(The Center Square) – Wisconsin has paid billions of dollars in recent years for outside investors to manage most of the state’s retirement funds even though it has an expansive team of highly paid investment employees, according to state data.
State auditors this year urged the state of Wisconsin Investment Board to create specific plans that might shift more of that management to state employees “because external management is more expensive,” a recent report by the Legislative Audit Bureau said.
The bureau’s analysis of the Investment Board’s performance last year found that the state paid about $1.2 billion to non-employee investors, who managed about 61% of the state’s retirement funds.
That percentage is more than triple the limit that is stipulated by longstanding state law. But the board has determined it is not beholden to the limit.
A spokesperson for the Investment Board said it manages a larger share of investments than other public retirement systems and that its decisions have yielded returns of about $5 billion more in the past five years than its benchmark goal.
“This approach has proven quite successful,” Jay Risch, the board’s communications and government relations manager, told The Center Square.
Meantime, the board’s employees are by far the highest paid among Wisconsin’s state agencies, according to state salary data. Nearly 40 of those employees have annual compensations of at least $500,000 each, and the top three have been paid more than $1 million each.
Part of their pay is from performance bonuses that total tens of millions of dollars each year.
It’s unclear whether the board has formulated plans to keep more of the investment management with its staff.
“As a general rule, SWIB does not comment on its investments and strategies,” Risch said, using an acronym for the Investment Board.
A law change
Investment Board employees are charged with overseeing about $150 billion that funds the Wisconsin Retirement System.
That includes a primary fund that comprises the bulk of that money and a variable fund of about $12 billion that employees can select for half of their pension contributions. The variable fund has a riskier investment strategy with the possibility of higher returns.
In the past five years, the performance of those funds has exceeded the board’s benchmark goals, according to the latest state data. The investment returns for the main fund have averaged about 8% in that time, compared with a benchmark of about 7%. The variable fund’s returns have been about 12.8% – slightly higher than the benchmark. The board’s long-term rate of return expectation is at least 6.8%.
State lawmakers in 2007 broadened the Investment Board’s authority over how it can manage the money.
Before that, the board’s strategies were limited by statutes that specified what types of investments were allowable. The law also limited outside-of-government management of the retirement funds to 20% of their total.
But the law change gave the board permission to “manage the money and property with … care, skill, prudence and diligence.” Attorneys general in two separate opinions in 2008 and 2022 concluded that it empowered the board to invest in ways that are counter to the longstanding restrictions.
As a result, the board has delegated more of its investing to outside firms, often to gain access to private investment funds.
In 2020, just over half of the assets were managed by state investors, according to the Legislative Audit Bureau. In 2024, about 61% were managed by outside investors.
“Historically, SWIB’s goal had been to increase the percentage of assets managed internally,” a bureau report this year said.
The report noted the fees paid to outside investors, partly based on investment performance, have regularly eclipsed $1 billion annually in recent years. It also noted that the paid fees have increased for all investment types.
Auditors recommended the board create a plan that might prescribe which investment strategies are managed internally and the equipment, skills and staff numbers needed to do so.
The board declined a request from The Center Square to reveal the status of that plan or provide a draft of it.
State lawmakers who lead committees that oversee the Investment Board and Gov. Tony Evers’ office did not immediately respond to requests to comment.
Highly paid employees
In the auditors’ most recent analysis of board staff salaries, they found that the average compensation for the nearly 300-person board staff is about $150,000, but many make considerably more.
Investment Board employees represent about three-quarters of the state’s 100 highest-paid employees, according to state data. The list excludes university, legislative and judicial branch employees.
Edwin Denson, the state’s chief investment officer, was paid about $1.3 million in 2023, according to the most-recent state data. Anne-Marie Fink, a top investment officer, was paid about $1.2 million. Todd Mattina, a head economist, made $1.1 million.
Performance bonuses paid to the employees more than doubled from 2019 to 2023, the auditors found, even though they had been managing less of the investing over time. The board paid $13.9 million to 172 employees in 2019. It paid $30.6 million to 262 employees in 2023.
Two executive employees were awarded bonuses of $1 million and $510,000 in 2023, the audit report said, although it did not identify them.
Risch said the pay is meant to be competitive with other public pension systems and private firms.
