A Four Year Delay in the NYCERS LRP Project - Time for DOI to Investigate

In its FY-2024 financial report (released in December 2024), NYCERS stated that there was a serious delay in completing its Legacy Replacement Project with only a vague reference to changes in the legacy systems. NYCERS promised a report with a new schedule at its February 2025 Board meeting. See the text below:

LRP began in June 2021, with a plan to complete the transformation over five years/five phases, with a target completion of September 2026.

Phase 1 was launched in January 2023, introducing foundational functionality that future phases will build upon.

In the midst of Phase 2 delivery, a range of legacy system changes surfaced that impacted the overall timeline. The Systems Integrator proposed to deliver a subset of Phase 2, called Phase 2.0, as this functionality did not rely on those legacy system changes, and we are currently on track for a January 2025 launch.

In parallel to a Phase 2.0 delivery, the Systems Integrator and NYCERS are working on a re-baseline plan for the remaining phases, which will be discussed during the February 2025 Board of Trustees Meeting.

February 2025 board of Trustee Meeting

Last week at that meeting, the staff reported to the trustees that the new tentative completion date for the LRP project would be at the end of 2030 rather than the original September 2026 date. That is over four years behind schedule for a five-year contract.

Since December, Accenture (the "systems integrator"), the firm developing the project, delivered a revised high-level plan for the completion of the remaining scope of the project with a target date as of the end of 2030. The NYCERS staff stated that it had reviewed this plan.

Going forward, Accenture will provide a detailed resource plan supporting the 2030 completion target date. This detailed plan is needed for NYCERS to be able to give final approval for the new plan. The NYCERS approval of this new plan is targeted for the spring of 2025.

After a two-minute presentation there were no questions from the trustees concerning this four-year delay. This is obscene.

Background

NYCERS started the LRP project in July 2015. It was the brain child of Liz Reyes, the IT director at the time. She now is the deputy executive director and is hoping to become the executive director in May when the incumbent retires.

NYCERS signed the LRP implementation contract with Accenture in April 2021. It had an approximate term of five years with a total cost of $85.1M.

Three years later in 2024, Accenture notified NYCERS that the September 2026 completion date was not achievable.

When does gross incompetence become criminal?

I am not aware of any evidence of corruption involving the LRP project.

However, NYCERS’s glaring incompetence and obvious inattention to the project’s risks raises red flags that should be investigated.

NYCERS has never produced a cost/benefit analysis for this project.

Gartner has been under contract to NYCERS since 2015 providing advice on the LRP project. What was that advice?

During 2019 and 2020, NYCERS paid Accenture approximately $12M to install a Salesforce application. This means that Accenture has had extensive experience with NYCERS’s operations. Why did it take Accenture three years to come up with a new completion date four years out from September 2026?

The Legacy Replacement Project on Life Support

Collapse of the Legacy Replacement Project - Update 1/14/2025

I just recently commmented on spending problems with the Legacy Replacement Project at NYCERS.

Days later I became aware of a statement in the NYCERS FY-2024 NYCERS financial report, pages 12-13. The report was released in late December 2024, roughly three weeks ago. The statement indicates serious problems with LRP project. Below is the quote.

Quote from FY-2024 NYCERS ACFR

LRP began in June 2021, with a plan to complete the transformation over five years/five phases, with a target completion of September 2026.

Phase 1 was launched in January 2023, introducing foundational functionality that future phases will build upon.

In the midst of Phase 2 delivery, a range of legacy system changes surfaced that impacted the overall timeline. The Systems Integrator proposed to deliver a subset of Phase 2, called Phase 2.0, as this functionality did not rely on those legacy system changes, and we are currently on track for a January 2025 launch.

In parallel to a Phase 2.0 delivery, the Systems Integrator and NYCERS are working on a re-baseline plan for the remaining phases, which will be discussed during the February 2025 Board of Trustees Meeting.

The quote opens with an inaccurate statement that the LRP project started in FY-2021. It started in FY-2016. The project is now in its tenth year, FY-2025. It is also not responsible to say that it will be completed by September 2026.

The real problem, however, is raised in the highlighted text in the quote. As stated in the previous year's ACFR, Phase 2 was projected to "launch" in September 2024. That target has now vanished.

