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(Raleigh, N.C.) – State Treasurer Dale R. Folwell, CPA, and the Investment Management Division (IMD) announced today the findings of a CEM Benchmarking (CEM) report of an investment cost analysis of the North Carolina Retirement Systems (NCRS). Investment costs are broadly defined as the costs associated with making investments, including management fees and oversight costs of running the investment program. CEM has been used for benchmarking services by previous treasurers. The report analyzes pension investment costs, excluding transaction costs and private asset performance fees, from 2015-2019. It compares the NCRS with 48 U.S. pension plans and 14 peer states of similar-sized investment portfolios. The median value of the NCRS during that time period was $100.9 billion while the peer group was $91.5 billion. CEM reports that North Carolina’s investment cost was the lowest of any peer state compared. The state’s total investment cost of $323.9 million (0.32% of value) was 0.20% below the peer median of 0.52%, which equates to a savings of approximately $198 million per year. In addition, in 2016 North Carolina’s total investment cost was approximate with peers and the U.S. public plans’ average. However, over the next three years North Carolina’s costs dropped 36%, while the national and peers’ average remained steady.
Source: CEM Benchmarking Inc. The report cites North Carolina’s implementation style and asset mix as two factors contributing to the reduction in costs. North Carolina does not have comparable holdings in highest-cost asset classes (real estate, infrastructure, hedge funds and private equity) and more than half of North Carolina’s holdings are managed internally. In 2017, Treasurer Folwell and the public equity team announced the first-ever Department of State Treasurer internally managed passive index fund. At the end of the second quarter, the Internal Passive Equity Fund’s assets under management was $12.1 billion. Together with the fixed income team that manages just over $43 billion, 53% of the pension’s assets are managed in-house. “We don’t operate the pension funds for the benefit of Wall Street,” said Treasurer Folwell. “Our fiduciary duty is to those who teach, protect and otherwise serve the people of this state and taxpayers like them. The staff of the Investment Management Division has done a fantastic job of managing investments in-house and still meeting all performance benchmarks.” During the most recent Investment Advisory Committee meeting, it was reported that since January 2017 the team in the Investment Management Division projected a realized savings of more than $350 million through the end of 2020. This far exceeds the team’s original goal of $100 million in incremental cost efficiencies. “We’ve achieved so much in the last four years but have so much left to do,” said Treasurer Folwell. “I’ve always said that I’m standing on the shoulders of others to achieve such success. And that is certainly the case here. These savings are directly due to the investment division’s [IMD] loyalty to the taxpayer.” The North Carolina Retirement Systems is widely regarded as one of the best funded in the nation. In fact, Moody’s Investors Service recently reported that North Carolina’s Retirement Systems, which includes state and local employees, is the best funded in the nation when looking at its Adjusted Net Pension Liability. Additionally, a recent “stress test” by The Pew Charitable Trusts concluded that North Carolina’s state pension fund is well-positioned to maintain solvency during tough economic times. The North Carolina Retirement Systems is the ninth-largest public pension fund in the country and is currently valued at more than $108 billion. It provides retirement benefits and savings for more than 950,000 North Carolinians, including teachers, state employees, local governments, firefighters, police officers and other public workers.
For more information, visit www.nctreasurer.com. |
