I've calculated an Expense Ratio for each asset class provided in the "Gov Ops report" in much the same way a mutual fund would calculate an Expense Ratio. I've also included long-term 10-year return information for each asset class where available as printed in the March 31, 2013 NCRS Quarterly Investment Update.
I'd like to point out that the State Legislature is currently mulling over Senate Bill 558 which would give the North Carolina State Treasure authority to invest up to 40% of the NCRS pension fund into Alternative Investments by primarily taking money out of the internally managed bond portfolio. As can be seen in the table above, every dollar moved from the internally managed bond portfolio to Alternative Investments will incur expenses that are 178 times more expensive as the Internally Managed Bond portfolio. That isn't a misprint. Yes, the Alternative Investments portfolio expenses are 178 times MORE expensive than the Internally Managed Bond portfolio.
I'd also like to point out in the table above that the more expensive, more complicated, more risky asset classes have underperformed the simpler, cheaper, more liquid asset classes over the past 10 years. The only people that will benefit from Senate Bill 558 are the investment managers, consultants, and attorneys who have all sold North Carolina's State Treasurer on the idea that somehow Alternative Investments will increase returns of the NCRS pension fund. But, I think the data above speaks for itself.
Perhaps North Carolina's Treasurer should order a subscription to Business Week and Forbes magazines where she could read articles with such titles as "Hedge Funds Are for Suckers" and "Public Pensions Suckers for Private Equity." Clearly our Treasurer is buying what Wall Street is selling. But this comes as no surprise as this treasurer raised almost half of her campaign funds for her election from out of state residents. Many of these out of state contributors are investment managers, consultants, their families, and their attorneys located in and around New York City. By pushing Senate Bill 558, perhaps this treasurer is merely delivering on campaign promises made at her campaign fund raising events held in New York City?
Instead of Senate Bill 558, I'd much rather see the Treasurer propose a bill that would allow more internal management of both bonds and stocks. Our Treasurer would do our state pensioners a service by cutting Wall Street out of our pension. She should be finding ways to lower expenses not increase expenses.