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A proposal by State Comptroller Peter V.R. Franchot to use $1 billion of state pension funds to expand the state's environmentally friendly initiatives may be dead on arrival with a state pension board that does not typically approve such requests.
"This type of investing is generally referred to as economically targeted investment," said Dean Kenderdine, executive director of the Maryland State Retirement Agency. "And, we have a policy that it not be done unless there are clear and convincing reasons to believe that the performance of such investment would result in a return to the system that would be competitive."
Last week, Franchot (D) proposed using a portion of the state pension fund to invest in Maryland-based life sciences and green technology companies.
Franchot (D) announced the proposal at a luncheon during a "Clean and Green" Tech Conference, hosted by the Tech Council of Maryland in Bethesda.
In response to Kenderdine's opposition, Franchot noted the success in other states of investing the funds, including "great returns" for the pension systems and a strong economic impact.
"If we have a thoughtful strategy, I think we can inject a substantial amount of capital into your sector and can also get a significant return for the pension fund," Franchot told a roomful of technology company employees. "I look at that as a very viable strategy as we deal with the destruction of all these financial lions like AIG and Bear Stearns and Freddie Mac and Fannie Mae."
That financial destruction has hurt the state pension fund, plunging its balance from more than $39 billion at the beginning of last year to $35.8 billion at the end of August 2008.
Despite the losses, the fund's 350,000 members are guaranteed benefits under the retirement system. Therefore, each investment proposal requires strict scrutiny.
"The question we have is to look at any proposal within its own policy and determine: Will such investments return the kinds of returns it needs to meet its fiduciary obligation to the members of our system?" Kenderdine said.
Meeting that obligation is Franchot's top priority as well.
"But as we have seen in the past months, a marriage to the old way of thinking about investing is no guarantee on returns," Franchot said.
"Now more than ever it is time for innovative and dynamic strategies, that with proper study and planning will strengthen our system now and for the long term."
