Minority investors and pension funding.

biss raoul

Illinois State Senators Kwame Raoul and Dan Biss.

According to a report in this morning’s Crain’s, my Teacher Retirement System and other state and city pension systems have made some progress in hiring minority firms to manage our investments.

Illinois pensions have boosted investments with women- and minority-owned money managers in the 13 years since the General Assembly began tracking allocations, but the job isn’t done, policymakers say.

At its annual hearing on the topic last week, members of the Illinois Special Committee on Pension Investments lauded the state’s leadership on the effort, but also grilled pension executives and their consultants about seeking and hiring more diverse financial advisers.

Illinois and City of Chicago pension funds report annually to the committee on a long list of questions regarding the ethnicity and gender of the members of their own staffs and boards as well as money managers they hire to invest pension dollars for teachers, firemen, and thousands of other state and city workers. The thrust is that holding pensions accountable for their hiring and airing their performance publicly will advance more diverse choices.

Sen. Kwame Raoul, who co-chaired the hearing on Aug. 11 and 12 in Chicago, says he’s pleased with progress, but stops short of saying he’s satisfied. “I don’t want to send the message that we’ve arrived,” the Democrat from Chicago said after the hearing.

Though state law doesn’t dictate percentages, it encourages pension investments with women and minority-owned firms.

The Illinois Teachers’ Retirement System, the state’s largest pension, had allocated $7.86 billion to women- and minority-owned businesses as of the end of June, more than twice as much as the $3.27 billion in 2009 (when the recession was weighing down assets generally). It reached a peak last year of $7.93 billion, and dropped off this year because one firm was purchased by another that wasn’t minority-owned, TRS said.

Those assets last year and this year represent 17 percent to 18 percent of the $43.8 billion that TRS oversees. That was above the TRS goal of 16 percent, but still inadequate from the point of view of Sen. Daniel Biss, a Democrat from the North Shore.

“That’s a real problem,” he said during the hearing, offering a “blunt” interpretation that the lion’s share of assets being managed by white men smacked of a “boys club” and “institutionalized racism.” He said the public pensions had the opportunity to “push back against those patterns.”

Other pensions, including the Illinois State Board of Investments, the Illinois Municipal Retirement Fund and the Chicago Policemen’s Annuity and Benefit Fund, also presented data from thick reports that listed firms in various ethnic and gender categories.

There is no reason that Senators Raoul and Biss should be satisfied with the pace of diversifying investors responsible for our retirement investments. If we are going to have a system where my retirement income depends on investments on Wall Street, then I agree with Senator Biss that it shouldn’t be a white “boys club.”

Here is the irony.

Our pension system is only 41% funded. Although investment returns the last two years have been weak, that is the state of the investment market. Illinois’s pension investment returns are no worse and even a little better than those of other states.

It is the failure of the Illinois legislature over decades and decades to fully fund our pension systems that has created the current hundred billion dollar plus liability. That is money unpaid and still owed.

It is Senators Raoul and Biss  that were among those that voted to cut pension benefits instead of fully funding the system. It is the refusal to address the issue of revenue that continues the unfunded liability.

“Nothing from nothing leaves nothing,” Billy Preston sang.

Imagine handing over a fully funded pension fund to an even more diverse group of investment managers.

6 Replies to “Minority investors and pension funding.”

  1. As a minority, I am, of course supportive of minorities being given opportunities. As a retired teacher I believe the litmus test MUST be the performance of the companies. And shame on the legislators of all parties who attempt to sidestep or whitewash their efforts to avoid their (state and municipal) financial obligations. A pox on both their houses!

  2. Fred,
    The “old white boys club” was for a very long time a pay to play with the old political boys, not the old investment club boys.
    Dont’s mix apples and oranges. Diversity was not lacking necessarily because of any racism, but because of the pay to play. Experience speaks.

    Again I ask why you care, having a gov’t guarantee and all. Better for you if the gov’t saves money by not paying so they have money for the guarantee, right?

    1. I considered not posting this. But it is a pretty good example of the trolling I get. Readers should know what is out there.

  3. That TRS seat is a powerful one. Even if we just indexed we could have real power over corporate America….if we use it.The public pension funds have at least 10 % of the stock of publically held corporatons and almost all the alternative investment market.

  4. Fred there’s another question; do these minority investment firms kick backcampaign donations to elected officials?

    1. That would be illegal. As it would be for investment firms run by white boys. Elected officials don’t select the investment firms. Blagojevich’s pals tried to get business for Rauner and that is why some folks went to jail.

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