In addition to being a VP at Intel Capital, Keith Larson is the Chair of the Oregon Investment Council, which is preparing for a massive reorganization. As you may recall, the Oregon Legislature is considering a Bill (Senate Bill 120) that will revolutionize the state’s public pension system and spin out the Oregon Investment Council into the Oregon Investment Corporation. In this manner, SB120 will transform the $80 billion public OIC into a quasi-governmental corporation and endow it with a mandate and governance structure to build a professional and sophisticated investment organization. In a way, this legislation will take what is a typical American pension fund and turn it into one that looks and feels Canadian. :)
Anyway, on March 11, 2013, Mr. Larson testified to the Senate Finance and Revenue Committee in Oregon and offered some really interesting perspectives of the reason why this reform is so necessary. Here’s what he had to say:
“Oregon has been recognized as a leader in investment management for many years. However, to sustain leadership requires vigilance and continuous improvement. So in spite of our success, we reviewed some of the program’s fundamental underpinnings. And it was jarring for us to learn that Oregon’s investment house is actually sitting on a foundation that is not aligned with our fiduciary duties.”
Here’s specifically what they found:
“- The lines of accountability are blurred because the Investment Council, though able to set investment policy, is not actually able to direct staff.
- Oregon’s cost structure is disproportionately high because of the heavy reliance on external investment managers.
- And critically, Oregon has only a fraction of the risk management and protection functions that are commonplace for managers of similar-sized portfolios.”
In other words, the OIC is facing some significant challenges that could prevent it from achieving its long-term objectives:
“Senate Bill 120 is a reflection of that – while the investment world has changed markedly in the past three decades – Oregon’s investment program has not kept pace. And as consultants told us, the portfolio could face significant risks if we fail to modernize and strengthen the management of it. At the same time, we would be able to save hundreds of millions of dollars of taxpayer money over the coming years of we can stop outsourcing significant parts of our investment management. While external money managers can bring significant value to certain strategies within our portfolio, our heavy reliance on Wall Street is more of a necessity than a choice under the current structure.”
And the hope is that this Bill will help resolve this!
“Senate Bill 120 will help to shore up these deficiencies, and allow Oregon to move forward more safely in an investment landscape that is more complex and has more pitfalls than ever before.”
“In essence, it will enable us to do it right.”
That's awesome. In short, this Bill is all about ensuring that the OIC is resourced properly and can achieve its objectives. Here’s hoping it passes!