Walker Stapleton–Just a Crappy Investor?

As the Pueblo Chieftain’s Patrick Malone reports, what are we to conclude from the continuous running down of the Public Employees’ Retirement Association (PERA) by Colorado Treasurer Walker Stapleton? Makes you wonder, especially when:

In the calendar year 2010, PERA realized a 14 percent return on its investments, according to Meredith Williams, CEO of PERA. As of last week, PERA had earned 5 percent on its investments.

“I give the PERA investment team credit this year,” Stapleton said. “They did a great job. But we’re not talking about investments in a one-year or a 10-year time frame; we’re talking about a 30-year time frame.”

Stapleton said he objects to the target of an 8 percent annual yield because it fosters risky investments in order to hit such a high mark…

Yes, well:

Over the past 25 years, PERA has averaged a 9.3 percent return on its investments. The rate of return during the past decade has been about half as much thanks to drastic economic downturns in 2002 and 2008…

Looking at investment returns from other states during the same 25-year span, the average annual rate was 8.7 percent, according to [Tom] Cavanaugh [of Cavanaugh Macdonald Consulting].

What this boils down to is a clash between conservatives and public employees over recent PERA reforms–2010′s Senate Bill 1 stabilized the pension fund in the wake of the major economic crises of the last ten years, largely by hiking employee contributions and tightening eligibility for benefits. Based on that, public employees say they have made enough sacrifice. Walker Stapleton, however, clearly isn’t so sure, having testified before Congress about the “unsustainable” nature of PERA’s investments even after reform.

So, you know, maybe he’s right, but the long-term historical and present performance of these investments doesn’t indicate that; as this audit by an independent consultancy shows pretty clearly. And if Stapleton’s PERA investment naysaying continues to underestimate their performance–meaning PERA’s investments simply track their historical average–people might start asking if Stapleton’s just not very good at picking winners in the market.

A harsh indictment for Colorado’s Treasurer and the CEO of SonomaWest Holdings

21 Community Comments, Facebook Comments

  1. BlueCat says:

    He wants Pera to be a failure. How..umm.. shocking?

    • bud says:

      while he was running.  Translation: privatize.  Mike Coffman was on the same path when he was Treasurer.  When Colorado elects a Republican State Treasurer, they go after PERA.  You can put money on it.

      • The State Treasurer has VERY little say or control over PERA, in Colorado

        When I ran for State Treasurer, I took very calculated steps to make sure that I made no promises on PERA, because the State Treasurer sits on a board of 10+ — the chance of the State Treasurer wielding major control over the PERA funds is minimal

        The State Treasurer has complete control over the $5 billion in State Investments, but that’s completely seperate from PERA

        Regarding Coffman – Coffman was a VERY hands-on State Treasurer, especially when you consider his work ethic on the St Vrain School District issue – say what you want about Coffman, but that man had a very strong understanding of what the State Treasurer can and cannot do (again – the St Vrain issue demonstrates that)

        But other GOP Treasurers?  

        • bud says:

          He had very little interaction with the PERA board, but ran to the reporter to gin up stories about PERA (sounds almost identical to what is going on now).  Coffman was very disingenous, sneaky, and underhanded.  You can kiss his ass, but I certainly don’t trust the guy.

          • And trust?

            Where did I compliment his record or behavior?

            And for that matter – where did I compliment his honesty/trust?

            Please re-read my post bud and leave the partisan insecurities in the trash

            I did compliment Coffman, but my compliment was based on his knowledge of the office – far from his record or “trust”

            • bud says:

              yet you praise Coffman’s reign as Treasurer. This diary is about PERA. He was a partisan hack when it came to PERA. It has nothing to do with my partisan insecurities.  What he did was disingenous, underhanded and sneaky.  The recent hack job in the big Denver newspaper is deja vu.  I stick by my statement: when Colorado elects a Republican State Treasurer, you can put money on the fact that he/she will go after PERA.  Privatize is the goal.

        • Gray in Mountains says:

          that I think Coffman has performed well and honorably

  2. The Angry Trucker says:

    Saying Stapleton wants PERA to fail seems to be a bit of a stretch.  As I read this post, even if PERA averaged 9.3 percent, the past ten years the average was about 4.65 percent (not the 8 percent target).  

    Isn’t it better to expect the worst, and be pleasantly surprised when that doesn’t happen?

    • BillM says:

      Yes, it is a reasonable and prudent argument that expected investment returns should be adjusted to reflect the so-called “new normal” reality that expects lower average returns for the foreseeable future.

      The problem is, though, that Stapleton is using this as a shiny object to steer public opinion (at least, among those silly enough to pay any mind to someone whose career pinnacle before becoming Treasurer was as CEO of a six-employee company owned by his daddy) toward his real self-stated goal: Privatization of PERA.

