Strategy and Goals of the Commission
The Commission is committed to making the South Carolina Retirement Systems’ (SCRS) investment performance rank among the best state retirement plans in the nation. A critical phase will be continuing the prudent and orderly diversification process to implement significant recent legislative reforms, which allow it to structure a portfolio with far more competitive risk and return characteristics. The Commission is hiring a highly qualified and professional staff and developing the infrastructure necessary to achieve these goals. The Commission is dedicated to providing complete transparency of its plans, goals, and results to the public.
History
The vast majority of state pension funds were formed shortly after World War II; the South Carolina Retirement System was organized on July 1, 1945. Into the 1960s, public pension assets tended to be invested in the same fashion as state operating funds – cash and government bonds. The late 1950s and early 1960s witnessed the birth of Modern Portfolio Theory (MPT), a revolutionary approach to evaluating risk and return and their implications on constructing investment portfolios, for which Harry Markowitz was awarded the Nobel Prize in Economics. His theories, which emphasized the importance of a portfolio’s risk or the correlations between securities and diversification, changed the way that people invested. Many states then began to realize that the long-term nature of pension fund liabilities would dictate a far more diversified approach to portfolio construction and began segregating pension portfolio strategies from those of their operating funds. By the late 1980s, most states had significant and growing allocations to equity investments, including international equity and other alternative investment strategies. The historic bull markets of the 1990s led to several years of double-digit investment returns for those other states that had diversified their funds. Again, in the wake of 9-11 and the tech bubble burst, many states have experienced a similar period of excess returns while plans that failed to diversify have lagged significantly behind. Until a constitutional amendment allowing for domestic equities was ratified in 1997, the assets of the SCRS portfolio were invested exclusively in fixed income investments, which were managed by the State Treasurer’s Office by state law. In 1999, with the advice of the newly created State Retirement Systems Investment Panel (Panel), the SCRS began to diversify the portfolio by investing in domestic equities.
The Commission
The Panel served only in an advisory capacity to the trustees of the SCRS, the State Budget and Control Board (Board). But in 2005, South Carolina took a crucial step when it created the Retirement System Investment Commission and transferred the investment functions and authority of the Board to the newly created Commission. The Commission, as a fiduciary for the SCRS, is now responsible exclusively for investing and managing all assets of the SCRS and is completely, independently, and fully empowered to make all investment decisions. The Commission is comprised of six financial experts, including the State Treasurer and a nonvoting retiree-member. Members of the Investment Commission are: James R. Powers, Chairman; Allen R. Gillespie, CFA, Vice Chairman; Converse A. Chellis, III, CPA, State Treasurer; Blaine Ewing, III; S. Travis Pritchett, PhD.; and Reynolds Williams. The Chief Investment Officer for the Commission is Robert L. Borden, and the Administrative Director and General Counsel is Nancy E. Shealy. The Commission assumed its responsibilities on October 1, 2005.