Employees at a state agency that manages public employee retirement funds received $30.6 million in annual bonuses last year as fund assets are increasingly overseen by external managers, according to a recent report from state auditors.
The nearly 300-employee State of Wisconsin Investment Board is responsible for over $155 billion in assets. A majority of the assets are retirement contributions for thousands of current and former state employees. The agency is also home to some of the highest paid public workers in the state.
The agency’s leader, Edwin Denson, made $1.32 million in 2023, and investment board employees make up over three quarters of the state’s 100 top earners, according to the most recent state payroll data. The payroll figures exclude Universities of Wisconsin, legislative and judicial employees.
The $30.6 million in bonuses is the most investment board employees have earned since 2019, the state Legislative Audit Bureau found. These bonuses are paid from the state retirement fund and can decrease payments to retirees, the report says.
Yet, total compensation for agency employees remains below similar workers at private firms or other public pension managers, at 65% of the median pay. The investment board uses a consultant to guide employee compensation against the larger market, according to spokesperson Shannon Gannon.
Jason Stein, president of the nonpartisan research group Wisconsin Policy Forum, said it’s worth remembering that investment managers at the board could get jobs on Wall Street.
“It turns out that jobs on Wall Street pay a lot of money,” Stein said. “$155 billion (in assets) is a lot of money and we need good management of that as a state.”
One of the ways to ensure good management is keeping compensation in line with the market rate, he added.
From 2019 to 2023, the agency’s expenses nearly doubled from $480 million to $852 million, in part due to a decreasing proportion of assets managed by the investment board itself.
Five years ago, the majority of assets were managed inside the agency. As of last year, 55% of assets were overseen by outside managers. External management can cost up to four times as much as internal management, auditors found in 2021.
Stein said there are two ways to use employees at an agency like the investment board: have employees directly invest money in the market or manage other people doing that work.
“There would be a tendency over time that would make it potentially harder to do all the investing in-house,” he said, particularly as new investment models emerge.
However, if the cost of external management is not yielding sufficient returns for net gains, it matters what that cost is, Stein said.
In their report, state auditors recommended the investment board develop a multiyear strategic plan including the estimated costs and benefits of internally and externally managed investments.
Investment board officials told state auditors more assets are managed externally as the board increases investments in private equity and real estate to meet rate of return expectations.
“Decisions about internal versus external management are made based on a variety of factors, including investment strategy, personnel, technology and infrastructure,” Gannon said. “By leveraging external expertise for certain strategies, (the investment board) gains access to specialized knowledge and opportunities that may not be feasible to replicate internally.”
Staff bonuses are based on the overall performance of the state’s main fund, called the Core Fund, and its underlying strategies — including both externally and internally managed assets, Gannon said.
Investment performance metrics are compared to industry benchmarks, rather than pure market returns, to better gauge how the investment board’s strategies are working. These benchmarks are recommended to the investment board by a consultant and approved by the agency’s Board of Trustees, Gannon said.
That approach has proven successful, Gannon said, citing how investments exceeded benchmarks by more than $4.1 billion over the last five years. While yearly returns may go up and down, the 20-year and 30-year returns exceed the goal of 6.8%, Gannon said.
Last year, the Core Fund had an average annual return rate of over 9%, placing the fund in fourth place for performance among a peer group of nine other large public pension plans, auditors found. Wisconsin’s retirement pension is also the most highly funded of the peer funds, at 99% — meaning there is enough funding to meet 99% of future retiree pension payments.
New Jersey’s public pension was the least funded of the group. About 47% of its future financial need is currently funded, the audit report says.
