Treasurer Folwell takes on Wall Street — are N.C. hospitals up next?
While Gov. Cooper and the state’s Republican leaders scrap over this or that at the Capitol Building, State Treasurer Dale Folwell appears to be having a blast a couple miles north in his north Raleigh office.
Folwell has an influential job in state government, overseeing a $92 billion pension fund and chairing the State Health Plan, which he says is likely to cost state taxpayers more than is spent on the UNC System within a year or two. In other words, close to $3 billion a year.
On the pension fund, Folwell gained national attention for his calls to the state’s money managers, asking them to show their performance is strong enough to justify their fees. Last week the treasurer told reporters that he’s cut $25 million in fees that were to be assessed this year, a big step on his goal of $100 million in savings over four years. (Unlike Cooper, House Speaker Tim Moore and Senate President Pro Tem Phil Berger, Folwell holds monthly conference calls with reporters in a no-holds-barred style.)
The main reason for the savings is Folwell’s view that the plan should invest most, if not all, of its money in basic, low-cost stock and bond funds. He has little faith in higher-cost alternative investments, such as private equity groups and hedge funds, which he deems overly complex. It’s the same argument Warren Buffett made in his recent annual shareholder letter, noting that passive investments in U.S. stocks significantly outperformed six major hedge-fund portfolios over the last decade.
Folwell also showed guts this week by voting with other major pension funds in opposing four Wells Fargo directors seeking re-election. His vote followed a recommendation by an advisory service hired by the state and other big investors to study the board’s role in the California-based bank’s shady sales practices. Wells Fargo employs more people in North Carolina than any other state, so bucking the bank’s leadership — CEO Tim Sloan wants the directors to stay in place — is not an easy call for a state politician, perhaps especially a Republican like Folwell.
The retirement system also cut its longterm assumed investment return by five basis points — from 7.25% to 7.20%. Sounds like a little, but given the billions involved, that decision involves hundreds of millions of dollars. Assuming a lower return is prudent given the low interest rate, low inflation economic environment, but it also means state taxpayers may have to dig deeper to pay the promised pension benefits.
While pressuring pension funds and banks led to a recent feature in Bloomberg Business Week magazine — the headline read “The $90 Billion Investor Who is Out to Fire Wall Street” — Folwell has a chance to create even bigger fireworks on the other part of his portfolio.
North Carolina’s State Health Plan is on life support, according to the treasurer. “We’re going to run out of reserves in the next 30 months,” he says, citing expected losses of hundreds of millions of dollars to insure more than 650,000 state employees, retirees and their family members
So I asked him if he will be pressuring North Carolina’s hospitals, drug companies and other providers for cost cuts, similar to his strategy cracking down on Wall Street fees? Yes, he said, noting a lot of key contracts come up for renewal over the next 18 months.
“Everyone is going to participate. We are the largest health insurance participant in the state and we’re no longer going to be part of a medical arms race. We’re going to build value to the benefit of participants and taxpayers.”
Everyone includes state employees, a third of whom now pay no premiums for their own health insurance. The plan is expensive, however, for those who want spousal or family coverage. No wonder, then, that less than 5% of state employees buy family coverage.
Taking on the state’s health care providers, and perhaps state employees, sounds like a challenge many politicians would avoid. But it’s one that Dale Folwell may relish.