- Associated Press - Tuesday, April 22, 2014

RALEIGH, N.C. (AP) - The union representing tens of thousands of North Carolina state workers said Tuesday it filed a complaint with the federal Securities and Exchange Commission over how State Treasurer Janet Cowell is managing the $86 billion pension system.

The move by the State Employees Association of North Carolina is an escalation of the union’s years of criticism of pension fund management under Cowell and her predecessor Richard Moore, both Democrats. North Carolina is one of a handful of states in which the state treasurer is responsible for making pension fund investment decisions. SEANC wants an investment board to manage the money.

The union’s complaint to the SEC’s whistleblower program objects to “false/misleading information in official statement documents.”

One of the union’s major objections is that Cowell has the authority to invest up to 35 percent of pension fund holdings into hedge funds, private-equity firms or other alternative investments that don’t have to readily disclose details to retirees or SEANC. State lawmakers last summer raised the maximum that could be directed to those investments.

The pension fund’s quarterly update in February reported about $19 billion in pension assets, about 21 percent, were in alternative investments.

But a consultant hired by the union said the increased cap means that about $11 billion more could be put into hedge funds and other alternative investments if Cowell wanted.

“The assets in jeopardy, at risk, are now $30 billion,” said Edward Siedle, who once worked as an SEC attorney and now runs a firm that investigates the money management industry.

Last fall, Siedle issued a report for the public-sector union that hired him accusing Rhode Island General Treasurer Gina Raimondo of enriching hedge fund managers through management fees at the expense of public workers and retirees. The union was suing the state over pension changes approved by lawmakers and championed by Raimondo. The treasurer called the report’s accusations false and an attack intended to undermine pension overhaul efforts.

Some information on investments by hedge funds and private-equity firms is considered proprietary and not subject to public disclosure, but pension managers are able to monitor holdings, said Kevin SigRist, the chief investment officer for the state’s pension funds.

“We have good access to information,” SigRist said. “The market standard is that because we’re not the only investor - there’s a number of other private-sector investors in these funds - they have rights that need to be protected as well.”

The pension fund is managed so that it produces returns over the long term to keep up with the obligations of paying retirees, SigRist said. Cowell last year sought more investment flexibility to balance years of near-zero interest rates and the volatility of stocks, he said.

The union also contends the $416 million in fees Cowell’s office reported paying investment fund managers in the year ending last June understates the true amount by perhaps hundreds of millions of dollars. For example, Cowell’s annual report notes that it doesn’t report the fees and expenses charged by smaller funds that received pension money from outside investment managers hired by Cowell’s staff.

Fees amounted to 0.52 percent of pension fund market value last year, the report said.

An SEC spokeswoman said its handling of any complaint is confidential unless there is an enforcement action. The SEC’s whistleblower program received more than 3,200 complaints in 2013, the agency’s annual report said.

An outside commission Cowell appointed to examine North Carolina’s public pension funds and determine whether changes are needed to investment governing rules is expected to produce its recommendations on Thursday.


Emery Dalesio can be reached at https://twitter.com/emerydalesio

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