Tim Keller
Last year the Legislature passed landmark reforms of the State Investment Council (SIC) in response to conflicts of interest, legal investigations and governance challenges at the SIC. Now it is time to finish the job of reforming our state’s $15 billion investment funds.
The Legislature’s Interim Committee on Investment Oversight has put together a package of bills to achieve these necessary reforms. The most important proposed change is the removal of the governor as chairperson of the SIC. Regardless of who is serving as governor, this change is critical to eliminate conflicts of interest and maintaining appropriate the level of expertise.
In 2010, the top recommendation to emerge from our independent, comprehensive review of our state investment funds was to remove the governor from the SIC. New Mexico is the only state in the country where the governor is personally in charge of investment and pension fund oversight. Without removing a governor from the SIC, there will always be an inherent conflict of interest and the potential for pay-to-play and favoritism.
The bottom line is that it is best to base our state’s financial investments on the principles of finance, not politics.
Beyond concerns about conflict of interest, the current governance arrangements for the SIC raise questions about the level of expertise required to manage our state’s investment funds. We expect our governor to lead the state and hire staff to implement the vision they were elected to deliver. We do not, however, expect them to have the expertise or direct responsibility for approving the buying and selling of billions in stocks, bonds and alternative investments with our children’s endowments.
This is precisely why the SIC was set up as quasi-independent government institution in the first place. Governance best practices suggest that the SIC should internally elect a chairman who is not an elected official – someone with the sound judgment, the integrity and the expertise that the fiduciary nature of the position warrants.
Other important proposals
While removing the governor from the SIC is the most crucial piece of reform this session, other important proposed changes include:
- Establishing a formal structure and performance metrics to evaluate the SIC’s economically targeted investments (local private equity, film fund, etc.).
- Enabling the SIC to hire law firms on a contingent basis to help recover lost funds and participate in class-action fraud suits.
- Depoliticizing the appointment process for the small business investment council to ensure that investment principles come before politics in our local small business economic development.
- Giving the attorney general the jurisdiction needed to prosecute securities fraud and go after the estimated $1.3 billion currently under lawsuit around the country.
Time for bold change
The current SIC governance arrangements are outdated and detrimental. It is time for bold change in how we manage our $15 billion endowment.
The package of bills before the Legislature this session provides an opportunity to finish the job on SIC reform. I am hopeful the legislative and executive branches will work together to put our SIC on sure footing for generations to come.
Keller, a Democrat, is the state senator representing District 17.