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Take politics, governor out of State Investment Council
Tim Keller
Last year the Legislature passed landmark reforms of the State Investment Council (SIC) in response to conflicts of interest, legal investigations and governance challenges at the SIC. Now it is time to finish the job of reforming our state’s $15 billion investment funds.
The Legislature’s Interim Committee on Investment Oversight has put together a package of bills to achieve these necessary reforms. The most important proposed change is the removal of the governor as chairperson of the SIC. Regardless of who is serving as governor, this change is critical to eliminate conflicts of interest and maintaining appropriate the level of expertise.
In 2010, the top recommendation to emerge from our independent, comprehensive review of our state investment funds was to remove the governor from the SIC. New Mexico is the only state in the country where the governor is personally in charge of investment and pension fund oversight. Without removing a governor from the SIC, there will always be an inherent conflict of interest and the potential for pay-to-play and favoritism.
The bottom line is that it is best to base our state’s financial investments on the principles of finance, not politics.
Beyond concerns about conflict of interest, the current governance arrangements for the SIC raise questions about the level of expertise required to manage our state’s investment funds. We expect our governor to lead the state and hire staff to implement the vision they were elected to deliver. We do not, however, expect them to have the expertise or direct responsibility for approving the buying and selling of billions in stocks, bonds and alternative investments with our children’s endowments.
This is precisely why the SIC was set up as quasi-independent government institution in the first place. Governance best practices suggest that the SIC should internally elect a chairman who is not an elected official – someone with the sound judgment, the integrity and the expertise that the fiduciary nature of the position warrants.
Other important proposals
While removing the governor from the SIC is the most crucial piece of reform this session, other important proposed changes include:
- Establishing a formal structure and performance metrics to evaluate the SIC’s economically targeted investments (local private equity, film fund, etc.).
- Enabling the SIC to hire law firms on a contingent basis to help recover lost funds and participate in class-action fraud suits.
- Depoliticizing the appointment process for the small business investment council to ensure that investment principles come before politics in our local small business economic development.
- Giving the attorney general the jurisdiction needed to prosecute securities fraud and go after the estimated $1.3 billion currently under lawsuit around the country.
Time for bold change
The current SIC governance arrangements are outdated and detrimental. It is time for bold change in how we manage our $15 billion endowment.
The package of bills before the Legislature this session provides an opportunity to finish the job on SIC reform. I am hopeful the legislative and executive branches will work together to put our SIC on sure footing for generations to come.
Keller, a Democrat, is the state senator representing District 17.
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Yeah, because the whims of private investors over whom the voters have no control is a much better way to do it…
You don’t need the SIC to manage the funds, you need a single fund manager.
The SIC ostensibly was offering sage advice about what to invest in to beat the indices.
Guess how well that worked.
What I’m saying is invest those funds the same way I manage my own funds,
with a given asset allocation ( stocks, bonds, money market ),
use only low cost index funds as vehicles, and don’t let political whims change what is codified.
You’ve gotta be kidding.
The Guv plays footsie with crooks and you blame the crooks?
Granted, it’s getting hard to distinguish the crooks from the government.
Whether it’s El Diablo using NM retirement funds to scare up campaign contributions,
or Congress using Social Security to hide deficit spending, governments will
pilfer big funds faster than uncle Ed at the casino.
We know the promises were unsustainable and the government must break them.
We know the temptations to raid them ( whether for personal or party gain )
Get government out of the retirement business.
UNMStudent:
First of all, could you please stop proving many people’s points about the sad state of our university system? Between your horrendous sentence structures, your inability to use proper capitalization, and your lack of research skills, you’re providing a worst-case-scenario for what the university’s increasing loss-of-faculty could result in. The president of the UNM Board of Regents is Raymond Sanchez (not Jack Fortner) and David Harris is indeed considered a “public member” of the SIC – whether he should be or not.
That being said, Skeptic, disbanding the SIC would actually make your remaining bullet points unfeasible. Who is to perform the rebalancing? How would a codified investment portfolio be an even marginally safe use of the people’s money? Why exactly to you think that abandoning retirees to potential poverty is a good idea? Finally, how on earth is a part-time non-salaried legislature supposed to find time to take on the SIC’s duties? In reality, what you deem to be “simple” is not only impossible, it’s downright dangerous for our society.
GFA Harris is not a public member. He has been part of the Legislature since 1985 where he worked for the LFC for several years. Then he went to work for Johnson, and then he jumped on the richarson bandwagon. Now he is going to retire in about 5 years collecting 2/3 of $500k. This is were i see reform. The top appointed brass should not be able to retire based on the inflated salary. And since you brought up UNM the Board of Regents President Fortner Gave 40k to her Susana’s campaign. do you think he is going to get an extended appointment for his investment?
Skeptic, you have it all worked out. Maybe you should run for office in two years. It is not that simple. If we had a benevolent despot in charge of our state, yes we would have the perfection of which you envision. Legislation is difficult. You have people like yourself who say “Get Gov out of Bizz”, and then you have people that say “Bizz is the one who stole from the Gov”. Last time i checked it was members of the business community who accepted the finders fees, Not member of the government.
This is a great piece of legislation and i hope it gets signed. We will see just how much bold change she is wanting.
1. Disband the SIC altogether.
2. Codify the investment portfolios much like an index fund (using only index funds
for example 50% US equities, 10% international equities, 20% bond index,
10% New Mexico bonds, and 10% money market – a different mix would be fine,
as long as it’s codified by the legilature).
3. Have the funds rebalanced periodically ( once a year, once a quarter, whatever ).
4. Have the legislature review adherence to the plan at least once a year.
5. Find a fair migration plan to get the state out of the retirement business.
(businesses abandoned pensions for 401Ks a long time ago. Whenever a
government has access to a big pile of money, like a retirement fund,
corruption is inevitable. Get the government out of the business).
It’s really that simple.
I like these ideas; but to go further, a public member needs to be just that and not a supporting crony like David Harris who’s the VP of Fin and Admin at UNM, and who has had a long history with Richardson on a number of state finance bodies. I think it is quite a stretch to consider Harris a “public member”.