Incumbent state Treasurer Janet Cowell and her Republican challenger, Steve Royal, have starkly different positions on accepting campaign contributions from those who stand to gain by currying favor with whoever holds that office.
Cowell, a Democrat seeking re-election to a second term, defends accepting contributions from those who do business with the Treasurer’s office, arguing that safeguards are in place to ensure everything is on the up-and-up.
“You’re running statewide, you’ve got to raise money,” she said.
But Royal, a CPA with a practice in Elkin, isn’t accepting contributions from anyone if a potential “pay-to-play” issue looms in the background.
“I will have no conflicts of interest,” said Royal, who previously ran an unsuccessful campaign for Congress but has never held public office.
To be sure, Royal hasn’t raised much money from anybody. His campaign raised a total of $6,251 through June 30, according to the state Board of Elections.
“I’m serious about being elected,” he said. “I’m not serious about raising money.”
Cowell, by contrast, has raised serious money. Her campaign has reported raising close to $1 million, with 54 percent coming from out of state.
Cowell said new Securities and Exchange Commission rules that went into effect last year make her “the most regulated official in the state” when it comes to campaign contributions.
“What those regulations say is that nobody who currently manages money for the pension, or wants to manage money for the pension, can donate to me above a very minimal amount,” she said. Donations are limited to $350 for in-state donors and $150 for out-of-state money managers.
But those restrictions apply only to money managers.
Royal criticized the selection of the New York law firm of Bernstein Litowitz Berger & Grossman – whose attorneys have donated more than $75,000 to Cowell since her 2008 election – to represent the pension fund in its lawsuit over losses arising from its investment in Facebook. The suit alleges the social networking site and its underwriters misrepresented Facebook’s initial public offering of stock.
“That isn’t illegal under the present scheme of things,” Royal said of the attorneys’ contributions. But “they give it in anticipation of getting some benefit.”
Cowell said she and Attorney General Roy Cooper created an impartial panel to avoid improprieties when selecting law firms for securities litigation. The five-member panel, which included law professors James Cox of Duke University and Tom Hazen of UNC-Chapel Hill, selected six firms to handle pension fund litigation from among 40 that applied.
“They were chosen based on merit and their track record, and one of those firms is Bernstein Litowitz,” Cowell said. “Yes, they are donors, but we put that process in place so people could be confident that we went for the best.”
Bernstein Litowitz, according to a recent profile in The New York Times, has represented investors in five of the 10 largest recoveries nationwide in securities fraud cases.
Cowell said her investment record managing the state’s $70 billion-plus pension fund and overall performance as the state’s top financial official merit keeping her at the helm.
“We’ve got a good track record on the major metrics,” she said.
Cowell points to the state’s AAA bond rating, a Pew Center on the States study that ranked the state pension fund among the healthiest in the nation, and the state’s returns on investment during her tenure.
“We out-performed in a bad market,” Cowell said of the pension fund’s latest results. The pension fund’s investments rose 2.2. percent for the fiscal year that ended June 30, compared to a median 1.15 percent gain for large public pension funds nationwide, according to Wilshire Associates.
The state’s three-year returns of 10.68 percent lags the median 11.88 percent tracked by Wilshire. The state’s five year-return of 2.64 percent – which extends beyond Cowell’s tenure – exceeds the 1.62 percent median.
Royal, 61, who has an accounting practice in Elkin, calls himself a reform candidate. He vows to invest more of the state’s money in North Carolina and to bring greater transparency. He also wants to reduce reliance on outside investment managers by hiring state employees to make investment decisions – a move he says would produce a net savings to taxpayers.
“We are paying fantastic, unbelievable amounts of money … for consultants and/or management fees,” Royal said.
Last fiscal year, according to the Treasurer’s office, it paid $295.1 million in investment fees.
“Most of that goes to people outside of North Carolina,” said Royal, who added that hiring state employees for “good-paying jobs” to pick and choose investments would keep some of those funds in-state.
Cowell agreed that such a move could save money but noted that it would have to be approved by the legislature. She said she has asked for the authority to manage the state’s stock portfolio in-house but failed to win legislators over to that idea.
That said, Cowell said that the fees that the state pays to money managers – although undeniably large – compare favorably with other state pension funds. The $295.1 million in investment fees last fiscal year amounted to 0.394 percent of the total fund, down from 0.406 percent of the fund in 2009.
An industry-wide study by Greenwich Associates rated North Carolina's 2010 investment fees below average among public pension funds, according to the Treasurer's office.
Cowell, 44, argues for continuity in the Treasurer’s office – another difference between her and Royal, who says he would not seek a second term if elected. He recently told The Charlotte Observer, “I’m only running for one term because I don’t really want to live in Raleigh and I really don’t want to die there.”
“If I have done the things that I intend to do – if I am allowed to do it by the governor and the legislature, because they do have some control over you – then I will have reformed the office and put it on a track where I think it’s going to be hard to go back to the way it’s been run over the past four years,” Royal said. “I think it will be an impossibility.”