7. From State Street to Wall Street
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108 chapter 7 From State Street to Wall Street October: This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August and February. —Mark Twain, Pudd’nhead Wilson’s Calendar for 1894 With his unsuccessful 1966 race for governor behind him, and not content to merely serve as McCall’s foil on environmental issues, Bob Straub vowed to make good on some unfinished business—his most far-reaching campaign promise from his 1964 race for state treasurer. Straub resumed lobbying key Oregon legislators to help him create what he called the Oregon Investment Council, whose members would preside over the expansion of the state’s financial capacity to include investment of state funds in the stock market and other potentially more profitable ventures. Straub had managed the state’s short-term money much more profitably than past treasurers, and this track record gave him credibility with knowledgeable government leaders as he took his second crack on the long-term investment issue.1 During the first go ’round, in the 1965 session, Straub had taken his lumps from both sides—from the banks and the business establishment and from his more natural allies, the public sector workers, whose pension money he was hoping to invest more wisely. The public employee lobbyists, particularly Max Manchester, who directed Public Employees Retirement System (PERS) for twenty years, along with the Oregon Education Association, representing most of the state’s public schoolteachers (many of whom were members of PERS), were skeptical of Straub’s “takeover” plan and were pursuing their own investment schemes. Since World War II, Manchester had taken the PERS fund from zero to $200 million in assets. Local governments had created their own versions of pension funds, though by this time most of the smaller ones had merged with PERS. Larger funds were thought to be better able to manage their own affairs and stayed independent.2 Using Attorney General Robert Y. Thornton’s 1964 opinion that the retirement system funds were not state money but were owned by state pensioners, Manchester and PERS had already initiated a fledgling equity From State Street to Wall Street 109 market investment program, hiring an investment manager to run the program. Manchester disagreed with Straub that combining with other state funds in an investment account would be the best policy, even considering that increasing the clout and diversity could create a higher capacity fund. Manchester preferred controlling PERS funds without outside interference.3 To accommodate state workers and pensioners, Treasurer Straub modified his legislative draft to incorporate some control and self-determination by the PERS board. The modification would allow the PERS board to choose two of its representatives to be members of the five-member Oregon Investment Council. The governor, who appointed members of the PERS Board, would also directly appoint another two members to the investment council, while the state treasurer would serve as the fifth member. Straub intentionally designed the board to prevent himself or future treasurers from taking control, in order to prove he was not attempting a power grab. He truly believed that a diffused authority among five members would make it harder for the pet projects or connected investment interests of any one board member to prevail against the better judgment of the full board. Straub’s unique investment vision for Oregon was the creation of an independent body that could hire the best private investment managers from throughout the country based upon their track records. Straub knew that, for the system to work, it needed to be completely independent from political pressure and devoted solely to what was then called the “prudent man” rule: that is, investing only as a prudent investor would with his or her own money. He committed the investment council to the rule by making it the primary requirement in the proposed law.4 As in 1965, the House of Representatives in 1967 was controlled by Republicans and the Senate by conservative Democrats not naturally sympathetic to the more liberal Straub. A key to success was to convince more conservative members of the legislature that this investment idea would save the state money and improve the performance of state workers’ pensions. Straub knew that the House Ways and Means Committee chairman, Stafford Hansell (R-Hermiston), a hog farmer from northeastern Oregon, was well respected and influential. He decided to meet one-on-one with Representative Hansell and make his...


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