The Triangle Business Journal reports "Fees Paid by Pension Fund Soar 28%" to $318 million last year. (see page 6 of the 2/1/2013 issue). I hate to say it, but I told you so. Yep, we poor North Carolinian's, despite having several of the top MBA programs in the nation located in our state, and a huge financial center in Charlotte packed with investment talent, we can't seem to figure out how to manage our own pension fund investments. Instead, we outsource management of the fund at a current annual expense of $318 million.
To put the $318 million of external manager fees into perspective, just consider that over the next 10 years North Carolina will pay Wall Street more than $3.18 billion in investment fees. Given the growth rate of the fees are greater than the growth of the fund, it will likely me MUCH more than that. We should bring the money home and manage it ourselves right here in North Carolina and save ourselves billions of dollars.
According to pages 24-25 of the latest annual report, last year teachers contributed $830 million of their pay checks to this pension fund while other state employees added an additional $333 million for a total of $1.16 billion. The State Treasurer's Office takes 27.3% of state employee and teacher contributions and gives it to Wall Street EVERY year. A ridiculous waste of state pensioner money.
The TBJ article points out that at 0.452% North Carolina's pension fund investment expenses are larger than the national average of 0.409% despite the fact that our fund is one of the 10 largest in the country. It stands to reason, the bigger the fund, the smaller the expenses should be as a percentage of assets. So, logically North Carolina should have expenses MUCH lower than average as a percentage of total assets invested because our fund is one of the largest.
Unfortunately, our current State Treasurer seems infatuated by the slick Wall Street sales pros pushing expensive hedge fund investments. She continues throwing good money after bad by increasing our investments into these very expensive hedge fund investments that typically charge 2% of assets managed and 20% of net profits PER YEAR. Hedge funds are VERY lucrative - for the managers. Even famed hedge fund manager George Soros has declared that institutional investors (e.g. state pension funds) invest too much money in hedge funds and will almost certainly under-perform due to the huge fees charged by the managers (click here for Bloomberg story and video).