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An issue of influence at pension fund
JEFF E. SCHAPIRO
TIMES-DISPATCH COLUMNIST
Contact Jeff E. Schapiro at (804) 649-6814 or jschapiro@timesdispatch.com
Virginia government pensioners, present and future, meet Gov. Mark R. Warner, populist rich guy.
Warner, who made his gazillions the new-fashioned way, in cell phones, is suddenly fretting about the Virginia Retirement System, worried it's being bled white by dot.cons and other dogs.
Hel-lo-oooh!
Sure, the collapse of Enron, WorldCom and others is a drain on VRS. Enron and WorldCom have cost VRS'bout $110 million, a pittance compared with the $8 billion that the fund, now at $34 billion, has lost since the market's retreat from its historic peak in March 2000.
In response to the financial and accounting scandals, Warner wants the nine trustees who oversee VRS to come up with new ways to protect it. To the unsuspecting - and that's precisely whom Warner has in mind - his request sounds innocent enough.
But it seems a flashback to the politicization of VRS more than a decade ago under Democratic Gov. L. Douglas Wilder, with Warner - like Wilder - throwing his weight around with the fund's trustees.
In talking about VRS, Warner is exercising his right to free speech under the First Amendment of the U.S. Constitution, but he may be running afoul of an amendment to the Virginia Constitution.
Among the ideas advanced by Warner: VRS should abandon its tradition of neutrality in corporate governance matters and perhaps use its holdings to force change at seemingly errant businesses.
Plenty of public pension programs do this. The giant California funds have elevated shareholder activism to an art form. The results, however, are not always pretty.
As Edwin T. Burton III, a Republican and former VRS chairman, points out, the California funds, even with their large legal and research staffs, didn't see Enron or WorldCom coming.
Indeed, VRS has never been set up to operate hands-on among the 3,000 companies in which it owns stock. The cost of doing so is steep. VRS would need more traders, more analysts, more lawyers - at a time when the pols are playing games with VRS funds to divert dollars to the state budget.
Warner's suggestion would appear to betray the spirit of a 1996 revision to Article X, Section 11 of the state Constitution. The new language designated VRS an independent trust. While run by appointees of Warner and lawmakers, the trustees are required by law to put VRS' financial sanctity above all else.
They're doing that, with no help from Warner or legislators.
It has not been an activity for the faint of heart. Since the reforms of the mid-1990s, almost every seat on the VRS board has turned over. New trustees are wrestling with the consequences of the decisions of their predecessors, including a big-time move into stocks.
Since the early days of the bull market, seven in 10 VRS dollars have been plowed into stocks. It's a strategy that once pushed VRS to a record $42 billion. With stocks in decline, VRS is stuck with this 70 percent solution until it restyles its holdings.
Logic would dictate - and Warner, the supposedly savvy investor, might agree - that this is no time to abandon equities. VRS, which two years ago refused to trim stocks to 50 percent, should be snapping them up at bargain prices.
But VRS is floating ideas that recall the questionable investment strategies of the Wilder era. This includes hedge funds. They're risky, and the people who run them demand huge fees. You don't hear Warner fussing about that.
Warner's conduct on VRS should be guided, in part, by a decision he made about his own investments, which in 2001 included such now-embattled stocks as Enron, WorldCom, Vivendi Universal SA and Tyco International.
When he took office, Warner put his holdings in a blind trust run by legal and investment pros. That way, he said, politics wouldn't become intertwined with his portfolio.
Why should VRS be any different?
Jeff E. Schapiro covers state government and state employee issues for The Times-Dispatch. E-mail him at jschapiro@timesdispatch.com