Oregon Treasurer Takes on Wall Street Fees: Five Questions

Oregon Treasurer Ted Wheeler has climbed to the top of Mount Everest, trekked by snowshoe to the North Pole and is embarking on another quest: cutting fees paid to Wall Street banks.

The 51-year-old Democrat, a member of the council that directs Oregon’s investments, is asking legislators to allow that office to hire more workers and rely less on Wall Street firms to manage $87 billion in assets for pensions and other programs. Oregon uses almost 200 firms, said James Sink, a spokesman for Wheeler. Its pension pays annual management fees of about 78 cents for every $100 in assets, compared with 68 cents for Washington state’s, according to the treasurer’s office.

Wheeler is in his first full four-year term. The great-grandson of lumberman Coleman H. Wheeler -- for whom Wheeler, Oregon is named -- has run a video store in Palo Alto, California, developed commercial properties in New England and managed private investments in Portland.

The following is condensed from a recent phone interview:

Q: Why do you want to change the pension investment office to be less reliant on outside firms?

A: The most important aspect of this is to build out a risk-management function that we think modern, global, diversified portfolios should have in place. We outsource basic functions like analytical functions, fund accounting functions, internal auditing functions, things we want to bring in-house as part of this reorganization. We have that expertise here; we don’t need to outsource those functions to Wall Street. We believe we can save at least $23 million a year and we could save as much as $95 million a year. That’s a reduction of about $2.7 billion in our unfunded actuarial liability over 20 years without reducing anybody’s benefits.

Q: What’s the biggest threat to the state’s credit ratings of Aa1 from Moody’s Investors Service and AA+ from Standard & Poor’s?

A: Oregon’s tax structure has repeatedly come up in credit rating interviews as being volatile. Our state’s general fund is heavily reliant on the income tax. That’s a good thing when economic times are robust. When the economy heads south, the state’s general fund also declines precipitously.

Q: The state debt policy advisory commission said Oregon can sell $215 million in general-fund-backed bonds for the remainder of the 2013-15 biennium under its debt limit. Oregon currently has $2.7 billion of such securities outstanding. What would you like to see debt sold for?

A: There’s a couple big issues that we’re looking at that could lay claim to that. One issue is a capital construction project at Oregon Health & Science University. The Knight Cancer institute is located there. Phil Knight, who is the chairman of Nike, has offered a challenge grant, whereby if OHSU puts in some number of funds, he will match those funds. I believe his total match is in the neighborhood of half a billion dollars. So the legislature is looking at the possibility of issuing up to $200 million in general-obligation bonds for infrastructure at OHSU related to that project.

Q: What is the biggest challenge for Oregon’s economy?

A: To develop a strategy for how we take advantage of our location on the Pacific Rim. The fastest GDP growth in the world in the next few decades is going to take place in Asia. We’re uniquely well situated to take advantage of that growth given that we have electronics and agricultural products that are in high demand in Asia. We need to invest in port facilities, making sure we can get products to market in a reasonable way.

Q: Is it less exciting to descend Mount Everest than to climb it?

A: Once you get to the summit, and you look around, and you’ve just achieved a goal that you’ve been working on for months or years, all of a sudden there’s a sense of feeling like it’s all very anti-climactic. As you start down the mountain, you realize that you’ve worked a lot harder than you thought getting to the top. What you’ve left with is the husk of your former self that you had when you walked out of the tent some 12 hours earlier.

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