[upbeat music] [upbeat music continues] - Let's welcome Republican nominee for treasurer in North Carolina, Brad Briner on the "State Lines" set.

Hello, sir.

Thanks and welcome to "State Lines".

- Good morning, Kelly.

Thanks for having me.

- Well, so many new voters out there.

So many people may not know of a Brad Briner.

I don't think you've run for office before at the statewide level.

- I have not.

- Who are you?

Why do you wanna be treasurer?

What would make you the best one?

- Sure.

So, I'm a finance guy is the answer.

I've not been in politics before, this is my first run at it, and really, probably the only job that I might be qualified for at the moment.

I've spent 25 years in the investment business, building large portfolios for the University of North Carolina and for Mike Bloomberg most recently, so as I think about what office that qualifies me for, it's pretty clear that that's treasurer.

- What's the difference in working for a university as an investment manager and working for a private and very, very wealthy individual in Michael Bloomberg?

- Not as much as you might think.

Mike's money largely tax exempt as well, so a foundation, perpetual life, just like an endowment, and so, in fact, the pension is not a lot different either.

It's got what we think of in the industry as a net spend of about 2%, which means it's got a 50-year expected life, so these are very long-life large pools of capital.

They're managed somewhat similarly.

The pension plan has a lower risk profile than either Mike or the endowment would though.

- As a money manager, it does seem you differ in investing strategy than what we're currently doing under the current treasurer who is retiring, so help us understand the kitchen table level.

How aggressive do you believe the state should be and the treasurer should be with state retirement funds?

- Sure.

So, I've got a daughter that just turned 16, and literally last week, so we've been teaching her to drive, and I think the best analogy of this is when she used to get on the freeway, she'd love to go 45 miles an hour, and that's pretty dangerous.

85 is more dangerous.

What you should do is go 60 or 65, and that's where we need to be in the pension plan too.

So, the average pension in this country is roughly 70% stocks, 30% bonds.

We're roughly 50/50, and so I think we need to get closer to median to raise our expected return to a level that makes the math work for the pension plan.

People are rightly focused on lack of cost of living adjustments in our pension plan.

We've had about 3% of those on a permanent basis versus 45% inflation over the last 15 years.

The reason for that?

Our investment performance hasn't been high enough.

We haven't met our target return, and the reason for that is being 50% stocks and 50% bonds and not 70%/30%.

- At a high level, what does that mean?

Does it mean you put money into more stock-based mutual funds?

I'm trying to bring this down to even my level, because there's investment strategies.

Janet Cowell, the former treasurer, invested in private funds that had supposedly high fees, we'll get to a bit later.

Then you have your Vanguards and all these other indexes and all this.

Help us bring this down to the kitchen table.

- Sure.

So, we need to make 6.5%.

That's our job.

The assets that you buy to do that depends on the market environment you're in.

As everyone knows, we've had a lot of inflation recently.

That's led to much higher interest rates.

So, the irony is right now, the ability to make 6.5% is easier than it's been in 20 or 30 years, and so we just need to expose ourselves to that, and so go get a mortgage today.

You're gonna pay 7% on it.

Someone's lending you that at 7%.

State pension should be doing that.

That's the easiest way to make over 6.5% today.

So, that's what we need to do is really focus on that expected rate of return.

Not necessarily which assets you buy at a high level, but at a individual level.

How do you make that rate of return sustainably over time?

It's something that we haven't done.

I think the world of Treasurer Folwell generally, but specifically on the investment performance and the investment fees, you know, I don't like to pay fees at all, but sometimes they're worth paying.

Like, every other industry, sometimes quality is worth paying for, and we need to do that.

That's what I spent my career doing is deciding which fees are the right ones to pay and which ones are the wrong ones to pay.

The investment industry is full of salespeople who embellish, just like every other industry, and you need to be able to see through that, you need the experience to do that to make that 6.5% return that we've got to make to provide our retirees with the benefits they deserve.

- As North Carolina treasurer, at least for now, you could make any decision you want unilaterally as the treasurer.

You don't have to listen to anyone.

You don't have to have any- [Brad laughs] How would you go about seeking advice to make investments and would you take the power of having that sole decision making power, how seriously would you take that?

- Yeah, so there are three what are called sole fiduciary models left in the United States.

47 other states have abandoned this over the last 50 years, and there's a good, you know, kinda corporate governance reason to abandon it.

It's essentially fraud.

We've had wonderful public servants in this office, Republican and Democrat.

The other two have not.

So, New York and Connecticut are the other two sole fiduciaries, both of whom have people in jail for the obvious implication of a sole fiduciary that a, you know, immoral person can abuse that power.

So, I think for that reason alone, sole fiduciary doesn't make sense.

There are other investment reasons as well, which gets to your question.

I think we need to change governance.

It's time.

Treasurer Cowell commissioned a study just about before she left office around this that I think you should read if you're interested in these matters.

It's really a bipartisan initiative to get to better governance, which would involve political accountability in part, and then investment responsibility in part.

So yeah, it's ironic.

I'm running for office to try to diminish the power of the office ultimately, but I think it's the right thing to do for our state.

- What kind of team would you put together and have you looked inside the treasurer's office to, and do you have any understanding of the talent that's within that office right now that will be there as Mr. Folwell retires?

- Sure.

So, I've been in the investment business for 25 years and I run into the folks at the North Carolina Treasurer's Department, the Investment Management division over many years, so yes, I know most of them, not all of them as well as I'd like to, and hopefully we'll get to.

There is a lot of talent there and these are really noble public servants who take a well-below-market wage to do great work for our state.

We'll need to augment that.

