State lawmakers are asking whether New Mexico is getting its money’s worth for the hundreds of millions of dollars paid to outside firms that help manage its investments each year.
In a committee hearing Thursday, lawmakers began zeroing in on the roughly $300 million in management fees paid in the 2016 fiscal year by the state Educational Retirement Board, State Investment Council and Public Employee Retirement Association.
The fees are only a fraction — less than a percentage point — of the billions of dollars in assets that are managed. But lawmakers said it’s important to make sure the fees are worth it.
State Rep. Bill McCamley, D-Mesilla Park, said a key consideration is whether the
state’s investment agencies would be better off moving to a more “passive” management style — putting money in index funds and the like — to lower fees.
“Obviously, we’re in a position where every dollar is counting,” state Rep. Bill McCamley, D-Mesilla Park, said.
Each of the three agencies that handle state investments — the Educational Retirement Board, State Investment Council and Public Employees Retirement Association — has a slightly different approach to how much of their money is “actively managed.”
PERA tends to pay the least in fees — as a percentage of the total investments involved — and ERB is paying the most, according to information shared with legislators Thursday. The State Investment Council was in the middle.
Charles Wollmann, spokesman for the SIC, said the management fees paid by the council are in line, or even below, what similar investors pay. And the council finished the last fiscal year with investment performance above its benchmark, he said, delivering hundreds of millions of dollars in extra revenue to the state permanent funds.
Regardless, Wollmann said, the council closely considers the fees to ensure it’s getting the most bang for its buck.
Wayne Propst, executive director of PERA, said his agency has substantially reduced the amount it pays in management fees over the last few years.
“We do have a mix of passive and active management that we generally feel comfortable with, but constantly evaluate that mix to ensure the best chance of meeting our investment target,” he said.
Bob Jacksha, chief investment officer for the ERB, said his organization constantly evalutes what it can manage in-house and when it should hire money managers.
“The things we can’t do well internally, we should hire someone, and that’s what we do,” he said.
Sen. George Muñoz, D-Gallup, said the critical questions include: “Are we getting the most we can for our dollar? Is our return worth it?”