Tag: State Employees Association of North Carolina

North Carolina Pension To Stick With Hedge Funds As Major Union Calls For Divestment

Janet Cowell

A few days after CalPERS pulled out of hedge funds, the State Employees Association of North Carolina (SEANC) called on North Carolina’s pension fund to do the same.

The pension fund, however, has shown no willingness to follow in CalPERS’ path, and recently doubled down on its support of hedge funds as part of its portfolio.

Originally, SEANC released this statement:

“Other institutional investors around the world could potentially follow CalPERS’ lead and finally dump these high-risk funds,” said SEANC Executive Director Dana Cope. “Those who wait to cash in may find the money’s gone. That’s not a risk state workers are willing to take. It’s time to pull out of these investments now before the cart starts going downhill too fast for us to jump off.”

Hedge funds are notorious for high fees. Pension funds and investors pay these fees in hopes that the payoff will be higher, but for the past decade, hedge fund performance has been lacking. Cowell has the power to invest of 35 percent of the $90 billion state retirement system in “alternative investments,” a term that includes hedge funds.

But North Carolina hasn’t budged, and pension officials have supported their hedge fund allocation. From the News & Observer:

Kevin SigRist, chief investment officer of North Carolina’s $90 billion fund, said that the state is by and large pleased with the performance of its hedge fund investments and plans to stay the course.

North Carolina’s hedge fund investments generated an 11.48 percent return for the fiscal year that ended June 30, as well as a three-year return of 6.86 percent and a five-year return of 7.59 percent. That 11.48 percent return bests the 7.1 percent return that CalPERS reported from its hedge fund portfolio and compares to the state’s 15.88 percent overall return for its latest fiscal year.

“We would expect to continue to evaluate (hedge funds) and use them where appropriate and where we think there are benefits to the trust fund,” SigRist said.

[…]

SigRist said that the fact that hedge fund investments cut across asset classes is at the heart of why North Carolina doesn’t disclose how much of its pension fund is allocated to hedge funds – a practice that has drawn SEANC’s ire. Although the pension fund has stipulated the allocation to hedge fund strategies, he added, that’s only a piece of the pie because it’s based on an antiquated concept of what a hedge fund is.

Currently, North Carolina’s pension system has $3.9 billion in hedge funds, or 4.3 percent of total assets. They paid $91 million in fees to those funds in 2013.

Union Files SEC Complaint Alleging Pension Pay-To-Play In North Carolina

Janet Cowell

A North Carolina labor group has filed a whistleblower complaint with the SEC over what they believe to be a violation of the SEC’s pay-to-play rules.

The group alleges that Erskine Bowles held a fundraiser for state Treasurer Janet Cowell at his home in 2011. Just weeks later, Bowles’ investment firm was chosen to handle investments for North Carolina’s pension funds, of which Janet Cowell is the sole trustee. From Bloomberg:

Former White House official Erskine Bowles was accused by a North Carolina workers’ association of violating political fundraising rules for money managers.

Carousel Capital, the firm Bowles co-founded in 1996 and where he is listed as a senior adviser, was selected to manage state pension funds a few weeks after a June 2011 fundraiser for North Carolina Treasurer Janet Cowell was held at his home, the State Employees Association of North Carolina said today in a whistleblower complaint to the U.S. Securities and Exchange Commission.

The fundraiser violated the SEC’s pay-to-play rule that bars investment advisers from managing state funds for two years following a campaign contribution to political candidates or officials in a position to influence the selection of advisers to manage public pension funds, according to SEANC’s complaint.

SEANC, which has about 55,000 members, also questioned whether Bowles’ wife, Crandall Bowles, was in violation of pay-to-play rules because she is on the board of JPMorgan Chase & Co., which manages several hundred millions of dollars for the $87 billion North Carolina state pension fund, which Cowell oversees.

David Sirota talked to Cowell and Bowles about the allegations:

In a statement emailed to IBTimes, Cowell’s spokesperson Schorr Johnson said:

“More than two years ago, the Department of State Treasurer verified with outside legal counsel that neither Erskine nor Crandall Bowles were covered by SEC prohibition. The Department then took it a step further by ensuring contractually with Carousel that they were compliant with this SEC rule. If Carousel failed to comply with the rule, the investment would likely end.”

In a previous statement to IBTimes, Erskine Bowles said, “I have had no active role [in Carousel] since 2005 (and) I am not involved in the management of the firm nor do I [have an] office there.” He also said the fundraiser was held at his home by his wife, Crandall, but that he was not affiliated with the event.