News & Events

What’s ahead for state pension fund

On the Hot Seat

What’s ahead for state pension fund

Steven Grossman, state treasurer (Kayana Szymczak for The Boston Globe)

By Beth Healy

Globe Staff / June 26, 2011

It’s been six months since Steven Grossman took office as Massachusetts treasurer and chairman of the state’s Pension Reserves Investment Management board. He has rolled out initiatives he hopes will save fees and improve investment performance at the pension plan. He recently spoke with Globe reporter Beth Healy.

You have said that one of your priorities is to help get the state on more solid financial footing. But could the slow economy derail your plans?

Getting back on solid financial footing involves taking steps that, whether the economy is growing slowly or more rapidly, we still send a message to the business community that we are stable and predictable and are making decisions in the best interests of taxpayers. I’ve said four things consistently: I want to use the full potential of the treasurer’s office to protect the public’s money, create jobs, promote growth, and enhance our competitiveness.

During the campaign, you talked about tapping pension funds as a lending tool. But that hasn’t happened. Is your program to place cash from state coffers with community banks an alternative to that?

We are holding in the Mass. Municipal Depository Trust billions of dollars of taxpayers’ cash. We hold $9.5 billion in that fund. And we essentially said we are prepared to take a portion of the state’s cash and deposit it in community banks, as long as they do three things: give us a competitive interest rate; insure the money so there’s no possibility of any loss; and agree to loan the money to small businesses that are creditworthy, with a focus on gateway cities and even further interest and focus on women-owned and minority-owned businesses.

Is there a plan to monitor the small banks’ lending?

Yes. We are requiring banks that participate to report to us quarterly on new loans generated, and on increases in the size of their small business or commercial loan portfolios. And we’ve told them we will put it up on our website.

It seems that the TARP experience, on the federal level, showed that giving banks money doesn’t always make them lend.

If they don’t need the money, and can’t use it, they can return it. And if they’re not using it, we’ll ask for it back. But the initial evidence is that banks who’ve taken it are doing interesting and imaginative things with it, creating new opportunities.

The pension fund will soon start to test investing directly with hedge funds, instead of through middlemen at funds-of-funds. Isn’t there still a risk of pension money being locked up in these funds if the market falls?

We did this for a variety of reasons. We thought we could get access to hedge funds that don’t participate and don’t do business with funds-of-funds. Second, we believe at PRIM [Pension Reserves Investment Management] that you’ve got to have a one-on-one relationship with every one of the funds with which you invest. Third, you don’t need 200 funds in your portfolio. That does not wash out your risk.

You seem to be seeking a more activist role in class-action lawsuits against companies in which the pension fund invests. Is there disagreement on the board about that, and how are you managing that?

I have a philosophy that says we should seek recompense in whatever way is the best way when we have been harmed. In over a 10-year period, we’ve recovered just shy of $71 million of moneys that we lost. I think it proves that corporate America needs to be held accountable for its behavior when it violates the law or violates appropriate principles.

May and early June were tough for the stock market, and the pension fund lost money. Do you feel the fund is better situated than during the financial crisis to withstand downdrafts in the market?

From May 1 to June 7, we lost 2.8 percent. There’s no question that we would like to find ways to maintain our performance. And if we can dial back risk in some appropriate, modest ways, by modification of our asset allocation, that’s obviously a priority.

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