North Carolina will no longer rely on a sole fiduciary to manage the state’s eight pension systems, thanks to newly signed legislation drafted by the Treasurer’s office.

Starting in January, management of the state’s $127 billion retirement portfolio will expand from the state treasurer to a non-compensated investment advisory board. This non-compensated five-person board will be chaired by the Treasurer and consist of financial professionals appointed by the treasurer, governor, house, and senate.

When North Carolina Treasurer Brad Briner took office in January, the state was one of only three that relied on a sole fiduciary to manage their pension funds (with Connecticut and New York being the other two). So restructuring how the portfolio was run was a top priority for his administration.

Briner said in a statement that these reforms will put the North Carolina Retirement Systems “on a path to maximizing returns.”

Earlier this year, Briner told Institutional Investor that his office had pushed for this statutory governance reform, arguing that performance had been hamstrung by “outdated statutes” prescribing which assets they could or could not invest in.

To achieve its mandate to improve returns, which have underperformed for years, the board will rebalance asset allocation and identify strategies to improve performance. Briner, an ACA finalist, plans to “increase the risk a little bit” for the portfolio, including moving some equities into investment-grade fixed income and reinvesting $2 billion in excess cash.

He added that this new system will allow the state to set aggregate levels of risk and target returns while letting his office “build an investment organization that’s free from the day-to-day whims of political” influence.

Mitigating Succession Risk

As portfolios become rapidly more complex, it can be more difficult for sole fiduciaries like state treasurers or comptrollers to take the necessary time in managing them. And while Briner may be a savvy investor who co-ran the portfolio for Michael Bloomberg’s family office, there’s still the issue of long-term sustainability.

“When you have a sole fiduciary it creates succession risk,” Rick Funston, CEO of Funston Advisory Services, told II. “Sole fiduciaries may be great, but there’s no assurance what will happen with the next round.”

Funston pointed to state plans like South Carolina and Michigan as examples of high-performing organizations benefiting from a board approach with in-house investment expertise.

One Connecticut state senator inspired by Briner’s moves to reform NCERS is supporting a bill aimed at establishing a board sharing fiduciary responsibility over the state’s $60 billion in pension funds with the state treasurer providing oversight as chairman and CEO. State Senator Ryan Fazio (R-Greenwich) cited a study by the Yale School of Management revealing that Connecticut’s pension returns have notably lagged behind other states, ranking in the bottom 10 for state pension returns from 2014 to 2023.

“By sharing fiduciary responsibility among a board of professionals, rather than concentrating $60 billion in legal power in one person, we can significantly improve our returns as a state,” Sen. Fazio added.

A spokesperson for NYS Comptroller Thomas DiNapoli, the sole fiduciary for New York’s state pensions, declined to comment.