Pennsylvania Gov. Tom Wolf and lame-duck State Treasurer Timothy Reese, on the last day before Reese steps down for newly-elected Treasurer Joe Torsella, said today that they are firing dozens of private money managers, who they've been paying to pick bonds (and some stocks) for three of the state's investment funds, in order "to cut millions in tax dollars sent yearly to private Wall Street managers."
For example: By replacing both Wall Street and Pennsylvania firms managing a total of $1.3 billion for the state employees' insurance fund, including PIMCO, , Mesirow Financial, PNC Advisors, Emerald Asset Management of Lancaster, Swarthmore Group, Haverford Trust, and Valley Forge Fund, among others, with state employees whom it figures are just as capable of buying bonds with similar returns, the Wolf administration is betting it can save taxpayers more than $2.6 million a year.
And by firing PNC, Emerald, Swarthmore and two other firms now managing around $125 million in U.S. stocks for the same workers' comp fund, and directing Treasury employees to purchase exchange-traded index funds with the money, the state hopes to save more than $400,000 in additional yearly fees -- assuming the private firms would over time do no better than the S&P stock benchmarks.
“We cannot afford to hand money from any fund to Wall Street when we could better manage the money ourselves and save millions of dollars,” Governor Wolf said, in making the announcement.
According to the governor and the treasurer, Pennsylvania should save more than $6 million a year from these investment changes:
- State Workers’ Insurance Fund investments totalling around $1.46 billion are "managed by 24 firms for $3.3 million annually. Treasury will manage the funds for approximately $145,000, saving $3.1 million annually," assuming the same gross returns as under private managers.
· Workers’ Compensation Security Fund investments totalling $821 million :are currently managed by 12 firms for $2.9 million annually. Treasury will manage the funds for approximately $500,000, saving $2.4 million annually," if gross returns continue as before.
· Underground Storage Tank Indemnification Fund investments totalling $173 million are "currently managed by 9 firms for $600,000 annually. Treasury will manage the funds for approximately $75,000, saving $525,000 annually," again assuming no change in returns.
Wolf has said he'd like to see the state's largest investment funds -- the underfunded state workers (SERS) and teachers' (PSERS) pension system -- also replace their private managers with indexed and state-employee investments. That would require support from legislators and worker and retiree groups who are also represented on the pension boards.