CEO: Ala. pension fund investments have big impact

June 4, 2012 • Business

In this May 31, 2012 photo, Retirement Systems of Alabama Executive Director David Bronner poses for a photo in his Montgomery, Ala., office. One study of the state pension program shows it has put [auth] about 10 percent of its investments in Alabama, and those investments in businesses, hotels and golf courses have paid off for the state. But a second study of the Retirement Systems of Alabama shows its total investment package has generated smaller returns than similar retirement programs for public employees. (AP Photo/Phillip Rawls)

MONTGOMERY, Ala. (AP) — The longtime leader of Alabama’s pension program has an Alabama-shaped plaque on his office wall that features the stuffed rear end of a raccoon and a man’s tie. Some Montgomery area business leaders gave it to him as a joke on the word “tycoon.”

During David Bronner’s 39-year career, there have been some state officials who tried to mount a piece of his hide on their office walls, but none has succeeded so far.

Bronner, 67, is still holding down his office as CEO of the Retirement Systems of Alabama and still talking with unrestrained enthusiasm about reshaping Alabama.

“Alabama has made more progress in the last 15 years than the 40-plus years I’ve been in Alabama,” Bronner said.

The most recent threat to Bronner’s status came when the pension fund’s investment returns trailed similar pension funds for public employees around the country. Some legislators questioned whether fresh leadership was needed.

Bronner acknowledged the lower returns and said they resulted from investing in Alabama businesses, hotels and golf courses. Then he countered the criticism with financial reports that showed two things: how much impact the investments have on Alabama and how much Bronner, a Minnesota native, has learned about the state.

Bronner got an Auburn University economist to write one report and two University of Alabama business experts to write the other.

He also made changes in his top staff. Deputy director Marc Reynolds departed and Bronner hired former U.S. Attorney Leura Canary, the wife of Business Council of Alabama President William Canary and a friend of many prominent Republicans. Bronner also built relationships with Alabama’s new Republican-controlled Legislature after spending most of his career working with Democrats who ran the Statehouse.

House Speaker Mike Hubbard, R-Auburn, and Senate budget committee Chairman Trip Pittman, R-Daphne, said communication between the Retirement Systems and the Legislature has improved, and Bronner recently worked with the Legislature to shape a pension program for new state hires beginning in 2013 that will be less costly that the system for current employees. He’s also done a better job of explaining his Alabama investments and getting them profitable.

“I think he’s the best person to work these investments and generate the best returns,” Pittman said.

Hubbard said the Retirement Systems’ investments in Alabama have been good for the state, but the Legislature must consider the pension funds’ investment returns because when earnings fall below expectations, the Legislature has to put more money into the program to keep it sound.

“I’m very pleased with how Dr. Bronner has worked with us and addressed our concerns,” Hubbard said.

In a report released last week, Keivan Deravi, an economist at Auburn’s Montgomery campus, said RSA has invested 10 percent of its funds in Alabama businesses. Those investments totaled $5.6 billion from 1990 to 2011. The investments ranged from business loans, including $100 million to get Mercedes to build Alabama’s first auto assembly plant, to investments in high-rise office buildings in Montgomery and Mobile, a string of Marriott hotels from Point Clear to Florence, and the Robert Trent Jones golf courses in 11 cities.

He has promoted them with $55 million annually in free advertising secured through RSA’s investments in the 48 TV stations of Raycom Media and the newspapers of Community Newspaper Holdings Inc. that stretch from Florida to Michigan.

Deravi’s report says that between 1990 and 2011, RSA’s Alabama businesses generated an additional $1.1 billion in tax revenue for the state. If the same money had been put in stocks and bonds and generated the same return as RSA’s other traditional investments, the return would have been $541.6 million.

Another report by Sam Addy and Ahmad Ijaz from Alabama said RSA’s investments in the state were responsible for 4,332 in-state jobs and $153 million in payroll in 2011.

RSA has two main funds, the State Employees’ Retirement System and the Teachers’ Retirement System. Each is overseen by a board that includes active and retired public employees as well as state officials. Together, they control more than $27 billion.

New reports from State Street Investment Analytics find that investment returns from the two programs trailed the median return for similar pension funds for public employees over one, three, five, 10 and 20 years, but did better in the last six months.

For instance, the employee system’s 3.7 percent return for the year ending March 31 compared to a median of 4.22 percent for 75 public pension funds with at least $1 billion in assets. For the last six months, the fund earned 18.85 percent, topping the national median of 12.69 percent and beating about two-thirds of the pension funds surveyed.

The earnings matter because they help determine how much the state government has to contribute to the pension fund each year to keep it sound.

Bronner said RSA’s stock and bond investments perform as well or better than most other pension funds. It’s the 10 percent of money invested in Alabama that hasn’t performed as well and kept the overall returns down. But he said he knew it would take several years for the hotels and golf courses to make money, and the improvement in RSA’s performance in recent months reflects that profitability. For instance, the hotels reported a profit of $7.5 million for 2011. Three years ago, they were struggling to break even.

Bronner said investing in hotels and office buildings in New York would make money. He knows because RSA owns a major office building in New York’s Wall Street area that rents for triple the square foot rate of his Alabama buildings, but he said investing more in New York real estate would do nothing to change Alabama.

“If you don’t invest in Alabama, Alabama will never change,” he said.

Retired educator Sarah Swindle, chair of the Teachers’ Retirement System board, has served on the board since Bronner proposed the Robert Trent Jones Golf Trail more than 20 years ago, and she has no regrets about supporting each Alabama investment.

“If we are helping the economy in Alabama, we are helping our members and the state, and we are changing the culture of the state,” she said.

Despite that vote of confidence, Bronner said he is not considering building any more hotels and golf courses in Alabama, except possibly in the Gulf Shores area. “I think we’ve got the state pretty well covered,” he said.

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