The Oregon Legislature is
considering a new Bill (Senate Bill 120) that will revolutionize
the states public pension system and (I hope) serve as a
model for other US states considering pension reform.
Whats so important about SB120? Well, let's see. It
"Establish the Oregon Investment Council as public
corporation to be governed by board of directors and supervised
by executive director. Change name to Oregon Investment
Corporation. ... Transfer duties of council, and State
Treasurer as investment officer, to corporation... Establish
Oregon Investment Corporation Fund and continuously appropriate
moneys in fund to corporation for expenses of corporation.
Exempt corporation from certain laws regulating government
In short, SB120 will transform the $74 billion public OIC into
a quasi-governmental corporation and endow it with a mandate
and governance to build a professional and sophisticated
investment organization (arguably in the image of some of its
Canadian neighbors, such as bcIMC and AIMCo).
For more details on how it will do so, here is a jewel from the
[The new OIC will] employ persons as it determines
necessary or desirable to carry out the mission and powers of
the corporation, and The executive director shall
prescribe the duties and fix the compensation of the
corporations employees, in accordance with the personnel
policies adopted by the board.
As Ive argued time and time again, its paramount that
public pension funds be able to hire and retain the best and
brightest minds. In fact, in a recent paper, I argued,
Recruitment and retention of talented individuals is the
single most important factor driving the success of any
investment organization. So, by taking budget authority
for the OIC from the Treasury, this Bill will greatly improve
the OICs ability to pay competitive salaries and properly
resource their investment organization. This, in turn, will
lead to it recruiting some top people.
Put simply, politicians generally do NOT have the appetite to
pay internal teams the millions of bucks it takes to hire the
best and the brightest (even if it means saving the state 10x
in terms of external fees paid). As a rule, I find it far
better to put the resourcing decisions in the hands of a highly
competent Board of Directors.
And, as far the Board goes, its useful to note that the
new Corporation will have a five member Board, and four of the
Directors are required to be qualified individuals
in the field of finance and investment (... the fifth voting
seat goes to the State Treasurer). Again, I think this is a
fabulous way to build a Board of Directors; as a small, smart
Board will be able to get a lot of creative things done.
In short, SB120 (if it passes) bodes quite well for the OIC.
This is all about improving governance, aligning interests and
saving on the massive external fees paid to managers by
bringing some of those external mandates in house. In this
regard, it could serve as a useful model for other American
Anyway, Ill leave the last word to the OIC Chairman Keith
Larson: The act is a good idea because it
improves governance by better aligning responsibility and
authority for managing PERS and other state funds. In addition,
the act should save Oregon millions of dollars in fees and
enable better risk management.