About Facebook

The state retirement fund’s investment is causing headaches, and head-scratching.

August 22, 2012 

North Carolina’s public employee retirement fund is big. Its $76 billion in investments place it 11th among public pension funds in the country. But the fund, run by the state Treasurer’s Office for the benefit of state employees, teachers and others, is not just big. It’s also, apparently, a big player.

How else to describe the retirement system’s decision to buy into Facebook’s controversial initial public stock offering, back in May, to the tune of $26 million?

A controversial investment, yes, but hopes were high for the social media network and no one could know for certain – as everyone knows now – that the price of $38 a share would be the high-water mark until, well, who knows? Facebook now trades around $20 a share, and the retirement system admits to taking at least a $4 million bath.

The size of the loss, state Treasurer Janet Cowell now argues in what must be a somewhat embarrassing legal filing, entitles the fund to “lead plaintiff” status among a group of investors who claim their losses can be traced to Facebook’s lack of disclosure of some discouraging business trends.

Or rather, as Cowell put it, “Facebook and its underwriters told one thing to the public, but shared the real facts with only a few select investors on Wall Street.”

Fair enough, although it does raise eyebrows about the pension fund, by tradition conservatively managed, going gaga over Facebook. But then the story begins to twist and turn – because, on the face of it, Cowell and the fund seem to have had certain connections to the Facebook IPO that “the public” did not, in the form of Erskine Bowles.

Bowles is 1) on the Facebook board of directors and 2) on the board of Morgan Stanley, which helped underwrite the IPO – that is, bring it to market.

Crandall Bowles, Bowles’ wife, raised money for Democrat Cowell’s election campaign.

And the former UNC system president and Simpson/Bowles budget guru is, after all, a businessman. Carousel Capital of Charlotte (Bowles was a co-founder and is senior adviser) manages a portion of the state pension fund’s investments.

Lots of threads there for conspiracy buffs to stitch with, but then there’s this: in deciding to sue Facebook and its underwriters, Cowell is also suing Bowles (among others). He’s a named defendant.

There is much, in other words, for the civil courts to chew on, if they decide to.

None of the above necessarily means anyone did anything unethical or improper. And not all the retirement system’s investments need to be triple-A – in operating a balanced fund of this size, there is room to take a flyer now and then.

Still, the state retirees and retirees-to-be would likely give a thumbs-up to a pension fund operated with a bit more caution and savvy than one that, at a minimum, “liked” the Facebook IPO way too much.

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