Tough Customer: Taking Wall Street’s money managers to task
Richard H. Moore
Treasurer, North Carolina
In recent years, the public sector has devoted a great deal of time and effort to improving customer service and satisfaction. Ironically, though, most government agencies and officials are reluctant to demand better service for themselves when dealing with private enterprise. One major exception is North Carolina Treasurer Richard Moore.
Moore controls the state’s $60 billion pension fund and, like many other investors, he grew unhappy with the advice he was getting from money managers. Moore was paying close to $100 million a year in fees for financial services that, he thought, were doing an inadequate job of watch-dogging the accounting practices of companies in which they were investing North Carolina’s money.
So Moore has banded together with other state pension officers to force changes in the ways that Wall Street does business. At Moore’s insistence, nearly every major money manager has, in turn, become much more aggressive about looking for discrepancies in the balance sheets of publicly traded companies, making corporate blowups such as Enron and WorldCom less likely.
”My desire to have an impact in this area came first out of anger, just like any other shareholder,” the 44-year-old Moore says. “I thought as a customer — not as a regulator, not as a politician but purely as a customer — I could demand better customer service.”
Institutional investors own a good-sized chunk of virtually every publicly traded company in the country. But state pension funds only got into the equities market relatively recently. Their long fixation on bonds had made them lazy investors. “Part of the governance crisis has been that shareholders have been very passive about critically evaluating management proposals for the firm,” says Espen Eckbo, founding director of the Center for Corporate Governance at Dartmouth University’s Tuck School of Business.
Moore figured his best source for advice about how to shake things up was New York Attorney General Eliot Spitzer, who had been dubbed “Wall Street’s Top Cop” by Time magazine for his aggressive prosecution of investment houses. Spitzer put Moore in touch with New York’s comptroller and soon California came on board as well, offering Moore some serious money and clout to back his crusade.
Acting for a group of states, Moore wrote a proposal that money managers could either sign on to, or watch their business go elsewhere. It was a statement of pretty basic fiduciary principles, such as separating research analysts from firm brokers and demanding greater transparency and corporate responsibility from the companies they invest in. Ultimately, every major underwriter in the country got on board.
Moore now is working on similar principles for mutual funds. He sits on the executive board of the New York Stock Exchange, where he is pushing to strengthen auditing standards. He’s also been one of the loudest voices in the battle between shareholders and management at Disney.
And Moore has been aggressive at home as well, persuading the legislature to give him greater flexibility in investment. He’s now able to put up to 5 percent of his portfolio into private equities and venture capital, as well as buy lower-rated corporate bonds. He’s a big believer that the more diverse his portfolio, the less the fund’s overall risk, even if small portions of it are in riskier investments.
So far, it’s all paid off, with North Carolina enjoying the second-highest rate of return of any state pension fund while lowering its risk. North Carolina is one of only two states whose funds have assets that can meet their liabilities. Moore knows that he’s got to earn a good rate of return for that to remain the case.
Some skeptics say Moore is hoping his moves pay off politically as well, since he’s widely rumored to have his eyes on the governor’s race in 2008. Moore represented the sixth generation of his family to serve in the North Carolina House, but his congressional ambitions were drowned by the national Republican tide in 1994.
”He’s getting some fantastic exposure among the financial circles and people in the know,” says state Representative Jim Crawford. But, he adds, Moore got better exposure as head of the state public safety department, when he coped with some high-profile storms. Moore even co-authored a book about Hurricane Floyd in 1999. “The man on the street is much more interested in hurricanes,” Crawford says. “People are just not as interested in pensions.”
— Alan Greenblatt
Photo by Chris Seward