Key Official Missing in Action: North Carolina Treasurer, Sole Fiduciary of Its Pension, Has Covid-19 but State Refuses to Say More

Public officials in mission critical roles don’t have the privilege of playing the personal privacy game. Their ability to perform their duties is of critical importance to citizens in their jurisdiction. For instance, when Boris Johnson was diagnosed with Covid-19, the Government made a statement, claiming he had a mild case and would continue working in isolation at No. 11. The fact that Johnson was (in theory) remaining at his post, at least until further notice, obviated the need to say much more.

By contrast, Dale Folwell, the Treasurer of North Carolina is in a critical position, if nothing else by virtue of being the sole trustee of the state’s pension fund. Those of you who remember the financial crisis may recall that some systems, notably CalPERS, were caught in a liquidity crunch and had to dump assets at fire sale prices. Among other reasons, they had to meet private equity capital calls in addition to making expected pension payments. We won’t lard up this post with the details, but institutional investors are exposed to another private equity related liquidity crunch, this one due to a leverage-on-leverage mechanism of bank subscription lines. So even nominally adequately liquid funds are at risk.

Unlike the Boris Johnson example, the public has no idea how sick Folwell is. Press accounts say he isn’t answering his phone or e-mail. That strongly suggests that he is very ill. Yet the state is taking the position that his family can keep the situation mum. Sorry, you don’t have get to claim a right to privacy when you assume a public office. This posture is irresponsible and a disservice to North Carolina citizens and pension beneficiaries.

In addition, two members of the Treasurer’s office have also contracted the virus. It has also been reported Folwell had meetings within the office and with the press while he was having symptoms. Folwell also ordered the department to show up at work even after the governor issued a stay at home order.

Andrew Silton, the well-regarded former Chief Investment Advisor for North Carolina, has roused himself to weigh in. You can read an addition recap of this sorry situation in North Carolinians deserve more information about the State Treasurer’s bout with COVID-19 at The Progressive Pulse.

By Andrew Silton. Originally published at Meditations on Money Management

The North Carolina Treasurer has Covid-19: Questions we must ask

Last week North Carolina State Treasurer Dale Folwell revealed that he tested positive for Covid-19. I hope he recovers quickly, and I can only imagine how worried his family must be. While I’ve disagreed with the Treasurer on a variety of investment issues, he is my state treasurer, and he has one of the most important jobs in our state.

His illness raises questions that deserve answers, especially in a time of crisis. Some readers may think that this post is insensitive because of the Treasurer’s illness. However, my questions are the same ones that the Treasurer would raise if one of the state pension’s investment managers became ill. His duty as fiduciary is to ensure that the pension’s contractors are able to perform their duties and to make alternative arrangements if they cannot. In addition, the pension’s investment contracts require managers to notify the Treasurer of any significant event that might affect their ability to perform. In fact, Treasurer Folwell often reminds us that he is in the business of managing risk. The Treasurer’s illness is a risk we need to understand.

Rob Schofield of the Progressive Pulse has raised the most important issue. What is the Treasurer’s medical condition? The Treasurer’s spokesperson has asserted that the Treasurer’s family will determine what information is shared about his condition. However, the Treasurer’s condition is not a private matter. As Mr. Schofield points out, the North Carolina Constitution and General Statutes have specific provisions governing any public officer who becomes incapacitated. If the Treasurer is incapacitated, it would be the Governor’s responsibility to appoint an acting Treasurer.

As a reminder, the State Treasurer is sole fiduciary of the $100 billion North Carolina pension plan. He oversees $30 billion in short-term investments and another $12 billion in supplemental retirement assets. The Treasurer administers over $3 billion in insurance claims on behalf of public employees and over $6.5 billion in benefit payments to retirees. His office also provides oversight to over 1,300 units of local government. Everyone of these areas is being buffeted by the pandemic and financial crisis, thus it is critical to know if the Treasurer is able to exercise his duties.

Even if the Treasurer is not incapacitated, the public should know that the Treasurer has formally delegated authority to his deputies. During the twin crises it is vital that the appropriate professionals have the authority to make decisions. This is especially true for the Investment Division, which manages the state’s pension and cash investments. Unfortunately, the state has not had a Chief Investment Officer for nearly two years. However, the State Treasurer has designated two professionals as Acting co-CIOs, and they should be empowered to make investment decisions at this critical time in the financial markets

We know based upon press reports that the State Treasurer had symptoms of the virus for a period of time before he was tested on March 23. We also know that he continued to meet with staff and members of the public during this period, and that two employees of the department have tested positive for Covid-19. Apparently employees were required to work from their offices even after Governor Cooper ordered state employees to work from home if possible. At least in the Investment Division, there was no reason for the employees to come to the office. Even in the distant past when I was CIO, we had contingency plans that allowed us to manage the state’s investments remotely.

At this point the Treasurer’s office should assure the public that they have done a thorough job of contact tracing to ensure that employees who met with the Treasurer have self-quarantined and that any employees showing symptoms have been identified. The employees who tested positive are entitled to privacy. However, the Department should be sharing details with the Governor’s office in order to make sure that the Department is fully able to function.

I hope the Treasurer will make a full recovery. The health and financial crises will require his attention. In the meantime certain questions need to be answered.

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  1. Divadab

    I guess they are trying to keep a lid on things to prevent panic- first about covid-19, for which southern states are willfully unprepared; secondly about the solvency of the pension system. Really we are not far from angry crowds with pikes and torches, only now it’s crowds with ar-15’s and social media. Interesting times.

