News: CJ Exclusives

State’s Investment Fees Rose as Portfolio Tanked

North Carolina’s pension fund paid about $212 million in investment fees last year to outside fund managers, a 16 percent increase over the previous year, even as the pension’s assets tanked.

Fees paid to managers of private equity — investments in companies that aren’t traded on a stock exchange — accounted for the biggest increase, going up about 51 percent to $62 million. Fees paid for real estate investments went up 18 percent to $65 million.

In comparison, the pension fund’s assets dropped last year by almost 20 percent, to $60 billion.

The fees were paid under the watch of the state’s former chief investment officer, Patricia Gerrick, who was fired in August.

“In view of the returns it’s extremely excessive,” said Charles Heatherly, a former state deputy treasurer.

But the fees account for a lower percentage of the plan’s assets than the average for public pension plans with more than $5 billion in assets. The average percentage last year was 0.384 percent, according to Greenwich Associates, a Connecticut consulting firm. North Carolina’s fees accounted for 0.33 percent of the fund’s assets.

Heather Franco, a spokeswoman for Treasurer Janet Cowell, said the fees increased because former Treasurer Richard Moore added investments last year.

The pension fund committed to investing in six new real estate investments last year totaling about $714 million and 24 new private equity investments totaling $2.2 billion. Those investments will be made over several years.

The pension fund paid about $12.8 million in management fees last year for the new investments.

Franco said Cowell has hired a firm to look at how reasonable the fees are as part of a review of the investment practices by the Chicago investment consulting firm EnnisKnupp.

“We expect to make these findings available publicly towards the end of the year,” Franco said.

Some of the pension fund’s investments are with companies that are being investigated in other states.

North Carolina paid $302,158 last year in management fees for a $29.3 million investment with Access Capital LP II, whose parent company, Access Capital Partners, was mentioned in a complaint filed in March in New York by the Securities and Exchange Commission.

The federal agency, which is investigating a kickback scandal, said that Access Capital Partners paid a sham “finder fee” to get business from the New York State Common Retirement Fund.

New York Attorney General Andrew Cuomo has organized a multistate investigation into corruption in pension funds.

North Carolina was part of a conference call of state AGs organized by Cuomo earlier this year, but a spokeswoman for North Carolina Attorney General Roy Cooper would not say if there is an investigation involving the North Carolina fund.
“In general, we’re pretty limited in what we can say about any multistate investigations,” said spokeswoman Noelle Talley.

Cherokee Investment Partners, the Raleigh parent company of two limited partnerships to which North Carolina has committed an investment of $150 million, is the subject of a federal probe in connection with failed golf and housing projects in New Jersey.

The New Jersey state inspector general issued a report last year finding that a company backed financially by one of the limited partnerships in North Carolina’s pension fund mismanaged a project on a landfill site in Bergen County.

“Cherokee is cooperating fully with the process,” said Thomas Darden, the CEO of Cherokee Investment Partners.
A former part-time contractor for the treasurer, Andrew Silton, also did work for Cherokee Investment Partners. Silton was the state’s chief investment officer before Gerrick.

Sarah Okeson is a contributor to Carolina Journal.