South Carolina’s treasurer and state senators debated Tuesday whether the state pension fund is paying too much to its investment advisers.
Since 2008, nearly half of South Carolina’s $25 billion retirement system fund has been in so-called “alternative investments,” including hedge funds and real estate. At the same time, the fees that taxpayers, state workers and retirees have paid to Wall Street firms to manage those investments have increased by 168 percent.
Sounds risky and fishy to state Treasurer Curtis Loftis.
But others say the higher fees only reflect that the retirement fund has made $850 million more than it would have made had it not invested in the more exotic investments.
The retirement fund has a $13 billion deficit, raising questions about its solvency. That’s why decisions on how to invest its money are more important now than ever for the nearly 500,000 people who depend on it for their future.
And it’s why a state Senate subcommittee held a 21/2-hour hearing Tuesday on the retirement system’s investments. The hearing pitted state Treasurer Loftis, who opposes the investments, against state Sen. Greg Ryberg, R-Aiken, who was skeptical of Loftis’ arguments.
Loftis said most state-run retirement systems invest between 10 percent and 12 percent of their assets in “alternative investments” — anything other than stocks, bonds or cash.
But almost half of the S.C. fund’s money is in the exotic investments.
“I don’t see any reason for us to be extraordinarily out of the average range,” Loftis said. “We ought to reduce our alternative investments.”
Loftis said the $349 million that South Carolina paid in fees to manage its retirement funds last year is too much. But Reynolds Williams — like Loftis, a member of the S.C. Retirement Investment Commission — said the high fees only prove South Carolina “has a higher proportion (of its retirement system money) in successful alternative investments.”
“When the fees go up for that reason, it’s a good thing” because the investments have profited, Williams said.
Asked to refute that statement after the meeting, Loftis told reporters: “That’s just too complicated to talk about here.”
Loftis reserved the bulk of his comments for the Investment Commission itself, which he threatened to sue because he said it would not release the travel schedule and expenses of its former chief investment officer, Robert Borden. Borden resigned in December to take a job with a private investment firm in North Carolina.
“I can’t find out where the man spent the night and who paid the bill. Wouldn’t you think such simple housekeeping would be easy?” Loftis said.
Ryberg said he interpreted those comments as an accusation that Borden was being paid to hand out state investment contracts — an accusation that Loftis said he was not comfortable discussing. Ryberg asked that a tape of the hearing be sent to the State Law Enforcement Division for it to determine if an investigation was warranted.
Borden, reached at his North Carolina office, dismissed any insinuation that he had done anything improper.
“As (Loftis) is prone to do, he found what he thinks is the next political issue, and he’s out there trying to get attention for it,” he said. “If I were him, I would choose his words carefully.”