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Are State Treasurer Cowell and the Bowles too cuddly?

By David Mildenberg - Aug 26, 2014 - 6:00:00 pm

North Carolina’s $90 billion state pension is getting lots of attention this week, including a two-part series by Charlotte public radio station WFAE on why State Treasurer Janet Cowell is so fond of alternative investments and collecting campaign funds from New Yorkers with Wall Street ties. The series repeats previous criticisms of Cowell’s strategy, which has boosted state spending on hedge funds and investment groups that specialize in more complex strategies than traditional stock-and-bond investing.

Separately, the cozy relationship between Cowell and Charlotte business icons Erskine and Crandall Bowles was highlighted by International Business Times, a New York-based website affiliated with Newsweek magazine.

Charlotte-based Carousel Capital, which Erskine co-founded, got a contract in 2011 to manage money for the N.C. Innovation Fund, a $232 million state-sponsored investment fund overseen by the state treasurer, only weeks after a fundraiser for Cowell’s 2012 campaign was held at the Bowles’ Charlotte home. Such a fundraiser isn’t too surprising because the Bowles generally support Democrats such as Cowell. But Securities and Exchange Commission rules restrict campaign contributions from companies that manage public pension funds, including Carousel Capital and JPMorgan Chase, where Crandall is a director.

Erskine Bowles told the International Business Times he hasn’t had a role in raising funds for Carousel Capital since 2005 and hasn’t talked to North Carolina or anyone else about investing in the firm during that period. Crandall Bowles, former CEO of the Springs textile empire and the party’s host, didn’t comment. The money apparently helped Cowell, who won about 54% of the vote during her elections in 2008 and 2012, while Republicans gained control of North Carolina politics.

For a balanced perspective on all of this pension-fund talk, check out Andy Silton’s blog. He’s a former chief investment officer for North Carolina and offers an insider’s view of how public pensions work. One interesting point he makes: the State Employee Association of North Carolina slams Cowell for putting 22% of state pension fund into distressed debt, real estate and other alternative investments, up from less than 10% five years ago. Had she put the money in a U.S. stock index fund, instead of messing with all those costly Wall Street and Tryon Street sharpies, the fund would be billions richer, SEANC argues.

But SEANC doesn’t mention that over the past 15 years, including the recent bull market, stocks returned 5% annually vs. 6.9% for bonds. “If we’d followed SEANC’s prescription (even with index funds) over the past 15 years, the state’s pension plans would be in a very deep hole,” Silton notes. He doesn’t fault Cowell for trying something new.

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