Fla. pension fund will be ‘staying the course’
TALLAHASSEE (AP) – The State Board of Administration, chaired by Gov. Charlie Crist, approved minor investment strategy changes for Florida’s public employee pension plan Tuesday after consultants advised against major revisions.
That’s even though the pension fund, which covers state and local government retirees including teachers, has lost nearly 30 percent of its peak value due to the worldwide financial market meltdown. It’s now just below $100 billion.
Crist and other officials say the plan is built for the long haul and has fared no worse than most big investors and better than some major Wall Street indicators.
“We’re staying the course,” said Ash Williams, the board’s executive director.
Stephen Cummings, president and CEO of Ennis Knupp and Associates, said the Chicago-based financial consulting firm reviewed more than 100 policy and guideline documents.
“Overall, we found the documents to be concise, comprehensive and consistent with best practices of institutional investors,” Cummings said.
Crist joined the other two board members, Chief Financial Officer Alex Sink and Attorney General Bill McCollum, in approving the recommended policy changes after initial hesitation. Crist questioned a proposal that increased the limit on how much of the retirement fund can be invested in private equity from 5 percent to 7 percent.
“A lot of what was said doesn’t mean a whole lot to me,” Crist said after Williams and Cummings explained the proposal. “Are you recommending that we buy more stock?”
Sink, Williams and Cummings assured Crist the proposal would not increase holdings in private equity. They explained to Crist that private equity is not publicly traded stock but direct ownership in a company, often through limited partnerships.
The state’s private equity is bumping against the 5 percent limit because it has not dropped in value as sharply as stock, which makes up 58 percent of the fund’s investment portfolio.
Private equity, unlike stock, is not a liquid investment. Williams said it can be sold but usually at huge discounts of 40 percent or more. He said it wouldn’t make sense to take such losses just to stay within the 5 percent limit. Increasing the limit to 7 percent would prevent such forced sales.
The market also has been so volatile that the percentage of the state’s holdings in various forms of investments can change sharply from day to day, Williams said.
“In that sort of whipsaw environment one doesn’t want to be rebalancing in a slavish, mechanical manner,” he told the board.
Crist later said he voted for the revisions because he was comforted by Williams’ comments.
“I want us to be conservative, I want us to be prudent,” Crist said. “I want us to be safe and secure first with the people’s money.”
Crist said he didn’t think it would be prudent to invest more heavily in stocks when the market is so uncertain.
Sink, McCollum and Williams, though, don’t share Crist’s aversion to increasing stock holdings, but the panel took no immediate action to do that. All three said a low market may be the ideal situation for picking up bargains.