Wednesday, July 24, 2013

Dear Treasurer Cowell: Wheat, Corn, and Aluminum are NOT Investments

     The North Carolina House voted 61-51 to allow our state treasurer to invest more pension fund money in junk bonds, hedge funds, leveraged buy-out funds, and commodity derivatives.  There are MANY things that bother me about Senate Bill 558, but I guess what bothers me the most about S558 is that it expands the treasurer's ability to "invest" in commodities.  The treasurer calls it the "Inflation Portfolio." S558 allows the treasurer to "invest" 7.5% of our $81 billion pension fund in commodities.  If one does the math, that means the treasurer can buy up to $6 billion of commodities.  

     So what does the "Inflation Portfolio" look like?  As the snap shot from page 107 the State of North Carolina's Comprehensive Annual Report below shows, the treasurer has already "invested" over $2 billion in such items as wheat, corn, heating oil, crude oil, and aluminum.

North Carolina Retirement Systems
Inflation Portfolio Holdings

1.45 million barrels of crude oil
28.73 metric tons of aluminum
13.57 million barrels of heating oil
7.12 million bushels of wheat
10.12 million bushels of corn

     I'm sorry, but the above shopping list is NOT an investment portfolio.  Raw aluminum, wheat, corn, and oil are not investments as they do not pay interest or dividends or earn money in any way.  These are pure and simple "bets." 

So, how have these "bets" paid off?  The "Inflation Portfolio" has lost an average of -8.5% per year for the three years the portfolio has been in place.  

     A loss of -8.5% per year for three years on a $3-4 billion portfolio suggests the treasurer has lost somewhere around $1 billion on these "bets" on wheat, corn, aluminum and oil - give or take a couple hundred million dollars.

     So, how much did our treasurer pay the investment managers that made these horrendous bets?  According to the last three annual Government Operations Report from the treasurer's office, the expenses for the "Inflation Portfolio" cost NCRS $60 million the past three years with the vast majority of that being fees paid to investment managers and attorneys who set up the bets.

     Shame of the treasurer for making these bets with pensioner money in the first place, and shame on the 61 state legislators that voted to allow our treasurer to waste more pensioner money on more of these bets.    


  1. Look at the job posting below that Janet Cowell posted online on the Office of State Personnel Website. She's looking for a marketing manager to market the N.C. Retirement Plan to state legislators to enact legislative change.

    Job Class Title: Information & Communications Spec II
    Working Title: Marketing Officer
    Position Number: 65019350
    Department: Dept of State Treasurer
    Salary Range: $37,125.00 - $59,604.00 Annually

    Recruitment Range: 37,125 - 59,604
    Salary Grade / Salary Grade Equivalent: 69
    Competency Level: Not Applicable
    Appointment Type: Permanent Full-Time
    Pos. Location: Wake County, North Carolina
    Opening Date: Mon. 07/15/13
    Closing Date/Time: Fri. 08/09/13 5:00 PM Eastern Time

    Major Duties
    Develop a Marketing Strategy and Plan for all supplemental retirement plans congruent with the Retirement Division’s business plan, goals, and objectives, and Department’s vision and mission. Work includes utilizing traditional methods as well as social media to market the various products. This Plan will be considered ever-evolving as new strategies are developed and the Plan is modified as a response to general market movement, employee demographics, program analytics, and vendor capacity. In the development of the Marketing Plan, a baseline analysis of the present plan(s) effectiveness will be determined. Also, an exploration of the already existing metrics which impact plan participation and effectiveness will be completed. The review of the Marketing Plan is a quarterly event and an analysis of all direct and extraneous factors will be analyzed. Ongoing monitoring of data and Plan effectiveness will be documented and reported to management, executive staff, and the Board of Trustees. The development of the Plan requires agreement with all vendors and connecting with all decision-makers which are numerous with different ideologies. The creation of big marketing themes and future institutionalization will require interaction with the Board and legislators since the Marketing Plan will drive future legislative change. The acceptance and effectiveness of the Plan will impact all supplemental retirement plan product portfolios. Components of the Marketing Plan will be executed by the Communications Officer thus requiring a strong working relationship with the Chief of Staff and the Departmental Communications Director; therefore, requiring knowledge of communications strategy and plans.

  2. Great piece of writing. I loved the contents.