North Carolina Treasurer May Cede Pension Control: 5 Questions
North Carolina’s Janet Cowell has some unusual qualities for a state treasurer: For one thing, she can say “running dog of a capitalist” in Mandarin. She’s also poised to voluntarily surrender her status as one of four officials nationwide with sole control over state pension investments.
The 45-year-old Democrat, a former equities analyst, this month appointed a commission to evaluate how investments are made for North Carolina’s $83 billion public pension, the nation’s 10th largest. The board may recommend in April removing Cowell as sole trustee, replacing her with a panel or another model, according to Cowell. The system is the third-best funded among states, according to Morningstar Inc., and the Republican-dominated legislature would have to approve changes to its governance. Connecticut, New York and Michigan have similar models for oversight.
Once reliant on mills and agriculture, North Carolina’s economy is now tied more to higher education, technology and finance, including Charlotte-based Bank of America Corp., the second-biggest U.S. bank. The state’s municipal debt has earned 1.8 percent this year through Jan. 29, compared with 2.1 percent for the entire market, according to Standard & Poor’s indexes.
Cowell worked at Lehman Brothers Holdings Inc. and lived in Hong Kong and Indonesia in the 1990s. She entered politics as a councilwoman in Raleigh in 2001 and became a state legislator in 2005. She has returned to Asia as treasurer, an elected post she assumed in 2009.
The following is condensed from a phone interview:
Q: How likely is it that the treasurer would be removed as sole trustee, and what would your preferred outcome be?
A: The check and balances is oversight by the General Assembly. It’s not just, am I willing to give up authority for a different governance, but they have to give it up as well. That’s where I am less certain how they’re going to feel. It’s unusual for someone to want to give up authority.
Over the years, as I’ve talked to different sovereign wealth funds, be it Korea or Canada, they really have created a professional, independent board. They have the resources to pay staff, and have taken politics out of it much more so than here. And so that independence and flexibility and professionalism is what, ultimately, I want to see, whether that’s under a sole fiduciary or whether it’s part of a board.
Q: The fund has 32 percent of investments in fixed-income and about 20 percent in alternatives such as hedge funds and private equity. The General Assembly last year authorized allocations as high as 35 percent in alternatives. When will you reach that percentage?
A: I don’t think we’re ever going to get even close to that. What we’re looking for is incremental change. We’re such a well-funded plan that we don’t want to go out and really reach for risk. We’ll remove some money out of the bond portfolio and go into more alternatives, but we’re still going to be a conservative plan. I wouldn’t see us going below 25 percent in fixed income.
Q: What is the biggest challenge to the fund this year?
A: The interest-rate environment clearly is challenging, and then the long-term prospects for growth for the U.S. are still caught up with the stalemate in Congress. The fact that we cannot work out a long-term reduction of debt and agree on a good fiscal policy at the national level is the biggest challenge to growth.
Q: North Carolina carries the top grade from the three major ratings companies. What can knock it off its perch?
A: The biggest threat for us is that we are still a very high-growth state. We are the only state in the union that grew every single year over the past 10 years, and we’re about to surpass Michigan in population. How we have the appropriate resources for education, for infrastructure, to maintain the appropriate level of services for that population, is going to be the big challenge. We’ve had some recovery of revenue, but I would say small, overall. On top of that, we did have a fairly significant tax cut last year. So that’s putting a challenge on the resources to pay for things like teacher salaries.
Q: You’re the state’s first female treasurer. What do you think is the biggest barrier to women entering public service?
A: When they are on the ticket, when they are on the ballot, women do well. The biggest barrier is having the means, the time and resources to hold public office in the first place. Given that we don’t make the same dollars per hour that men do, women still take the primary responsibilities at home, oftentimes with children or elder care. It is more difficult for women to have the resources to serve.
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