Bil Browning

Did Daniels lose millions in Hoosier investments?

Filed By Bil Browning | October 14, 2008 10:30 PM | comments

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Jill Long Thompson brought up the millions in lost investments by the Daniels administration in tonight's debate. Brian Howey describes tonight's scene like this:

Indiana's investment in Major Moves funding burst into the gubernatorial debate at the third and final debate at Indiana University Tuesday night. On a question about services, Democrat Jill Long Thompson stated of Gov. Daniels: "He invested in junk bonds, Freddie Mac and Fannie Mae." At a press conference after the debate, Thompson alleged that the Daniels administration had invested $300 million in junk bonds and similar amounts in Freddie Mac and Fannie Mae. She said that the administration and [State Treasurer Richard] Mourdock make the investment decisions.

Shortly after I posted the original rumor, I added two updates to the entry and new information has floated up.

  • Business Weekly was critical of Indiana's PERF investments as early as 2006 in an article titled, "Hopped up on Hedge Funds."

    ...it seems an odd time for a smallish fund to plunge deeply into hedge funds and other risky so-called alternative investments. Yet that's precisely what the Indiana Public Employees' Retirement Fund wants to do.

  • Daniels' spokeswoman Jane Jankoswki admitted to Howey earlier this month that the investments were losing money. "PERF and TRF started to invest in the stock market 10 years ago and over the past few years, their stock market exposure has gradually been reduced. The funds both still invest in the stock market and these assets have a lower market value right now than a month ago; however, PERF/TRF are long-term investors, not market timing investors." Jankowski said that Major Moves funds were not invested as per state law.

Meanwhile, the Indiana Legislative Insight explains what's going on with the PERF portfolio.

An advisor from Mercer Investment Consulting recommends that PERF decrease its investment allocation in domestic stocks by at least 20%, and increase the allocation by at least five percent each to hedge funds, real estate, international stocks, and inflation-indexed U.S. Treasury bonds. The PERF board of trustees will vote on the options in October. If approved, the portfolio changes would be phased in over several years.

The ultimate return on investments for the PERF portfolio during the fiscal year that ended June 30 was actually negative (- 7.88%) for the first time in years, a marked decline from FY 2007 when the retirement plan's net assets grew by almost $2.5 billion, while its investments delivered a 17.8% annualized return. FY 2008's disappointing results wiped out virtually all of the 2007 gains. The five-year rate of return is a solid 8.3 percent.
...
PERF investments in firms outside the United States became a much more lucrative part of its 2007 portfolio. While no such firms were among the top holdings in 2006, Swiss pharmaceutical manufacturer Novartis AG; Royal Dutch Shell; the Italian bank holding company Intesa Sanpaolo; Japanese electronic manufacturer Canon; Spanish telecommunications operator Telefónica SA; Swiss-based food company Nestlé; and the French-based oil company Total S.A. comprised one-half of the top 2007 holdings, reflecting a revised asset allocation adopted by PERF's Board of Trustees in 2006 that - among other things - allocated more to international equity even before you see more of a move in that same direction come October.

Which is the long way of saying this - Indiana's Public Employee Retirement Fund invested in international companies and Hoosiers are losing their asses. The plan was trending negative in June and in today's economy stock values are plunging. What was a longterm wash in June is surely a negative by now - and continuing to slide. Sound familiar? Remember Mitch Daniels' scandal over stock purchases and devastated employee pensions?

But what about the Major Moves funds? Jankowski claimed that the funds were not invested in the stock market because state law forbids it. Perhaps CBS reporter Jim Shella sums it up best in his quick post tonight (emphasis mine):

Jill Long Thompson perks up the audience by accusing Daniels of investing Toll Road Funds in "Junk bonds, Freddie Mac, and Fannie Mae." Daniels responds by saying, " I thought we might find a kindler, gentler you, but no," then says the funds are safe and the state Treasurer made the investment decision. He doesn't dispute the accusation.

Instead, Daniels deflected. "There is a very clear policy," he said. He said he felt sorry for Long Thompson because "someone did some very poor staff work."

While time will tell exactly how much Hoosier taxpayers' money the administration has squandered investing in foreign companies, you can bet state workers are eyeballing their retirements. Throw in the Major Moves allegation by Long Thompson and we're left with only one possible result for Governor Daniels.

Show us the money.


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