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.