Thoughts on state investments

Who do you seek for advice when you have money to invest? Do you call up the local farmer, a teacher and a couple of lawyers? Most people use professionals who know markets and can give good advice on trends.

I carried Representative Virginia Court’s (D-Billings) House Bill 533 on the floor of the Senate last week. Virginia and I have both served on Legislative Audit Committee and agree that the changes in HB533 will modernize the Board of Investments since the makeup of the nine members hasn’t changed in forty years.

This board invests $16 billion for the taxpayers each year and has the sole authority to invest our funds. HB533 would require that three of the members have at least five years of investment experience.

Some members of the board came to our Senate committee hearing and opposed the bill. There were many reasons, including a belief that not enough people are qualified in the state to serve under the new requirements. I could name 15 people in the Flathead who would meet the experience level and know there are many more across the state. They also claimed there was no reason to change because the current board is doing such a good job.

Fluctuations in market conditions are part of every investment picture. Several states with similar assets, however, have outperformed Montana over the past decade. We ranked in the eighth percentile among peers in 2015 but in the 58th percentile in 2016 with the same board membership.

Alarming to me is that the board voted last fall to allow investments in hedge funds. The board member who has been opposed to this strategy in the past was absent from the meeting in November. It is also possible that nobody at a meeting would have financial knowledge if the only board member with the background was absent.

Forty years ago the Board of Investments dealt solely with fixed income and domestic stocks. They now invest in a far wider mix of investments including international stocks and real estate. Terms commonly used are merger arbitrage, mezzanine finance, European waterfall and mean variance optimization. I don’t think the European waterfall is the same we’d like to see on a yearly vacation.

Times have changed in the investment world. It only makes sense that we keep up with the modern times and require a third of this board to have background in these complex issues. Our $16 billion are depending on modernization of the Board of Investments.

Dee Brown-R, SD2

Hungry Horse