 |
|
|
|
|
|
|
|
|
|
|
|
 |
|
||||||||||
 |
 |
 |
|
||||||||
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
|
|
 |
 |
 |
 |
 |
|
||||||
Sunday, March 23, 1997
Down markets just opportunities for investment, VRS chief believes
Jeff E. Schapiro
Though he's the son of a Texas wildcatter, there's nothing reckless about the new chairman of the Virginia Retirement System.
Financier and U.Va. faculty member Edwin T. Burton III, who assumed the gavel this past week from James C. Wheat III of Richmond, isn't much on the exotica of investing. Forget about emerging markets overseas, Burton argues -- and history bears out -- that the really big money is still being made in the good ol' U.S. of A.
The problem is that even the bulls of Wall Street will lose their wind sooner or later. That could prove the first test of Ed Burton, who suggests that a sustained bear market could cost VRS most of what it's made since it was extracted from a political bog three years ago.
The fund swelled from $18 billion to nearly $25 billion because of the runaway performance of stocks, which make up 70 percent of the VRS portfolio. Should the market, now hovering around 7,000, fall 30 percent -- as it did in 1987 -- that could erase more than $5 billion from the retirement system's books.
This won't mean that VRS, the 30th largest public pension program in the country, can't pay its bills. Nor will it likely force an increase in government contributions toward the future pensions of 200,000-plus state and local employees and the current benefits of 80,000 retirees.
But a market correction, while an unsettling reminder of the cycles of the economy, will also spotlight VRS' responsibility for crafting an investment strategy that minimizes strain on the fund -- and the nerves of the people who run it.
Indeed, in May, the nine-member VRS board of trustees will again take a close look at asset allocation. As a hedge against a downturn, there could be a reduction in the fund's position in the stock markets but only an ever-so-slight one.
Still, Burton said of a significant market shift -- in either direction: ''Our attitude would be, if the market were hurt badly, we would probably buy more stock . . . If the market were to continue to go up, we might do the opposite.'' Put another way: there are never down markets, just investment opportunities.
Burton -- like Wheat, a personal and political pal of Gov. George Allen -- may also have an opportunity, under Allen's successor, to democratize the retirement system somewhat by giving participants the option of managing their own pensions.
Allen's numbers-crunchers floated the idea last year, but it quickly withered because it was perceived by public employees as another thumb in the eye from the Republican administration.
As Burton sees it, VRS should offer a 401(k)-type program to those who want it. In the argot of the investment world, this is known as a defined-contribution plan, compared with the defined-benefit system -- literally, a benefit defined by law -- that's now the rule at VRS.
Burton, who teaches economics and has worked for such financial powers as Smith Barney, Interstate Johnson and the Roths child family, suggests that the next governor -- regardless of party -- and the 1997 General Assembly create a commission to study self-managed pensions.
Its membership should be drawn from both political parties, the business community, academe and VRS' constituents, some of whom currently oppose defined-contribution plans as too risky. ''It's probably best that it's not part of the campaign of '97 . . . since nothing gets discussed dispassionately in a political campaign.'' Burton said.
By the way, Burton -- a 54-year-old millionaire uncertain of his net worth but one who says he has told his two teen-age daughters that there are plenty of things he can't afford -- is an enthusiastic Republican.
He's been active in a number of campaigns, including those of a former Earlysville neighbor named George Allen. But Burton last year resisted Allen's plea that he become the state GOP's chief fund-raiser. The reason -- take note, Allen Republicans and Virginia Democrats embarrassed by questionable fund-raising practices: he didn't want to risk a conflict of interest by taking political contributions from investment firms angling to do business with VRS.