A legislative fight between North Carolina Treasurer Janet Cowell and a state employee association is signaling growing tension over disclosure practices as public pensions seek to improve returns with alternative investments.

Cowell, a 45-year-old Democrat, opposed a bill by the State Employees Association of North Carolina to require more disclosure about deals with Wall Street firms hired to manage alternatives to stocks and bonds for the $87 billion pension she controls. Cowell warned that giving out more information would cost more than $1.8 billion for violating secrecy agreements, and instead supported a bill that would conceal details for five years after a contract is completed.

“Our pensions get huge amounts of money to invest from the employees,” said Representative Nathan Baskerville, a Henderson Democrat who co-sponsored legislation requiring immediate disclosure. “I need to be able to tell my constituents that we’re protecting their money. I need to know how much we’re paying.”

The dispute comes as states invest more in private equity and hedge funds in a bid to meet average return targets of 7.7 percent. Stocks and bonds no longer consistently deliver as the U.S. Federal Reserve holds benchmark rates near historic lows. When state can’t achieve their planned investment returns, they must increase funding out of their budgets or cut benefits.

Secrecy Agreements

Since 2001 states have increased allocations to alternatives to $460 billion, or 15.3 percent, from $66 billion, or 3.3 percent in 2001, according to the National Association of State Retirement Administrators.

Most private-equity and hedge-fund investments come with agreements that prevent pensions from disclosing certain information, including details on fees, investment strategy and other “trade secrets.”

Unlike fees for stocks and bonds, those for alternatives tend to be opaque, so the only way to get a complete picture of performance is by knowing how much the state is paying, Baskerville said.

Without that, taxpayers and employees have no way to know whether an investment is a good deal, said Andrew Biggs, resident scholar of the American Enterprise Institute, a Washington research group that studies politics, government and policy.

Inherent Opacity

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