More Trials Ahead for North Carolina Pension Fund

Despite State Treasurer Dale Folwell’s agency slashing millions in outside management fees, North Carolina’s $96 billion pension fund is going to need to do more to remain solvent and satisfy retirements of its nearly 1 million state employees.

While Folwell delivered on his campaign promise to make heavy cuts on the fees to the tune of $600 million, drawing some praise from his peers, he faced some criticism for his decision to transfer funds to low-earning, short-term accounts. WRAL.com reports that critics argue that while safe, keeping the transfer funds in savings accounts cost the pensions “tens of millions” in earnings during this year’s market growth.

However, despite these cuts and the fund being commonly referred to as one of the best-funded in the country, as per WRAL, it must still pay out $6 billion per year.

In addition, state government and employees only pay in roughly half of what the fund pays out, and there is no minimum retirement age. Of the state citizens receiving pension checks, the latest statistics show that nearly 100,000 are under age 65, while roughly 7,000 are age 90 and above.

For more stories like this, sign up for the CIO Alert newsletter. 

“Fees have gone up, payouts have gone up, life expectancy has gone up, and interest rates have gone down,” Folwell told WRAL. “That’s what I inherited.”

As life expectancy increases, a possible solution debated to prevent the potential insolvency is raising the retirement age. While some see it as a logical step, others argue that it does nothing for public workers, as investment managers are the only ones benefitting.

“As age goes up, the working life should go up as well, I would think,” CPA and financial advisor Ron Elmer, a former Democratic candidate for treasurer, told WRAL.

“It might sound good. It might even be well-intentioned, but it’s not going to solve any problems,” Ardis Watkins, director of government relations for the State Employees Association of North Carolina, told WRAL. “The only thing that solves problems is to stop giving huge amounts of money away in multiple levels of fees to investment managers.”

Folwell was unable to provide comment.

Tags: Dale Folwell, North Carolina, Pension

Institutional investors see geopolitical stability as the biggest short- to medium-term risk to the global economy, more than inflation, growth rates, and central bank policy combined, according to a report from asset manager PineBridge Investments.

In a survey of pensions, consultants, and asset management professionals, PineBridge found that 55% of pension professionals, and 54% of asset managers, saw geopolitical risk as the biggest threat to the economy.

“The results surprised me, as I believe geopolitical risk is currently quite low by recent standards,” said Steve Cook, co-head of emerging markets fixed income at PineBridge Investments, in a release. “Presumably, respondents are nervous with regard to Korea, Iran, and other potential flashpoints.”

However, after geopolitical risk, asset management professionals saw things somewhat differently than their pension professional counterparts. Asset managers were far more concerned about central bank policy as a risk to the global economy than pension fund decision-makers. The survey said 25% of asset managers saw central bank risk as the biggest risk to the economy, compared to only 7% for pension professionals. Inflation was seen as the biggest risk for 20% of pension professionals, while only 11% of asset managers agreed; 16% of pension professionals cited growth rates as the biggest risks, compared to only 5% for asset managers.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“It is likewise interesting that pension fund professionals are far more sanguine about the risk posed by central bank policy to the global economy than asset managers,” said Cook. “In my opinion, the biggest risk to the global economy is ‘central bank policy,’ given that the huge stimulus measures that followed the financial crisis are gradually being wound down.”

Investment strategy and philosophy (55%) is seen as more important than investment performance (32%), according to the survey. Meanwhile, 8% of respondents said commitment to diversity and/or sustainability was the most important fact, while 4% named the most important factor as brand name.

“It’s a positive stance because, ultimately, they are backing and buying the manager’s approach,” Hani Redha, portfolio manager, global multi-asset performance, said of strategy and philosophy being seen as most important. “Performance, by contrast, can be skewed and needs to be scrutinized over the long term to yield meaningful signals. Short-term performance can tell you very little.”

Tags: Central Bank, geopolitical risk, institutional investors, Pension