South Carolina’s teachers, police and other state employees paid more than $1.8 billion in fees to Wall Street pension managers who turned in disastrous performances between 2011 and 2015.

A longtime critic of the funds’ management calculates that the combined costs of fees and bonuses to outside money managers have drained a staggering $7 billion from public employees' nest eggs since 2007.

And the fund’s returns have been subpar throughout that period, said South Carolina State Treasurer Curtis Loftis. When measured against the Bank of New York/Mellon benchmark, its three-year, five-year and 10-year returns all fall short. In February, South Carolina’s one-year negative return of -5.58 percent also trailed BNYM’s -5.12 percent for the same period.

Although Palmetto State officials have blamed “conservative asset allocation” for low returns, the breathtaking expenses and marked underperformance have put South Carolina at the center of a growing debate about the extent to which massive public pension funds serve as a piggy bank for Wall Street professionals.

Reports that New Jersey’s public pensions had shelled out $700 million in fees and bonuses in 2015 sparked outrage earlier this year, as did the revelation last December that California’s CalPERS, the nation’s largest portfolio of public pensions, had racked up $3.4 billion in such costs over the past quarter-century.

“If anyone else underperformed by $7 billion [as in South Carolina], they’d have been fired,” Loftis said, claiming all his warnings over the years have come true. “But nobody lost their jobs.”

Technically, Loftis is correct that no one lost their jobs as a direct result of South Carolina’s lackluster yet pricey portfolio. Yet the same people are not in charge.

Gone, for instance, is Robert Borden who, while the chief investment officer of the South Carolina Retirement System (SCRS) from 2006 until the end of 2011, raised eyebrows by tooling around sleepy Columbia in a yellow Lamborghini. As it happened, at that time Borden was getting two checks: one for deciding where to stash the billions of South Carolina’s public employees’ retirement dollars, and another for advising state pension officials across the country as a founding board member of the private Palmetto Research and Development Associates.

Borden, now a principal partner at the Chapel Hill, North Carolina financial planning firm Delegate Advisors, did not respond to messages left with his office. But experts said the public and private positions he held while running South Carolina’s system are fraught with potential conflicts, especially as pensions pursue higher returns through such “alternative investments” as real estate, private equity and hedge funds. Loftis, for one, believes the situation is opaque in terms of what the funds are trying to accomplish and rife with unnecessary risk and complexity.

“We have tried to get very sophisticated and ahead of the curve,” Loftis told American Media Institute. “While sitting [on the SCRS board] I realized it was all a fraud. People underestimate the power and allure of hanging out with the richest people in the world.”

Loftis did not point to any current examples of South Carolina officials being lured into risky or dubious propositions through wining and dining by Wall Street money managers. But money can be intoxicating, and the masters of the hedge fund universe are notoriously taciturn about what they are doing with their capital.

“These money managers can provide lavish, expensive dinners and other gifts,” said Edward Siedle, the founder of Benchmark Financial Services. Siedle has been hired by myriad states to scrutinize their pension investment portfolios and has written widely on the topic.

“There are reasons these pensions are in trouble and the money managers should be investigated,” he added. “Traditionally, they’ve invested other people’s money, and the public is not allowed to see where it has gone. When private people do that it’s one thing; when public people do that it’s fraud.”

The current bosses of the SCRS sharply dispute that notion and insist what may have been policy in the past isn’t policy today. Indeed, the man holding Borden’s old post, Michael Hitchcock, insists the board now takes a more critical and hard-edged approach to all its investments.

“We’ve been very upfront about the fact there’s no doubt our returns have trailed our peers, usually by a percentage point and a half,” Hitchcock said. “And we are more expensive than our peers; the perception we have an expensive portfolio that hasn’t performed are facts.”

Hitchcock said the board has combed through its portfolio and is now exceedingly careful about where it puts pension money. “Anything that is expensive has to justify its existence by providing outsize returns,” he said. “Anything that is expensive and complicated really has to prove itself.”

South Carolina is hardly alone when it comes to holding pricey investments that haven’t kept pace with more passive vehicles such as index funds.

“When it comes to the pension funds and their hedge funds, the reality is some of the states are paying exorbitant fees and getting subpar results,” said Christopher Summers, president of the Maryland Public Policy Institute, a free-market think tank. The MPPI has been digging into state pension funds for years and their research shows less expensive index funds offer a superior investment blueprint to more more exotic ones.

“This isn’t a Republican or a Democratic issue,” Summers said. “It’s a mathematical issue.”

The expensive investment strategies come about in part because state pensions are charged with hitting expected annual returns that may be unrealistic. For many states, including South Carolina, that figure is 7.5 percent. If the portfolios miss that target, the pensions’ unfunded liability increases correspondingly.

Loftis predicted in June that South Carolina may have to kick in another $600 million a year to keep its pensions on track to meet future obligations. Hitchcock noted that with interest rates on a historically low run, putting a large chunk of the portfolio into traditional fixed income funds simply won’t come anywhere near the targets.

What’s more, South Carolina’s fees look large in comparison with some other states because they have adopted a more transparent model for reporting them, Hitchcock said. Nevertheless, many of those who have looked closely at state pension portfolios say officials are extremely defensive about such scrutiny.

Loftis said his efforts to trim costs and allocate assets in less-risky investments have sparked a hostile response. Summers said the MPPI has found a similar audience in Maryland. That is a common problem, Siedle said, due to the “cloak of secrecy” surrounding pension board decisions.

Loftis has employed identical language when attacking pension investment decisions in South Carolina. While pension officials may insist they are taking a sharp pencil to their portfolios, history shows there is reason to be skeptical about how retirement boards reach their decisions and, more broadly, about the notion higher returns should be chased through potentially riskier and undoubtedly pricier alternative investing.

“The argument is you need to take more risk to get better returns, but there is no evidence of that,” Siedle said. “With Wall Street, the adage that ‘you get what you pay for’ is not true.”

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James Varney is a New Orleans-based, Pulitzer Prize-winning reporter who has covered the Iraq war and Latin America. The American Media Institute, a news partner of The Herald, is an independent investigative journalism organization.