Prairie State Wire

With so much concern about pension costs and how much they are affecting Illinois finances, some experts are asking why governments should be engaged in managing so much of the money that professionals receive as part of their overall salary and benefits packages.

"Professionals, not politicians, should be the fiduciaries of pension funds and other state funds,” Mary Pat Campbell, insurance industry researcher at Conning Research, told Prairie State Wire in a Nov. 15 interview. “This is true in many cases of pension funds … what is bad is when there is a sole fiduciary for a pension fund, or all the fiduciaries are elected politicians.”

Campbell said that in some cases, legislators and governors have been interfering with pension fund management, for example, through divestment bills. She pointed out that these politicians don't have a fiduciary duty in the traditional sense, and she questioned whether they should be engaging in making political decisions about capital in these situations.

“They are playing with money that does not belong to them,” Campbell said. “State legislatures should stop with divestment bills. I know it's futile to tell politicians to stop playing around with big piles of money that doesn't actually belong to them and that it is pointless to try to shame them about it. But if taxpayers and, more importantly, pension plan participants see this as potentially financially harming them, perhaps they'll make sure the politicians behave appropriately, or replace misbehaving politicians with those who behave appropriately toward pension funds.”

Campbell said that divestment bills can actually make it harder for those who do have fiduciary responsibility to do their work. She gave the examples of fund managers for the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS, who she said had to jettison some stocks and bonds that were not approved by California legislators.

“In some of these cases, the plans have had to sell at a loss, even though the investment team may have decided based on investment fundamentals that they were good investments,” Campbell said. “There have been studies that show these external restrictions have affected fund values.”

In the end, she said, governments should not be "activist investors."

Contrasting due diligence to other kinds of financial management, Campbell said that some investment activity is good for government to be involved in – for example, looking for parties that set appropriate executive compensation policies and considering how companies work transparently with money.

On the other hand, she said, trying to micromanage through political motivations is not good for the system.

“The point is that these funds are being invested in the interest of pension participants or other parties,” Campbell said. “The funds are owned by the pension or the state – not the fiduciaries who are entrusted with managing these funds. The fiduciary is not supposed to be using other people's money for self-aggrandizement, they are supposed to be investing in the owners' interest.”