Brad Briner ran for North Carolina Treasurer on a platform to modernize the state’s investments. Now in office, he’s looking to make good on that campaign promise by revamping how the state manages its $127 billion retirement portfolio and restructuring the investment office.
North Carolina is one of only three states alongside Connecticut and New York that rely on a single fiduciary to manage their pension funds. The Treasurer’s office has drafted a bill to replace the Treasurer as sole fiduciary of the North Carolina Retirement Systems with a non-compensated, five-member board.
The proposed board, chaired by Briner and made up of financial experts appointed by the legislature, governor, and treasurer, would manage investments and balance risk, while the general assembly would retain oversight of key risk controls in asset allocation. As the former co-CIO for Michael Bloomberg’s family office Willett Advisors, the Treasurer brings the money management expertise needed to serve on the board.
This new system would let the state set aggregate levels of risk and target returns while letting his office “build an investment organization that’s free from the day-to-day whims of political” influence, Briner told Institutional Investor, adding: “It allows tactics to be managed by the professionals while the strategy is still set by the state.”
The office also looks to implement safeguards so that appointments are nonpartisan, including staggered terms to ensure continuity and long-term stability.
Performance Hamstrung by “Outdated Statutes”
According to the Treasurer, North Carolina’s retirement systems have been constrained by “outdated statutes” restricting where and how much they can invest — including caps on assets like high-yield debt and mortgages. But he noted that what made sense to invest in or avoid a decade ago no longer holds true today.
“Currently, we’re subject to a 13-year-old statute that prescribes which assets we can and can’t invest in,” he said. “We’ve had really good funding from the legislature, but the investment side is not keeping up.”
In the same interview, NCRS CIO Kevin SigRist echoed that “these specific definitions” of allowable investments and “statutory caps don’t keep up with markets over time,” adding that “getting the right governance in place is key to being successful.”
The retirement system’s portfolio has faced persistent underperformance. North Carolina’s pension plan ranked last among 50 state systems for the three- and five-year periods ending June 2022. BNY Mellon data shows NCRS returned 5.6 percent and 6.3 percent for the five and 10 years ended December 31, respectively — both below the 7.9 percent median return for those periods among U.S. public pensions with over $20 billion in assets.
“We’ve underperformed the median pension plan, and on nearly $130 billion, that adds up pretty quickly,” Briner said.
Looking to “Increase the Risk a Little Bit”
The portfolio has been “under-risked for many, many years,” the Treasurer noted, with predecessor Dale Folwell reducing exposure to private equity, real estate, and hedge funds. The fund’s current private equity allocation is 4.8 percent, below its 7 percent target, while 27 percent sits in cash and investment-grade bonds.
Now, as he and SigRist rebalance, they’re looking to “increase the risk a little bit.” This includes moving some equities into investment-grade fixed income and putting $2 billion of its $8 billion in excess cash back to work. The office also aims to target investment opportunities in such asset classes as infrastructure and core real estate that may not have been viable three or four years ago.
“Pretty Sanguine About the Business Environment”
Despite headline risks, the Republican Treasurer remains “pretty sanguine about the business environment” we’re currently in. “I think the current administration seeks to be business-friendly, and that will matter over time,” he said, expressing confidence in generating consistent 7 percent annual returns amid higher interest rates.
The proposed legislation is just the first step in reforming the state’s investment process, but Briner is confident that lawmakers from both parties “understand the importance of this change.”
“I did run on a campaign to diminish the power of the office that I sought. But in the end, that is the right thing,” Briner said. “We have suffered from [missing] opportunity costs for far too long.”
