Treasurer’s Race Shows Different Takes on Pension Investments

By Melissa Daniels | PA Independent

HARRISBURG — The future of Pennsylvania’s investments and financial management is up for grabs on Election Day in the low-profile yet high-stakes race for state treasurer.

State Treasurer Rob McCord, a Democrat who calls himself “a fiscal conservative in the old-fashioned way,” is wrapping up his first term. While campaigning for re-election, he’s touted efficiency reforms via $25 million in cuts and earning $1.4 billion through investments.

The Republican challenger, Washington County Commissioner Diana Irey Vaughan, is critical of the state’s investments, calling for fewer risky, alternative assets. After 17 years in the southwestern Pennsylvania county, Irey Vaughan says she’ll bring a set of responsible management and leadership skills to the treasurer’s seat.

A treasurer’s race doesn’t grab headlines in the same was as other state offices, such as the Attorney General’s race. Without the same amount of polling and editorial board sit-downs, or a televised debate, voters are probably less familiar with these candidates than others, despite the fact they are in charge of billions of state dollars.

In this race, the candidates have markedly different backgrounds — politics versus finances — and approaches to investment.

The state treasurer is essentially a CFO for Pennsylvania, managing investments and funds including the state’s college savings plans and the Bureau of Unclaimed Property. Notably, the treasurer is the only elected official who sits on the boards of the state’s two pension funds, having a say in the investment choices of multi-billion dollar portfolios.

And then there are the state pension systems’ unfunded liabilities, estimated at $40 billion. So, there’s little room for investments to go awry or come up short, as losses would make it more difficult for the state to meet its obligations to retirees.

Irey Vaughan, a five-term commissioner, is emphatic about making conservative decisions with taxpayer dollars. She’s campaigned on a platform that McCord has managed the pension funds like a “Wall Street portfolio,” failing to consider long-term projections and relying on too many alternative assets.

Pension funds in Washington County, which are 98 percent funded, are invested more conservatively in stocks, Irey Vaughan said.

Irey Vaughan says it was a lack of leadership that caused Moody’s Investor Services to downgrade the state’s bond rating in connection with the unfunded liabilities.

“When you look at funding long-term liabilities, you have to have a long-range plan to do that,” Irey Vaughan said. “If you look at the approach managing Pennsylvania’s pension funds and you compare that to the way I’ve managed Washington County’s pension funds, you see a lot of differences.”

She points to an article from The New York Times in April that said the commonwealth had 46 percent of the $23.6 billion State Employees Retirement System in alternative investments such as real estate, venture capital and private equity.

McCord has campaigned on his experience, bolstered by decades in the financial industry and degrees from Harvard University and the University of Pennsylvania Wharton School.

McCord said he didn’t disagree with the Times article. But he denies his decisions have been too risky. Most of those alternative investments happened long before his term, he said – as did the legislative decisions to under fund the system.

McCord, a frank speaker with incendiary passion for investment, says he’s pushed to make fees associated with alternative assets performance-based and lower across the board, as well as invest in less private equity.

“I avoided giving money to venture capitalists in the three years I’ve been in office,” he said, adding that’s an all-time low for the commonwealth in the past 15 years. “I’m very, very proud of my record.”

But you don’t want to get entirely out of some asset classes, McCord says, since a diverse portfolio means potentially stronger returns when others are in trouble. This is his experience, he says, from “managing 800 times as much as money as a plain vanilla pension fund in Washington County.”

McCord says he’s confident running on his experience and his track record. He cites his success as the sole manager of the commonwealth’s PA 529 Guaranteed Savings Plans for college savings, which was 70 percent funded when he took office. The billion-dollar fund is now 98 percent funded.

McCord said he’s had “quiet conversations” with lawmakers on both sides of the aisle who’ve come to him seeking a “centrist solution” to the liability problem. He maintains that he’s not partisan and calls his opponent a career politician.

“I’m elected by the people,” he said, “nobody can fire me but the people of Pennsylvania.”

But Irey Vaughan, seeking the office from outside the walls of the administration and its business, said it’s time for the treasurer’s office to host a leader who can tackle the pension problems.

“I want to take a hands-on approach, and a leadership approach to the discussion on what our problem is, and how we’re going to fix it,” she said.