October 7, 2022

The Nerve

Where Government Gets Exposed

Secrecy Shrouds Retirement Proposal

The NerveSome crucial details have yet to be revealed about the S.C. retirement system’s controversial plan to create the nation’s first state-run investment firm.

Such an entity could be empowered to manage several billion dollars belonging to state retirees and employees.

However, it’s not just current and future retirees’ money at stake in the plan, nor in the retirement system as a whole.

Indeed, taxpaying South Carolinians might want to watch their wallets on this one. They could be on the hook if the firm flounders, or if there’s a Wall Street redux circa 2008.

“It’s the taxpayers that guarantee the retirement system,” state Sen. Greg Ryberg, R-Aiken, said during a public forum on the retirement summit that Gov. Mark Sanford convened last week in Columbia.

The unknowns concerning the proposed state-run investment firm include to what extent it would be subject to the state’s open-records law; whether its executives and other staff members would be state employees; and what their salaries would be.

The Nerve caught up with the retirement system’s top two officials at the governor’s summit last week and asked them about some of these matters, which have not been made clear to many stakeholders in the retirement system.

But the officials, S.C. Retirement System Investment Commission CEO and Chief Investment Officer Robert Borden and commission Chairman Allen Gillespie, provided few details.

“And really, a lot of that has not been determined at all anyway,” Borden told The Nerve.

An estimated 200 people – retirees, state lawmakers, retirement system officials and others – packed into a conference room in the Edgar Brown Building on the grounds of the State House to attend the governor’s forum.

The event focused on how the state can make good on a multibillion-dollar promissory note it has written to future retirees but for which it does not have the money. Projections of that unfunded liability range from about $12 billion to more than $53 billion.

Different stakeholders in the retirement system argue different numbers, but generally agree that the toll of the system’s unpaid-for promises is growing and represents an unsustainable house of cards that must be reformed.

“One of the beauties of being an outgoing governor is you get to talk about a lot of things that are at times sacred cows,” Sanford said in kicking off the summit, referring to his impending, required departure from the Governor’s Office in January after two terms.

“In this case,” he continued, “we’ve been talking about this for eight years, in that we’ve had a mounting retirement liability that if not dealt with will prove catastrophic for both taxpayers and retirees.”

Retirement system reform could be a key issue for the General Assembly when it reconvenes in January.

Borden gave a presentation at the forum about the commission’s investments. But he did not mention the commission’s plan to create a state-run investment firm, and the issue did not otherwise come up in the discussion at the gathering.

The commission’s governing panel, made up of Gillespie and four other voting members, unanimously approved the plan Sept. 23. The commission at that time also authorized $15 million in start-up costs for it.

From The New York Times to The State newspaper, it has been widely reported that a state-run investment house in South Carolina would be the first of its kind in the United States.

Chartered in 2005 under state law, the commission manages the retirement system’s assets. Those holdings totaled about $20.5 billion at the end of fiscal year 2009, down $6.1 billion, or 23 percent, from the previous year, according to the commission’s comprehensive annual financial report for 2009, the most recent available.

The CAFR, as it’s called, attributes the nosedive in assets value to the Wall Street implosion that began in 2008. “The impact of the recent financial market crisis should moderate in time through the use of actuarial smoothing methods and a restoration of investment returns to historic norms,” the report says.


Under the commission’s plan, it would create a separate, state-controlled investment firm – dubbed NewCo, for “new company” – to handle the retirement system’s private equity, or assets that are not publicly traded, such as working capital loaned to small companies.

Private equity constitutes about $5 billion of the system’s assets. The NewCo plan calls for increasing that amount by several billion dollars in an effort to achieve higher returns for the system.

Presently the commission pays investors to manage its private equity. By cutting them loose and forming its own company to do so, the commission contends that it can save hundreds of millions of dollars in future years and wield greater control over its private equity.

Gillespie spoke to cost savings in describing what the commission’s private equity investment managers typically charge.

“Their models are predicated upon 2 percent management fees and 20 percent carrier profits, right,” he told The Nerve. “So they’re getting 20 percent of the profits on our investments today, split across however many people are in their firm. It’s a big (dollar) number, that currently all goes out of state to other people.”

But be that as it may, the idea of NewCo has generated much concern and curiosity.

Asked by The Nerve whether the firm would be subject to the S.C. Freedom of Information Act, Borden responded, “It would be subject to, you know, all the applicable laws of ethics and freedom of information to the extent applicable.”

Carmen Maye, an attorney for the South Carolina Press Association, says the sunshine law is pretty cut and dry.

