Bil Browning

The latest Mitch Daniels rumor

Filed By Bil Browning | October 06, 2008 10:00 AM | comments

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This just came in via the Bilerico-Indiana tip line...

I have been told by high level Republicans in Indianapolis that the Daniels Administration took the Major Moves Funds, PERF, & Teachers Retirement Fund and combined those funds (billions of dollars together) and then invested them into the stock market. Word is that they have lost enormous value in the recent market 'correction' or as we call it in Southern Indiana (where we shoot straight and tell it like it is) the market 'crash'.

The Republicans are very apparently and justifiably scared to death that this will get out, and with good reason. In their words, 'If this is true, then this election is over and we'll be lucky to win dog catcher at the polls this year.'

I'll be the first to admit that I'm not well versed on finding this sort of information. Anyone out there willing to do the digging and report back? Is this true?

[UPDATED AFTER THE JUMP]

A reader e-mailed to point out this clip from the Howey Political Report on October 1, 2008:

WALL STREET MELTDOWN LOWERS VALUE OF STATE INVESTMENTS: The volatility on Wall Street has taken a bite out of PERF and TRF investments by the state of Indiana (Howey Politics Indiana). Asked about the status of state investments, Gov. Mitch Daniels spokeswoman Jane Jankowski told HPI on Tuesday, "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." By state law, Jankowski said, Major Moves funds are not invested in the stock market.

While Jankowski claims PERF has been reducing their investments over "the past few years," a September 2006 Business Week article says exactly the opposite. Entitled "Hopped Up On Hedge Funds," the article calls out the state for "taking bigger risks with taxpayer money." (Emphasis mine)

Public pension funds have taken heat lately for a slew of problems. From New York to Ohio, critics have lambasted them for inadequate disclosure, mismanagement, and promises to retirees that could leave taxpayers holding the bag. So 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. The board of the $14.6 billion pension fund, which oversees the retirement of 220,000 state employees, voted in late August to bump up its alternative investment target to 15% from 5%. It also broadened the menu to include not only private equity and real estate but also hedge funds and commodities. And Indiana said it would cut its safest holdings, bonds, from a target of 30% to 20%. All this from a state that began investing in stocks only 10 years ago.


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Chris Worden | October 6, 2008 8:25 PM

I heard that PERF and TRF lost 7% of their value, which doesn't seem like it's that much until you realize it's a BILLION dollars. If anybody out there can confirm this, I'd be grateful. I'm sure with today's bust, it's got to be even more now.

Robert Ganshorn Robert Ganshorn | October 7, 2008 10:42 AM

Know anybody at the "Indianapolis Star" Bil? They have got to have a finance editor.

I find this hard to swallow. What possible benefit could Daniels have to mess with PERF, let alone to do it without discussion? The only benefit is to brag the public no longer has to kick in for the shortfall. The political risks are just too much. And let's not forget, the stock market hasn't exactly been great in the time he's been in office. Not as bad as now, but not the boom of 10 years ago.

And the Business Week article you cite is hardly what I call critical. Questioning, but not critical. The fact is, bonds and CD's just aren't cutting it, and diversity if a well-established investment plan.

I think the plan now is sound. If there is shenanigans going on like you mention, all bets are off, but I will wait for more than a mention of rumour.