  2. doug

    The Treasurer is a R, the gov is a D and would get to appoint someone to replace him, if incapacitated.

    End of story.

    1. Yves Smith Post author

      Not answering phone calls or e-mails would seem to be proof of incapacitation. But being really sick for a week isn’t the same. I assume someone could have, say an operation and be out of the loop for a week. Plus don’t guys like the Treasurer take a week or even more for vacation?

      Point is there are standards for normal-ish absences that would seem to put the incapacity question at bay if Folwell were anything short of in the ICU.

      Is this a clear cut area constitutionally?

      1. notkovach

        (3) Vacancies. If the office of any of these officers is vacated by death, resignation, or otherwise, it shall be the duty of the Governor to appoint another to serve until his successor is elected and qualified. Every such vacancy shall be filled by election at the first election for members of the General Assembly that occurs more than 60 days after the vacancy has taken place, and the person chosen shall hold the office for the remainder of the unexpired term fixed in this Section. When a vacancy occurs in the office of any of the officers named in this Section and the term expires on the first day of January succeeding the next election for members of the General Assembly, the Governor shall appoint to fill the vacancy for the unexpired term of the office.

        Further down it covers Determination of Incapacity, but important to remember here in NC is that the General Assembly would probably convene a special session and change the law before anything big happened re: a council of state member.

  3. Christopher Tobe

    Dale Folwell at least at the start of his administration had been a critic of the excesses of Private Equity at the North Carolina pension and in a rare move the public employees union supported him a R over D. Silton has been a defender of the excessive fee alternative strategies of the past and is an advocate for cutting pensions via bankruptcy

    1. Andrew M Silton

      1. Please enter the following search terms into the blog: “Silton” AND “private equity, ” or go to my blog and search “alternative investments”, “private equity” “hedge funds. or Kentucky” You’ll find out that I have been a critique of the alternatives investments fees and skeptic of deploying many of the alternative strategies in public pension plans.

      2. I am not an advocate of using bankruptcy to cut pension benefits. However, when municipalities themselves are on the verge of bankruptcy because the required pension contribution is swallowing their operating budgets, bankruptcy can be the only way to save a public pension plan from being totally eviscerated. To be clear, the state and local plans in North Carolina are reasonably well funded, and there is no reason to consider this type of strategy.

    2. Yves Smith Post author

      How dare you misrepresent Silton. One more like that and you will be blacklisted.

      Had you bothered doing even cursory research, including searching on this site, you would know better.

    1. EoH

      Perhaps he’ll rethink his attempt to override his governor’s stay-at-home order, and not come to work again when he is symptomatic – whether of Covid-19 or any other contagious disease. Same for his staff. Let’s not confuse being macho with being an idiot.

      It also seems to lack resilience for a state pension fund to have a sole trustee. I guess nobody in North Carolina ever has a heart attack or gets hit by a truck.

      1. Greg Taylor

        Just looking at the results, the “sole trustee” seems to be working. NC has had one of the best funded state pensions for at least the last 30 years. Might not all be due to the Treasurer but it would be hard to adopt a structure used by other states that haven’t done as well.

        1. EoH

          Non-resilient designs work well until they don’t. They appear cheap, flexible, efficient, until something goes wrong and there’s no back-up. NC might have a reasonable succession plan, I hope it does. But if it has no resilience or depends upon other resources that are not there in a crisis, it’s useless.

          It’s like just-in-time manufacturing. Works great when suppliers are deep, well-staffed, and well-financed. It locks up tight when credit dries up in a hurry, there’s a tariff spat, a road haulers’ strike, or when key, sole-source vendors shut down because their staff are sick or told to stay home.

    2. Yves Smith Post author

      Should have been disclosed that he was hospitalized. This is a matter of public interest when a lot of older people with coronavirus don’t come out alive.

      Folwell is over 60. The death rate for his age cohort is 1.5%, with men more vulnerable. I have been trying to find data on hospitalizations, but if you charitably assume 20% for older groups (versus ~15% overall), his odds of dying given that he had been hospitalized was 7.5% (not adjusting upward for gender; note if we assume a hospitalization rate of 15%, then the risk of death was 10%). Not terrible but not nothing. And there are reports of permanent pulmonary damage among serious cases that didn’t result in death.

      The fact that this appears to have worked out OK does not make his conduct acceptable.

  4. Scott1

    I live in Carrboro which is in North Carolina. The Governor’s office refused to meet with me.
    Folwell’s office never responded to me at all. So for me it is all the same.
    Some one once asked me what my greatest flaw was and I told them “Lack of low self esteem.” You gotta be famed up or maybe rich to get an answer or audience around here.
    First I even knew of his absence.
    Damn straight the NC Legislature packed with GOP legislators will change the law if they are at all afeared they won’t get what they want, meaning more power.
    Their favorite economist is William Petty. He’s the one said you had to keep the peasants desperate or they wouldn’t work. Work looked dirty to him.
    (Keynes discovered that when people made money above subsistence they spent it on education and home improvements.)
    Yeah, I live in NC and I can say it stands for Not Conscious.
    Thanks to the Editor.

    1. griffen

      Just out of curiosity and that its 2020 ( not 1951 ) might the pension system have a plan of continuity in place ? Like a business continuity or succession plan, so that in such circumstances this role trustee only appears to be poor planning ?

      If I were a pensioner of CalPers or the Kentucky system, I’d definitely have big concerns. Being a clustermess of muddled managers or seriously underfunded.

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