NC treasurer has cost North Carolina billions of dollars, bipartisan critics say

North Carolina State Treasurer Dale Folwell isn’t afraid of personal risk – his hobby until recently was motorcycle racing. But he’s so averse to risking the public’s money that he has cost the state’s pension plan billions of dollars in missed stock market investment gains.

As Folwell, a Republican and former state lawmaker, completes his second and final four-year term as treasurer, he is coming under fire. Critics say his excessively cautious practices have prevented the $100 billion-plus state pension fund from fully benefiting from a soaring stock market.

The fund’s weaker investment performance has caused state and local governments to increase payments to keep the fund on track. Since 2019, state and local government pension payments on behalf of their employees have risen from 8.5 percent of payroll to 12.6 percent of payroll. The increase reduces state revenue for other projects and puts pressure on local property taxes.

Andrew Silton, who was chief investment officer for the state pension fund from 2001 to 2005, has warned for years about Folwell’s decision to keep 9% or more of the state pension in low-yielding cash positions. The investment guidelines in place when Folwell took office in 2017 called for keeping only 1 percent in cash.

Folwell told me he has put more in cash to cushion the plan against the kind of stock market disruptions that followed the Sept. 11 attack, the 2007-2008 financial crisis and COVID. “The need not to gamble and swing for the fences has never been more important,” he said.

The pension fund has grown under Folwell and remains stable. But Silton said the fund would be in much better shape had the treasurer put the money he kept in cash into the stock market. He estimates that Folwell’s approach since 2017 has deprived the state pension of investment returns that would have been “somewhere in the $20 to $30 billion range.”

“His financial legacy will be that he cost the pension plan a lot of money,” Silton told me.

The two candidates running to succeed Folwell as treasurer agree.

The Democratic candidate, state Rep. Wesley Harris of Mecklenburg County, says on his website that the fund has “the largest cash-heavy portfolio in the country” and, as a result, has lagged well behind the stock market’s overall gains.

Republican candidate Brad Briner, a Chapel Hill investment manager and member of the UNC-Chapel Hill Board of Trustees, also wants to move away from Folwell’s practices.

Briner says on his website that if the North Carolina pension fund had the investment returns realized by leading peer states over the last five years “there would be over $19 billion more in our pension plan today.”

Briner adds, ”While the risk of short-term loss is certainly one to consider (and is the only one currently being considered, it appears), the risk of long-term under-performance of the target is the central risk we must manage.”

Folwell said that looking back on a strong stock market, it’s easy to criticize his approach. But his priority was to ensure that the plan could meet its obligations by avoiding a serious stock market loss. “I don’t have the benefit of hindsight. I can’t operate in that world,” he said. “I’m happy that I did what I was sworn to do and what I was supposed to do.”

Silton said the next treasurer will have to find a way to get more of the pension fund invested in the stock market. The move will present a political risk, he said, because the shift could collide with a market downturn and the loss of billions of dollars. “Of course, in the long run, the market will recover,” he said, “but in the world of politics, that would be a pretty uncomfortable thing to bear.”

Folwell, who this year ran unsuccessfully for the GOP gubernatorial nomination, has in many respects been a strong treasurer. As head of the State Health Plan, he has challenged the hospital industry’s pricing and exorbitant pay for hospital executives. He has also run an open administration, readily complying with public records requests and answering media questions.

But as an investor, the motorcycle racer rode in the slow lane. His successor will have to take a riskier route.

Associate opinion editor Ned Barnett can be reached at 919-404-7583, or nbarnett@ newsobserver.com