DENVER (AP) – An audit of Colorado’s Treasury Department recommended Tuesday that it should consider expanding investments beyond only U.S. securities and look into foreign securities as a safeguard against inflation and potential devaluation of the dollar.
The audit said lawmakers should examine the possibility of eliminating statutory limits that require only domestic security investments and state Treasurer Walker Stapleton said he hopes it happens as soon as next year’s session.
“We’d like to be able to invest in America and invest in this country. However, I think it is important that we have the toolset so that if there is problems on a federal level that our state ship doesn’t sink along with the federal ship,” Stapleton told lawmakers during the audit presentation.
The audit, conducted by Buck Global Investment Advisors, noted that other states already authorize non-U.S. fixed income investments. In its analysis, the group found that although some foreign fixed income securities are based in a foreign currency, the states investments are in U.S. dollars and “there is no risk of loss from currency changes.” Foreign-based securities with U.S. dollars were previously not an option, the audit said.
The states referenced as examples were New Jersey, Oregon, Florida and Pennsylvania.
The audit’s purpose was to survey the Treasury Department’s investments from Jan. 1 2007 to Dec. 31 2010, when former Democratic Treasurer Cary Kennedy was in office. Stapleton, a Republican, defeated Kennedy in November and took office this year. The audit found the treasury department’s investments “performed better than their benchmarks in difficult financial markets.”
“I think she was a good steward,” Stapleton said, adding that managing taxpayer money in the treasurer’s office should not be partisan.
Investing in foreign markets was one of the audit’s recommendations for the state to protect itself against inflation and in case of a devaluation of U.S. currency. The move would also have the benefit of portfolio diversification, the audit’s analysts said.
The report said that foreign fixed income securities, such as debt and bonds, are sometimes considered less risky and of higher quality than U.S. securities. The group that did the audit recommended that if Colorado chooses to invest in foreign markets, it do so only with places with high credit ratings. Some countries mentioned as possibilities were Israel and Canada, but Michael Fortney, Stapleton’s spokesman, said it’s too early to say what countries the state would explore because legislative changes need to be approved first.
“We just think this is something that needs to be explored,” he said.
Stapleton said some may disagree with U.S. investment in foreign securities, but emphasized that his responsibility as treasurer is to make sure that the state does not lose money and weigh the safety of investments.
“If the safety of investing in foreign security overrides the risk of U.S. securities, that’s a difficult pill to swallow but it’s a pill that anybody who’s responsible in this office should be willing to swallow and explain to people that, `Look, we try to invest in U.S. currencies and securities where possible, but we’re going to guard against a devaluation of those instruments by investing in other things as well, potentially,” he said.
– By Ivan Moreno, AP Writer
(Copyright 2011 by The Associated Press. All Rights Reserved.)