US - The South Carolina public pension fund's plan to create a company to manage private-equity assets should be held up pending legislative and administrative review, according to a spokesman for state Treasurer Converse Chellis.
The South Carolina Retirement System Investment Commission, which oversees the fund's $25bn in assets, voted last week to move forward with a plan to cut fees by managing private- equity investments with its own firm, chairman Allen Gillespie said yesterday by telephone. Chellis, who voted for the plan last week, wants a broad review.
"There's a lot of concern that we need to further vet out the idea," Scott Malyerck, a spokesman for Chellis, said yesterday by telephone. Today, the state's Budget and Control Board plans to get a briefing on the plan from Gillespie. Chellis also sits on the board and the Investment Commission.
The scheduled briefing was sought by Governor Mark Sanford, a pension trustee who also heads the control board, on concern that the rationale needed to be explained more fully and publicly, according to Ben Fox, a spokesman. The pension plan is a unit of the board, and its trustees are the board's members.
Gillespie's appearance is "vital" to "explain their ideas and the rationale behind what some are already calling a risky scheme," Fox said yesterday in an e-mailed response to questions about the plan. "When dealing with billions of taxpayer dollars, transparency and taxpayer protection are paramount -- and up to this point in the process, these two things have frankly been lacking," Fox said.
Spokesmen for Sanford and Chellis said they didn't know if the control board can block the commission from setting up the new company. Gillespie said he doesn't believe it can.
Among its functions, the board oversees bond issues and can order budget cuts at state agencies, said Michael Sponhour, a board spokesman. The other board members are the comptroller general and the heads of the Senate Finance and Assembly Ways & Means committees, according to the board's website.
At its meeting last week, the commission approved $15m to create the management company, which it would own and staff, initially with in-house employees, Gillespie said. He said the commission may buy a private-equity investment firm or hire workers from such companies to run the new company.
At that meeting, Chellis voted for the plan to move the discussion forward, Malyerck said. Yesterday, he was urging a more deliberative approach.
"The idea may have some merit, but the treasurer wants to move slower in the creation of that company," Malyerck said.
Not all of the needed decisions have been made to carry out the plan, Gillespie said. "We're making moves," he said.
About 20% of the pension fund's assets are allocated to private equity, real estate and other investments, all of which could be managed by the new company, Gillespie said. He said it isn't certain whether all of those assets would be transferred to the new company.
"Part of what's driving this is that we think some banks are going to have to punt their private-equity groups and maybe some of their assets with them," because of new financial regulations, Gillespie said. He expects to relay to the full commission any concerns about the plan expressed by the board.
Keith Brainard, research director for the National Association of State Retirement Administrators, said he wasn't aware of any other public-pension fund that has set up its own firm to manage private-equity investments. A New York Times report on the fund's plan said a study estimated savings of about $2bn over 10 years could be achieved by directly investing in companies and property.
Robert L. Borden, chief investment and chief executive officer of the pension fund, didn't immediately respond to questions about the plan posed by Bloomberg News. Hershel Harper Jr., the deputy chief investment officer, also didn't respond immediately.
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