“It sounds to me that the FOIA would apply to this NewCo entity as it would to any other publicly funded body,” Maye says. “If it’s supported in whole or in part by state funds, then it has to comply.”

The Nerve’s parent organization, the nonprofit South Carolina Policy Council, is an associate member of the Press Association.

NewCo potentially veers into gray areas of the open-records law with respect to quasi-public entities.

Maye says that’s why such matters sometimes have to be battled out in court. In the realm of legal argument, she emphasizes an organization’s origins. “If they owe their existence to state funding – public money – then it would be awfully hard to unravel that,” Maye says.

Borden said the commission is seeking input on its plan from retirement system stakeholders and contemplating how to proceed with NewCo. “And one of those issues are going to be how we deal with transparency, accountability, compensation.”

Sanford questioned Borden about NewCo salaries during a state Budget and Control Board meeting Sept. 29. The governor quoted figures of more than 50 employees averaging about $500,000, but he did not cite a source for those numbers.

Borden and Gillespie both hedged when The Nerve asked them about NewCo salaries.

“I don’t know that that’s an accurate figure,” Borden said of the half-million-dollar average. “I haven’t looked at average salary figures.”

What’s the salary range for NewCo?

“It’s a wide range,” Borden said.

What is it?

“It varies by position.”

Gillespie then leaned in and cited typical private equity firms as a basis of comparison. “I mean you can look in the papers and see what the guys make,” he said.

What’s the top end of their pay scales?

“Well, the data,” Gillespie said. “I mean it’s, you know, you can look at compensation data from the industry.”


Upon more questioning he named a firm the commission has allocated investments to, Apollo Global Management of New York City, and suggested looking up the compensation of Apollo’s CEO, Leon Black.

“And, you know, we aren’t contemplating anything on that scale,” Gillespie said. “But you can see what it looks like … ”

In 2009, Black received $100,000 in base salary and no bonus, but took home nearly $780,000 in total compensation, according to a March 22 report by the Wall Street Journal.

In September 2007, Forbes magazine ranked Black the 82nd richest person in America, with a net worth topping $4 billion.

A more than 40-page report on the NewCo plan, obtained this week by The Nerve using the Freedom of Information Act, contains no salary figures and says virtually nothing about compensation.

But a preliminary draft of the report, which The Nerve received earlier from a confidential source, says “individual compensation data will be protected and not disclosed as public information.”

Once again, Borden:

“Anything that is going to be controlled directly by us, there would be a disclosure of individual salaries.”

But, he added, “There’s other strategic partnerships that are currently in place that we have, like with Goldman Sachs for instance, that we’ve anticipated making a part of this NewCo strategy. We can’t disclose their salaries. We don’t have that information and we can’t get those.”

Borden said salary disclosure is one of the issues the commission is considering in deciding how to move forward with NewCo. “We will have a plan that would answer that question, and as I’m sitting here today I can’t answer it.”

That plan will take into consideration input from stakeholders, he said. “Because when you say stakeholders, it’s a whole wide amount of people, and when you say get input, that could mean a whole lot of things.”

Would the commission issue articles of incorporation for NewCo?

“Yeah, presumably,” Borden said.

Does he have a sense of when?

“No, and I’m not being evasive,” Borden said. “We are definitely sitting back here and considering how to incorporate a lot of the things that we’ve heard into this plan, and we haven’t got to that point yet.”

The Retirement System Investment Commission’s next and final meeting of the year is a two-day retreat scheduled for Nov. 17-18 at the Wampee Conference Center on Lake Moultrie, about 100 miles southeast of Columbia toward Charleston.

At that meeting, Borden said, the commission plans to work out a timeline for NewCo implementation. “I would guess that that’s got to be at least a 90-day period of time, you know,” he said.

Borden’s and Gillespie’s vagueness about NewCo follows a public outcry about the proposal.

The blowback was most publicly visible at the Sept. 29 Budget and Control Board meeting. With Borden and Gillespie on hand, Sanford and other members of the board criticized the commission for failing to get stakeholder buy-in to NewCo and called on the commission to slow down with it and reach out to interested parties.

It is a matter of debate whether the commission can proceed with NewCo without the Budget and Control Board’s consent.

In the Q-and-A with The Nerve at the governor’s summit last week, Gillespie acknowledged the concern and surprise about NewCo. But he said he has never been involved in anything with the commission that wasn’t public.

“What was clear to me after the last meeting was there were a lot of people who weren’t familiar with what was going on,” he said, “and I feel obligated to try and have those conversations with them directly, rather than playing it out through the papers or the press.”

Reach Ward at (803) 254-4411 or eric@thenerve.org.

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