Recently, the Rio Grande Foundation took a close look at the investment practices of New Mexico’s State Investment Council (SIC). This work turned in to an opinion piece that was subsequently published in the Las Cruces Sun-News.
Not surprisingly, when called to the carpet, the bureaucrats in charge of the SIC responded not with contrition or explanation of their practices, but instead by lashing out at those who criticize their practices. You can read Gary Bland’s response here. In his response, Bland makes a number of personal attacks, but fails to adequately respond to the arguments in our original discussion of the SIC’s shortcomings.
I’ve posted a brief response to Bland’s attack below:
Gary Bland’s defense of the State Investment Council (1/15/09) shows even more why the Legislature and the public need to pay attention to what is being done with their money.
In a January 8, article in the Sun-News, the Rio Grande Foundation exposed an investment of over half a million dollars in an Arabian owned chain of scandal-plagued low income dental clinics. That business, Small Smiles, had been touted by the State Investment Council as a New Mexico company when in fact it is owned by a bank in the oil-rich nation of Bahrain. We also reported on the allegations of child abuse, Medicaid fraud and unethical medical practices that have been leveled against this company into which the State Investment Council has allowed the public’s money to be invested. Since we issued our report we have learned that of the 19 states where Small Smiles has clinics, it is being investigated by 16 State Attorneys General.
Mr. Bland, who is the state’s investment officer, had no response whatsoever to these revelations. The chance that taxpayers will ever seen any positive return on this investment are about zero, as has been the case with many of the other investments made under Mr. Bland’s leadership. Mr. Bland is a defendant is a whistleblower lawsuit as the result of that imprudent investment of our money.
Mr. Bland misleads in his effort to shine a positive light on the State Investment Council’s venture capital risk-taking. He touts a 7.2% five-year return for the Land Grant Fund investment. Problem is, the Small Smiles investment, and the other high-risk New Mexico venture capital investments have been made our of the Severance Tax Permanent Fund, not the Land Grant Fund. The Severance Tax Permanent Fund—based on the same report from which Mr. Bland obtained his figures—has a lower rate of return over the past five years. It comes in at 6.9% as of September 2008, well behind other indexes such as the S&P 400 returned (8.7%), the Russell 1000 (7.1%) and the Russell 2000 (9.4%). This underperformance raises the question whether New Mexico would be better off scrapping its expensive investment advisor relationships and simply investing its money in low cost and very low risk indexes. This would virtually eliminate the potential for kickbacks and pay-to-play that has corrupted the world of New Mexico’s money management.
The investment returns cited by Mr. Bland are entirely worthless in judging the performance of the New Mexico venture capital program. Mr. Bland focuses only on claims of job creation. Giving away money to favored businesses will, until those businesses collapse, certainly create some jobs. In terms of investment returns like capital gains and dividends, however, the program continues to run in the red to the tune of tens of millions of dollars.
Lastly, Mr. Bland failed to mention that the 7.2% five year return he brags about comes from reports issued before the market collapse of 2009. Failing to mention this rather significant fact falls short of the candor New Mexicans deserve from the man responsible for managing their money.