Two of the state’s most powerful legislators requested a “deep dive” Wednesday into the governance of New Mexico’s pension funds for public employees and teachers following a report they’re underperforming compared with peer funds.

“Can we learn anything by comparing New Mexico to other states with regard to performance based on the composition of the boards that are making the hiring decisions of the people who then make asset allocation decisions?” House Speaker Brian Egolf, D-Santa Fe, asked during a meeting of the Legislative Finance Committee.

Egolf said the performance of the State Investment Council seemed to “improve dramatically” after structural reforms of the agency, which manages more than $30 billion in permanent endowment and state funds and about $1.6 billion for 22 other New Mexico government entities.

“It may be a correlation,” he said.

The Public Employees Retirement Association of New Mexico and the New Mexico Educational Retirement Board both have been operating under a cloud of controversy.

The PERA board has been beset by infighting for years, arguing over everything from snacks to parliamentary procedures.

For months, the panel has been unable to reach consensus over the election of a chairperson. Key staffers have jumped ship this year. PERA’s chief investment officer resigned in June, three months after the departure of its executive director.

The teachers pension fund lost its longtime executive director, Jan Goodwin, this year, too. Goodwin later filed a lawsuit against Gov. Michelle Lujan Grisham and other state officials and government agencies, alleging she was forced to resign over long-standing pay inequity issues. The board, which is named as one of the defendants in Goodwin’s lawsuit, also lost Chairman Steven Gluckstern when the governor dismissed him in June.

The executive directors of both pension funds are both serving in an interim capacity, which sparked the attention of lawmakers Wednesday.

“One of things that sort of struck us back here was the fact that there are so many of you that are interim and acting and whatnot,” Rep. Javier Martínez, D-Albuquerque, said, referring to PERA. Martínez later said he “can’t help but think that part of that high turnover at the senior level is in fact due to the toxicity within that board” and that “it’s becoming a pawn of the nastiness that electoral politics can sometimes bring to the table.”

Acting board Chairman Francis Page said after the meeting the group is “as strong as ever” and governance changes are unnecessary.

“Right now, we have the most qualified board that PERA has ever had in its entire existence,” he said.

Greg Trujillo, PERA’s interim executive director, did not return a message seeking comment.

Egolf said the PERA board “has been incredibly troubling to watch” and the ERB is in “turmoil” amid “litigation about any numbers of issues.”

“If we could have [Legislative Finance Committee staff] look at this and give us some thoughts on what we might want to tackle in the 30-day session [next year] to try to right this ship and what investment performance improvements we might expect from those sorts of changes, I would certainly appreciate that,” Egolf said.

Rep. Patty Lundstrom, a Gallup Democrat who chairs the committee, said she’s “very interested” in obtaining that information, too.

“We’ll add that as something we’d like to have the staff look at,” she said, later adding “this whole governance issue” would be a discussion point for other legislative committees as well.

Bob Jacksha, chief investment officer for the Educational Retirement Board, said after the meeting that governance is “certainly an important issue” and an “important determinant” of a pension fund’s outcomes.

“We feel our governance structure is good [and] that the board is supportive of staff,” he said. “We don’t have concerns about our governance structure.”

As he told lawmakers, Jacksha said March data is incomplete, which gives a misleading picture of how the pension fund ranks against others.

Once all the data is compiled, “I’m confident to say we will rank better,” he said, adding rankings against other pension funds is not a major focus.

“We are tailoring an investment portfolio for the objectives of the ERB. We don’t care how other pension funds do it,” Jacksha said.

Kristin Varela, PERA’s interim chief investment officer, told lawmakers she wasn’t “pulling any punches” and acknowledged the pension fund ranks “at the bottom decile in absolute returns when compared to peers.”

The pension fund, she said, has diversified away from growth-oriented assets and cut its equity allocation by more than 50 percent.

“The reason for this cut is to focus more on diversification and creating a smoother path to returns for all of our members,” Varela said. “With that, we will lag our peers in times of market booms.”

Fred Nathan, founder and executive director of the nonprofit policy think tank Think New Mexico, said his organization “completely agrees” about the need to improve the governance of the two pension funds.

“For example,” Nathan wrote in an email, “there is no statutory requirement that any member of the PERA [Public Employees Retirement Association] board have any background in finance and investments despite the fact that they are responsible for more than $17 billion of investments for more than 90,000 public workers and retirees. If the funds are mismanaged, it is New Mexico taxpayers who will pay the price.”

Think New Mexico unsuccessfully pushed for legislation earlier this year to change the composition of the PERA board and increase members’ qualifications.

Egolf said he was a “big supporter” of that proposal.

“I’d like to know what other states have done something similar, have moved away from an elected board, and could we expect to have improvement if we change the way ... those seats are filled on those boards,” he said.

Though their performance “remains lackluster compared with peer funds,” according to an LFC report, the three investment agencies had a good year.

At the end of the first quarter March 31, New Mexico’s combined investment holdings for both pension funds, as well as the land grant and severance tax permanent funds grew by $10.3 billion.

“That is a 20.9 percent annual growth to an ending balance of $59.8 billion,” said Dawn Iglesias, the LFC’s chief economist. “If you look at that over the last five years, that’s growth of about $15.6 billion, or 36 percent.”

The one-year returns for each fund ranged from 21.6 percent to 26 percent, she said.

“Despite these annual returns in excess of 20 percent,” Iglesias said, each fund performed in the lowest quartile for the one-year period ending March 31 when compared with peer funds.

Follow Daniel J. Chacón on Twitter @daniel

jchacon

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(3) comments

Mark Ortiz

https://jacobinmag.com/2021/07/public-pension-private-equity-investment

Ann Maes

And let us not forget the conflicts of interest in giving funds to managers willing to line their pockets. Do we need an oversight committee to do the handholding??

Jeff Varela

"The PERA board has been beset by infighting for years, arguing over everything from snacks to parliamentary procedures.

For months, the panel has been unable to reach consensus over the election of a chairperson. Key staffers have jumped ship this year. PERA’s chief investment officer resigned in June, three months after the departure of its executive director." And now the "acting" Chairperson says "they have the most qualified Board ever?" Guess this happened overnight.

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