There are a series of open positions, so we'll need to fill those positions.

One of the most pleasant surprises of running for office has been the number of people who've reached out from the investment industry just to help.

So, I'm up to about 20 different states' pensions who've reached out to say, "How can I help you think through governance?

How can I help you think through changing the model there?"

and some of whom wanna come work here who would take a big discount from what they're making today to do so.

- Why?

- Why?

Because it's an interesting change, right?

If you've been in a pension plan that's already well governed and already running well and you've been doing that for a long time, this is a novel challenge.

We're gonna have to ask the legislature to change some things.

We're gonna have to change the statutory authority that they have around which assets we can buy and we're gonna build a new governance structure.

So, it's an interesting and novel challenge for people to take one of the large state pension plans to a new and better level of performance.

- What could the public expect if you're successful.

Is this part of your platform, and you win, to change the governance?

Will retirees see anything differently?

Will workers today see anything differently down the road?

- Yeah, so over time, you will.

Day two, you will not.

So, let me explain that.

We have performed about 2.5% lower annually than the median state pension plan.

The objective is to close that gap.

So, 2.5% each year times 125 billion ends up being a lot of money, so I aspire to watch like the rest of the voters what the legislature and the governor and others do with that excess money that they will now be able to appropriate.

I have my own views, but that's not really a state treasurer's purview.

So, over time you will see kind of a multi-billion dollar difference in what we need from the state budget in the state pension plan to the positive.

I'm sure we'll find other ways to use that, whether it's lowering taxes, whether it's paying teachers, or whether it's dealing with the State Health Plan.

- Well, you're the treasurer, so if you increase returns on the retirement plan, why wouldn't retirees expect their lawmakers to put the money back into the fund for which you're generating the return?

It's okay to sidestep questioning Phil Berger and the next incoming house speaker, but that's a fair question.

Why in the world would North Carolinians who are on retirement want the state divvying out of the retirement fund to fund government operations?

- Well, it doesn't exactly work that way, but- - [Kelly] Yeah, I mean, I'm just asking a simple question.

- The thrust of your question, I agree with.

You know, as I said before, you know, we've had 3% permanent cost of living adjustments upward in the last 15 years.

We've had some bonuses.

I don't mean to trivialize those, but they're hard to do the math around, versus 45% inflation.

That doesn't strike me as at the heart of the bargain that we've struck with our state employees, and so yes, I would be an advocate for that.

It's not the only thing I would be an advocate for with the savings, but it is something that I think we need to address.

- How difficult is it as a professional to gauge inflation?

I knew treasurers would always do these outlooks and it was like 6.5, 7%, and we could all understand that.

Here it goes 9% in 2021 or 2.

How easy is that to gauge?

Can you see it coming if you're a trained professional?

- It's still very hard.

You can have a clue.

You know, I think Larry Summers did a great job in 2021 of predicting this.

He obviously comes from the left side of the world, but if you looked at the scale of the stimulus on the Biden administration relative to GDP, it was inappropriate, and you look back and you have to ask yourself, "What were we doing?"

So, that was inflationary.

That's the root of a lot of this.

It's not the only piece, given, you know, the COVID disruptions that no one quite understood or saw coming.

It certainly seems that inflation is headed the right direction.

That said, I don't think people experience inflation the way economists experience inflation.

So, the economists say, "Well, great, it's only 2.9% year over year," and you and I go to the grocery store and say, "How could a loaf of bread cost that much?"

So, those are very different things and we have not solved the historic challenge of that 9%, but at least we're getting better on a year over year basis.

- How partisan should this role be?

You said Mr. Summers comes from the left.

There are economists from the right and there's, you know, Keynes and, you know, all of that, but that's all textbook and I read about them in the magazines, but in real-world terms, do Democrats and Republicans see returns differently in the stock market?

- No, they don't.

In the end, there's a scoreboard in this business, and we can look at it, we can argue about kinda what risks you took to get there.

That's a little bit like arguing, you know, did they throw too many deep balls to win the Super Bowl?

It kinda doesn't matter.

It's did you win the Super Bowl in the end?

And so, this should not be a partisan role, and the legislature passed a bill last year, House Bill 750, saying that you could only consider pecuniary factors in making investments with respect to the state pension plan, and to me, that makes all the sense in the world.

That's all we should consider, because it is just a math job in the end.

- That's the biggest pot of money you'll face.

Just very quickly, just a couple of minutes we have left.

Moving from Blue Cross to Aetna with the State Health Plan.

Just a high-level picture of that.

I know they manage it and the state funds all the policy, the payouts and all of that.

How do you feel about that?

- The State Health Plan is actually a much bigger challenge than the pension plan.

The State Health Plan doesn't have a template to follow.

Every state's got the same problems.

Most companies have the same problems.

Health insurance and health costs continue to accelerate faster than inflation and outcomes don't seem to be better.

So, there's a lot there that is complicated and the next treasurer will need to build on Treasurer Folwell's great work to fix.

Like I said earlier, the state pension plan, we can look at 47 other states and we can shamelessly copy from them.

On the health plan side, we don't really have that option.

The transition from Blue Cross to Aetna will certainly be better in terms of their ability to leverage technology and just being a bigger company, and so hopefully that will be a nice step in the right direction, but really, cost transparency is where we need to go to inform our consumers.

CMS has done a great thing in the waning days of the last Trump administration of publishing data that's just beginning to be available and utilizable.

That's what we've gotta do in the State Health Plan.

- Brad Briner, GOP nominee for State Treasurer.

Thanks for your time.

We're here every week, so if something comes up and you're elected, we'll have you on the program.

- Thanks so much.

I appreciate it.

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