State Investment Officer Gets Bonus After 8.7% Loss

I share my fellow citizens' bemusement at the hefty bonus Pierre has given State Investment Officer Matt Clark. $147, 178 bonus on top of $388, 356 annual salary... not bad for overseeing a loss of $600M+, 8.7% loss on state investments over the past year.

Rep. Larry Tidemann (R-Brookings), Sen. Bob Gray (R-Pierre), and the rest of the Legislative Research Council's Executive Board offer the following justifications for the bonus:

1. South Dakota's losses still outperformed market indices.
2. Clark is still managing solid long-term growth.
3. Clark and other investment gurus in the State Investment Office could make much bigger salaries in the private sector.

The board may be right on long-term growth: Under the Investment Office's management, the state retirement fund has grown by $4 billion over the past decade. Just last year, Clark oversaw a whopping 21.4% return on state investments (and got a bigger $250,277 bonus for his work). Even though Clark says next year will be more like this year than last, he still predicts annual earnings over the next decade to be 7.75%. That's a pretty good cushion against the increased demands the baby-boom retirement bubble will put on the system.

As for salary, corporate pension managers can earn high six figures, maybe even break a million (I welcome all the investment managers who read the Madville Times to submit their salary figures!). This International Herald Tribune article that pegs the salaries of investment officers at the nonprofit Carnegie and Ford Foundations earning $712K and $986K, respectively, in 2006. Comparing apples to apples, CalPERS director Russell Read's 2007 base was $534K, with the possibility of a performance bonus of up to 75%. CalSTRS CIO Christopher Ailman's 2007 base was $300K, with possible 100% performance bonus. Massachusetts state pension exec Michael Travaglini earns $322K a year, plus a bonus this year of "just" $64K.

But on outperforming other indices, I'm not convinced. In the last fiscal year...

• The Charlotte Business Journal reports that the median public-pension loss was 4.51%. North Carolina's state pension fund beat that by losing only 2.07% of its value. NC's pension fund lost money on stocks but posted gains on bonds, real estate, and alternatives.
  
• Florida's pension fund managed to lose just 4.4%. (That same article notes that the domestic stock market lost 12.7%, while the foreign equity stock market lost 7.6%.)
• The California state employee retirement fund (CalPERS) lost 2.4%. The state teacher retirement fund (CalSTRS) lost 3.7%. San Francisco's city retirement fund lost 3.1%.
  
• In Pennsylvania, the Public School Employees Retirement System lost 2.8%, while the State Employees Retirement System lost 4.1%.
  
• The Massachusetts state pension fund only lost 1.8%.
• Wyoming's investment portfolio posted a 7.4% increase.

Managing $10 billion of the people's money is no easy job. Winning at blackjack is hard enough; try doing it with several hundred thousand frugal South Dakotans watching you.

But bonuses for losing money don't appear to be justified, especially given the lower loss percentages posted by other states. Maybe Rep. Tidemann et al. should check their numbers again.