How did it come to be that the investment chief of South Carolina's public pension system spent his days tooling around the state capital in a yellow Lamborghini?
As discussed in an article in the New York Times, Robert L. Borden, the former head of the fund's investments, made an awful lot of money, despite being a civil servant.
His strategy, moving the state's $24.5 billion in investments from a steady stream of low-risk, unimaginative holdings to a precarious (but potentially profitable) blend of private equity and hedge funds, made Borden a rich man, earning more than a half-million dollars a year.
But in the very conservative surroundings of South Carolina, Borden's flashy style ("I have an entrepreneurial style, and I was in a bureaucratic job," he told the Times) and his sometimes cavalier approach to his duties (the story notes that the state treasurer discovered Borden kept no calendar in his office of his duties or meetings) rankled folks.
We "had never seen a Lamborghini on the streets of Columbia, and I've lived here for 40 years," noted Sam Griswold, former president of the State Retirees Association of South Carolina.
They, like other taxpayers across the country, were also largely unaware of how significantly the style and management of their money has changed in a public pension administration climate much more Wall Street than Main Street.
During his six-year tenure at the helm of the South Carolina plan, more than half of the plan's multi-billion-dollar holdings were moved into alternative investments, with fees that total nearly $350 million a year.
The returns, as the story notes, have not been quite as spectacular as promised, and the state still has a $14-billion-plus deficit in its pension obligations. Without fees included, the Times said South Carolina's system has only earned 3.1 percent over the last three years, though it has picked up in the last half year.
The move to the sexy sounding but expensive and still risk-prone world of alternative investments hasn't happened in isolation.
As we've previously reported, from Pennsylvania to the rest of middle America, more than 18 percent of public pension holdings are now invested in hedge funds, private equity and real estate, almost double the amount invested in those products in 2007.
And as state systems are currently feeling the wrath of both retiring employees who suspect they won't see the full pension benefits they worked for - and taxpayers who have begun to chafe at the notion of sacrificing their future public systems and services being cut to help pay for these underfunded pension plans - the South Carolina example is an interesting test case for how things changed, and why.
In South Carolina, the move from a bland portfolio of Treasury bonds to $13 billion in hedge fund and private equity investments started in 2007 with changes to state laws to allow more free-wheeling use of the money.
Borden, as the Times story notes, was recruited from his job at the Louisiana State Employees' Retirement System, where he leveraged the state's holdings into a portfolio that earned more than 13 percent a year in the mid-2000s.
Borden was given carte blanche to go for it and went big on the most abstract of investments. And it worked at first, so well that state employees were given one of those now-notorious 2 percent cost-of-living increase in their pensions.
Then the 2008 crash came and the fund's risk-prone investments lost almost 30 percent.
The South Carolina fund manager stuck with his job and continued to push the investment strategies into the alternative space through 2011, when the state treasurer began applying pressure, having noted that the state's pension earnings were at the bottom of the barrel. There were also many questions as to the visibilty and openness of the financial decisions being made with the public funds, by Wall Street insiders.
Borden eventually left for a job in the private sector and the state, like so many others, faces an uncertain future, though he told the Times that if South Carolina still ever plans on trying to reduce its looming deficit, those riskier investments are going to have to be part and parcel of its financial plans.