balow@wvgazette.com
The W.Va. Investment Management Board took its first step Thursday toward changing the way the state manages about $7 billion of pension and workers’ compensation funds.
After hearing a presentation from the group’s investment consultant, board members agreed to consider the proposals in greater detail.
Steve Holmes of Summit Strategies Group suggested the state invest up to 20 percent of its funds in investments classes outside the three basic types it holds now – stocks, bonds and cash. Although he didn’t say the state should specifically choose any of them, he mentioned such things as hedge funds, real estate, oil and gas, venture capital and distressed debt.
He and Kristy Newkirk, the board’s chief investment manager, also recommended the state have more flexibility in investing in subclasses of stocks and bonds to take advantage of market opportunities. Instead of fixed percentage targets of each subcategory, they suggested the board be allowed to set ranges of subclasses like large-cap, small-cap and international stocks.
“Is this a drastic change?” Holmes asked. “No. It’s an evolution. There’s been a tremendous amount of literature written about this. It’s a reaction to the bear market.
“Warren Buffett’s been screaming about this for years. No one listened to him. He was old school. Basic fundamentals do matter.”
The new policies are needed in part because investment managers predict a slower economy for the next 10 years, Holmes said. Stocks are not expected to be as profitable as they have been historically. The new policies could raise the annual yield of the state’s investments by 3 percent, he and Newkirk said.
Some policy changes might require legislative approval, said Craig Slaughter, the board’s executive director. Others might not.
“There may be some alternative investments that we can do [without legislative changes],” said Roger Hunter, chairman of the board’s investment committee.
“Is it worth going forward with just a few new tools in our tool chest? Yes,” he said. “Without changes to major investment classes, we could still add flexibility to the subclasses.”
The investment committee wants to refine some of the proposals and ask for board approval at a special meeting in a month, Hunter said after Thursday’s meeting.
“My sense is: the easiest thing to move into is flexibility of the subclasses,” he said. “That would be worth doing. The alternative category as an additional class – that will require additional study. That may be ready then, too.”
In other business, Newkirk told board members the total investment pool rose 10.6 percent in value for the year that ended July 31. While that’s good, the stock portfolio didn’t earn as much as its benchmark, she said.
The total stock portfolio gained 11.5 percent for the year, almost 2 percent less than its benchmark of 13.4 percent. On the other hand, the fixed income (bond) portfolio earned 9.1 percent, easily beating its benchmark of 5.5 percent.
To contact staff writer Jim Balow, use e-mail or call 348-5102.
