for wanting more eyes on the investments, we do share his objection to the secrecy. It’s more than a little frightening to learn that our government has entered into multi-million-dollar contracts that the Retirement System Investment Commission says the expert staff in the state treasurer’s office and the attorney general’s office are prohibited from reviewing.

Perhaps some or even all of those investments were worth the cost of this extraordinary level of secrecy, although we can’t ignore the fact that sometimes people hide things for their own benefit. But more likely is the possibility that investment officials agreed to the secrecy clauses without anyone even considering the alternatives: to negotiate to have them liberalized or removed, or to walk away from those investments that required such an absurd level of secrecy.

Since Mr. Loftis raised the issue, the commission has agreed to try to renegotiate contracts to allow his staff to review them, but it warns that we can’t just ignore the secrecy provisions that it is unable to change. And that is absolutely correct. But that’s not the end of the discussion.

The state attorney general has questioned whether the commission’s interpretation of those secrecy clauses is accurate, or whether in fact state law requires more access to the information. The Budget and Control Board appears to be gearing up to test that question in court, and that is appropriate. What would not be appropriate would be for the treasurer to ignore the contracts, or to refuse to place investments that the commission has legally authorized. Either action would be lawless.

What also would not be appropriate is to embrace the commission’s other recommendation: to let the commission itself decide whether to walk away from investments with too-strict secrecy clauses.

At issue is not merely investment policy, but something far more important: responsible public policy.

The commissioners were chosen for their investment expertise, not for their policy expertise. And even if they were public-policy experts, they aren’t elected officials. Just as elected officials set the parameters for what types of investments the commissioners can pursue, it is elected officials who must set the parameters for what is public and what is private.

The Legislature has given the investment commission broad latitude to enter into confidential contracts. But few legislators realized how broad. Now that Mr. Loftis has brought that to our attention, lawmakers need to reexamine that decision. Yes, there may be times when certain investments are worth the price of secrecy, but we need a policy that forces commissioners to justify that secrecy rather than just accepting it as the default.

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