      Just as his cousin George W. Bush attempted with Social Security, Stapleton wants to privatize PERA in order to shift ALL of the investment risk to participants and generate new business for the investment firms that would handle the plan. Someone should ask him how PERA participants’ savings would have fared if they were in a privatized, 401k type plan over the past five years.

      • Libertad says:

        Someone should ask him how PERA participants’ savings would have fared if they were in a privatized, 401k type plan over the past five years.

        PERA has custodial accounts with the same firms you can work through. They also outright own assets, invest in government promissory issues, hold cash, etc… PETA has and uses the same instruments we do, they just have $20 billion in assets and $70 billion in mostly longterm obligations. Sure the Bloomberg terminals and access to inside WallStreet insight is a step up from your average “stockbroker” moving your money from mutual fund to mutual fund, but it’s essentially the same.

        Typically, PERA issues mandates to their largest financial suppliers for hundreds of millions of dollars, same with CALPers, etc…

        The problem is, though, that Stapleton is using this as a shiny object to steer public opinion (at least, among those silly enough to pay any mind to someone whose career pinnacle before becoming Treasurer was as CEO of a six-employee company owned by his daddy) toward his real self-stated goal: Privatization of PERA.

        As to your “projection” on “privatization”. If you’re saying Mr. Stapleton wants to turn PERA into a defined contribution plan, then I’d agree with you. Acting stupid and calling that a “privatization” though is beneath you’re actual understanding.

        PERAs current defined benefit scheme is a recipe for fiscal disaster. You know that with all your private sector experience.

        I guess I find it sad that you’d layout messaging you know is blatantly false, illogical and incorrect just to feed table scraps to the commercially and financially illiterate members of the Democratic caucus.

        Come on bro, step up your game, you’re much better than this. I know you miss Cary, but she’ll be back at some point. In the meantime, stand and deliver the rational, cogent and thoughtful material I know you’re capable of providing.

  3. HoyaDem says:

    After a few years of “underperforming the market,” State Treasurer Stapleton suddenly announces he is forming a task force to privatize PERA, because a privately-run company “has more incentive” to get better returns than a government handout.

    Kind of like the Republican Presidents since 1970, who ran up the national debt, and then when we get to a debt ceiling they suddenly claim that “it is the [currently sitting Democratic] President’s problem.”

  4. skipickle says:

    The fundamental point is that PERA’s investment assumptions are more aggressive than other state pension plans, though only modestly (CalPERS uses 7.75%). PERA has had higher performance over time, mostly by taking on more risk than a typical pension plan (which killed them in the dotcom bubble).

    Does anyone who has looked at PERA think it is OK the way it is? It’s still underfunded even after SB1, so the question is what do you do about it.

    My .02 : keep managing PERA the way it is, but modify the payout structure so that max payments aren’t reached until closer to normal retirement age (maybe 60-65, rather than 55). Also, contributions for both employee and employer should be near 15% (it is going up gradually to 13.5% by 2018). These are minor differences to what SB1 is doing, but would go a long way to making PERA healthy.

    • Libertad says:

      But seriously, don’t you think adding a gradual migration to a defined contribution model is the capstone that will deliver justice to the taxpayers and choice to the investors (employees)?

      The private sector has abandoned defined benefit schemes because they create systemic risk. That’s not fiscally responsible as a management policy because you put at risk the recipients and funders.

      A good analogy to PERAs model of systemic risk is the existing federal problem of balancing revenues and expenses when we’ve hit our debt capacity, primarily due to the irrational promises we’ve made to ourselves as a nation.

      If you’re a fan of Gov Hick, you should ask him how many employees he and Mr. Driscoll backed with a defined benefit plan. Stepping out on a limb here, I’d say it’s most likely zero, excluding themselves who they protected with bond laddering and various life insurance benefit products.

      • skipickle says:

        If the DC plans that replaced frozen DB plans were funded at the same levels, then sure. But what actually happens in both public and private retirement plans is that contributions becomes more optional for the employer and employee. And they dwindle, with sad results for retirees who generally chose a life of service over one that was revenue-maximizing.

        Convert PERA to a DC-only, 401(a) plan structure like CCOERA, and teaching in Colorado will become a far less desirable job, and far more of the retirees will have inadequate funds for retirement.

  5. Gray in Mountains says:

    most years just by buying tax liens at the auctions in each county.

  6. ArapaGOPArapaGOP says:

    I thought the evil capitalist stock market was the root of all evil to you leftists. Is he good at something you despise or crappy at something you admire? I can’t tell from this blog post.

  7. Libertad says:

    This personal attack on ArapaGOP is like many of your weakest blog entries, juvenile.

    As ArpaGOP points out, the illogical premises presented in this diary confuse the educated. We get it though, it’s CPols, a venue for setting up, promoting and messaging one-sided partisan attacks.

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