New Ethics Rules For Treasurer On IAC Agenda | Eastern North Carolina Now

    Publisher's note: The author of this post is Dan Way, who is an associate editor for the Carolina Journal, John Hood Publisher.

Transparency-related guidelines regarding outside employment, personal investment, and the like may be developed by independent committee


    The Investment Advisory Committee that helps state Treasurer Janet Cowell develop the financial management strategy for state funds will meet this week to begin a process of developing ethics guidelines for its members that could include rules regarding insider trading and accepting gifts.

    Michael Mebane, a member of the North Carolina Teachers and State Employees Retirement System Board of Trustees who sits on the Investment Advisory Committee, said during the 3 1/2 years he's been on the board, questions have circulated about "the payment system for placement agents, and other costs associated with managing the investment portfolio."

    With $86.73 billion in assets, North Carolina has the nation's 10th-largest public pension fund.

    A placement agent is the broker-dealer middle man who recruits investors to put capital into a fund manager's securities. The placement agents usually are paid a commission, with the percentage varied by negotiation, and sometimes receive deals on purchases of shares.

    In the just concluded legislative short session the state House and Senate passed by unanimous votes House Bill 1137, which requires the state treasurer to adopt a code of ethics, among other things.

    The bill added a new section to state statutes that reads, in part, that it "relates to the most critical ethics policies including a code of ethics [and] requires the Department of State Treasurer to adopt such policies, in consultation with the Investment Advisory Committee, and would ensure that the investment programs continue to be managed with the highest ethical and professional standards."

    Blake Thomas, interim general counsel for the Treasurer's Office, said during last week's meeting of the state's pension system boards the new law requires "all employees to be given training in respect to the discharge of their duties and responsibilities."

    Thomas said that likely would cover "things like insider trading policy, a policy covering gifts, placement agent policy, and a policy that ensures that there will be an analysis of whether there is any circumstances that would create a material case of actions being influenced by a direct or indirect personal interest."

    John Anerella, like Mebane a member of both the IAC and TSERS board, told members of the retirement system's pension boards last week that the IAC "is being given more structure, and also the ability to come up with some policies and suggestions."

    He said the IAC wants to take up the issue at its meeting on Thursday, discuss it more in September, and return to the pension boards meeting in October with policy suggestions.

    The IAC also is expected to discuss secondary employment guidelines for future state treasurers, an issue embroiling Cowell after it was learned she two outside corporate boards for pay.

    "It just makes sense" that an outside organization such as the IAC should work closely with the treasurer, "and we are in a good position to make recommendations, and ensure that the ethics expectations that the members have are met and exceeded," Mebane said.

    "Under state law the state treasurer is still what we call the sole investment fiduciary," Thomas said. "She's the sole decision maker with respect to particular investment transactions, and ultimately with respect to creating the state investment policy."

    However, he said, "We all recognize that these decisions are not made by one person, and should not be made by one person alone."

    The treasurer delegates day-to-day duties to staff members, and the IAC advises the treasurer on "something as significant as a statement of investment policy," which undergoes several rounds of discussion between the committee and the treasurer, Thomas said.

    While the IAC "has been around in one format or another since the 1970s," Thomas said, "its duties have changed and grown." That aligns with lawmakers increasing interest in enhancing transparency and ensuring input from outside experts on the state's investment decisions, along with actions taken by Cowell and her subordinates.
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