External manager fees hit state investment funds

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PIERRE — Management of the South Dakota Retirement System, and of state government’s various other trust funds and investments, cost slightly more than $32 million in internal and external expenses for the 2012 fiscal year that ended June 30, according to the state investment officer.

The major portion of those expenses was for managing the $7.8 billion portfolio of SDRS. Matt Clark said the internal management fees for his office’s work for SDRS were $5.3 million, while external fees for SDRS work totaled $29.8 million.

In total for all investments handled through Clark’s office, he said the internal management expenses were $6,623,054 and external management expenses were $31,771,959. Those were for $9.9 billion of investments.

The relatively low management costs are one method used for improving earnings by the South Dakota Investment Council, whose five general members are appointed by the Legislature’s Executive Board and help oversee the office.

The internal expenses represented 0.096 percent of assets. When the external costs are added, the total expenses were 0.459 percent of assets.

Translated to dollars, those figures mean internal management cost about 96 cents per $1,000 of assets while total management, including external management, cost about $4.59 per $1,000 of assets. The council hasn’t released a number for solely external management.

The total management cost is lower than the median and benchmark for similar types of funds, according to the council’s annual report. The council estimated that the differences produced $13 million to $26 million in savings.

The investment council, starting in the 1990s, began shifting toward greater involvement by outside managers in hopes of producing larger gains. Back then, about 5 percent of the assets were in outside management. Now, it’s more than 30 percent.

Here’s a breakdown by fund:

* For SDRS investments, approximately $4.98 billion was under internal management, while external managers oversaw approximately $2.85 billion in fiscal 2012;

* The cement plant retirement fund had about $30.4 million with internal managers and approximately $17.1 million with external managers;

* The school and public lands trust fund had about $156.9 million with internal managers and about $31.8 million with external managers;

* The cement plant trust fund had about $187.8 million with internal managers and about $48.9 million with external managers;

* The education trust fund had nearly $194 million with internal managers and about $192.9 million with external managers;

* The health care trust fund had about $88 million with internal managers and about $18.7 million with external managers; and

* All of state government’s cash-flow fund was handled by internal managers.

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