S.C. Treasurer: Commission ‘Not Broken’ But ‘Bent’
Treasurer Curtis Loftis, an outspoken official against the South Carolina Investment Commission, told lawmakers yesterday that transparency and accountability—not legislation—will mend the wounds inflicted by prior leadership.
On Jan. 31, the Treasurer, after spending “an entire year studying the pension system,” told the state Senate Finance Retirement Subcommittee that the “Investment Commission is not broken, but it’s bent.”
“Proper oversight, and the execution of our fiduciary duties, will solve our problems,” Loftis said Wednesday.
According to the Treasurer’s supporting documents, the South Carolina Retirement System (SCRS) is working with approximately 49.3% of its $26 billion portfolio in alternatives. Also, 26.2% was allocated to fixed-income, 12.4% to equity, over 10% to cash and 1.1% to real estate.
“In utilizing these alternative investments, we have over-exposed our pension plan to risk far beyond the reward we are receiving,” Loftis said, while noting the SCRS is paying out nearly $349 million in fees within similar investments “that few, if anyone, truly understands” due to the fact that “these deals were constructed outside the normal framework of the pension plan.”
He noted the average pension fund has roughly 10% to 15% in alternatives.
In terms of transparency, Loftis noted a prior request in June 2011 for a tally of former Commission CEO and CIO Robert Borden’s “calendar, travel schedule and entertainment expenses.” At the time, he was told by the Columbia-based agency to file a public records filing.
This is “but one of many examples of the need for much greater transparency and accountability within the Commission,” the state’s “custodian of all public funds” mandated yesterday.
On Dec. 2, 2011 Borden resigned from his position at the Commission for private sector position at a firm that is set to launch this month with approximately $1 billion assets under advisement. He listed in his resignation that he would “offer [his] continued services for 60 days at the pleasure of the Commission,” the Treasurer said.
Roughly three months prior to his departure, IMMP reported the SCRS fiduciary elected to raise Borden’s salary to $485,000 in July following a discussion in an executive session.
The 37% rise was credited to the alleged courting by the Virginia Retirement System (VRS) to fill its open lead investment slot.
Borden first joined the Commission in March 2006 after serving as the executive director and CIO of the Louisiana State Employees’ Retirement System (LASERS).
At the time, the system was valued at more than $25.9 billion, and returned about 1.3 percentage points above its policy benchmark of 3.8%. And most recently, in its March 31 quarterly report, the fund was worth about $26.1 billion. It reported higher performance numbers for the policy and strategy benchmarks for the period.
Moving forward, Loftis explained “the Commission acts in a framework perfectly suitable for their assigned task,” indicating his opinion that new legislation is not needed to get the SCRS back into shape.
Also, he added that Commission Chairman Allen Gillespsie has “demonstrated a heightened commitment to transparency and accountability” with The Palmetto State’s CFO since Borden’s departure last month.
Loftis stated that Gillespsie has also asked staff and consultants “to prepare files on each of [its] alternative investments.”
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