NYCERS states that at some point during FY-2024 a "range of legacy system changes" surfaced which impacted the Phase 2 timeline. At that point NYCERS was in the midest of the ninth year of the project or the third year of the Accenture contract. NYCERS gives no specific details of what the "changes" are and how they impact the project. I suspect that the scale of the legacy systems are overwhelming the standard Penfax software application which NYCERS contracted to handle the legacy functions. This obstacle will either force a redesign of the project with an associated delay or a revelauation of the total project.

NYCERS states that it will discuss a new timeline at the Febuary 2025 Board of Trustees meeting. That should be an interesting meeting.

The new Phase 2.0 is stripped down application that does not support any of the functions of the legacy systems. This minimal application has a delivery date of January 2025. This date is four months after the Septemebr 2024 date for the original Phase 2.

It now appears that the excutive director will be retiring on May 1, 2025 after seven and half years at NYCERS.

This project is out of control.

NYCERS CAFR/ACFR Comments on the Legacy Replacement Project since 2016

In light of the chaos described above, please refer to the quotes below from NYCERS annual financial statements from 2016 to 2024. The quotes are updates on what is happening with Legacy Replacement Project. Obviously NYCERS never thinks that anyone will backcheck what they said the year before.

I will let the quotes speak for themselves.

2016

NYCERS has embarked on a multi-year project to modernize our business processes and related technology. The principal objective of this initiative is to replace our legacy data processing environment and establish a new Pension Administration System that will transform the way we do business and interact with our members, pensioners, and various stakeholders such as employers and other City agencies. The intended outcome is to provide streamlined services in a modern context using up-to-date technologies that are flexible and provide value in an ever-changing environment.

2017

NYCERS is on a journey of transformation through the accomplishment of key initiatives that will span the next 5 to 6 years. We have been preparing for our upcoming multi-year legacy system replacement project, including developing the Request for Proposals, data analysis and data cleansing.

2018

During fiscal year 2018, NYCERS continued along the journey of transformation through the accomplishment of several key initiatives designed to help us deliver a world-class customer experience and enhance our operations, while preparing for the replacement of our legacy systems.

2019

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

NYCERS issued a Request for Proposal (RFP) for the LRP on April 18, 2019. Proposals were received on July 15, 2019 and are currently under review.

2020

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

NYCERS issued a Request for Proposal (RFP) for the LRP on April 18, 2019 and expects to complete contract negotiations with the selected vendor by December 31, 2020.

2021

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

The LRP will be completed over five phases. Phase 1 began on June 22, 2021. It is anticipated each phase will take approximately one year to complete.

2022

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

The LRP began in June 2021 and is expected to be completed by June 2026 over five phases.

Phase 1 is scheduled to launch in January 2023.

2023

The Legacy Replacement Project (LRP) is a multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system is intended to transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

The LRP began in June 2021 and is expected to be completed by June 2026 over five phases. Phase 1 launched in January 2023. Phase 2 is currently scheduled to launch in September 2024.

2024

The Legacy Replacement Project (LRP) is a complex, multi-year initiative to modernize NYCERS’ business processes and related technologies. The principal objective of the LRP is to replace NYCERS’ legacy production application with a new pension administration system. This new pension administration system will transform the way NYCERS does business and interacts with its members, retirees, employers, and other City agencies. This will be accomplished using flexible up-to-date technologies that will provide ongoing value into the future.

LRP began in June 2021, with a plan to complete the transformation over five years/five phases, with a target completion of September 2026. >p> Phase 1 was launched in January 2023, introducing foundational functionality that future phases will build upon.

In the midst of Phase 2 delivery, a range of legacy system changes surfaced that impacted the overall timeline. The Systems Integrator proposed to deliver a subset of Phase 2, called Phase 2.0, as this functionality did not rely on those legacy system changes, and we are currently on track for a January 2025 launch.

In parallel to a Phase 2.0 delivery, the Systems Integrator and NYCERS are working on a re-baseline plan for the remaining phases, which will be discussed during the February 2025 Board of Trustees Meeting.

How the Rich Take from the Poor: Investment Costs from 2000 to 2024

Listed in the chart below are the investment expenses for asset classes in the NYCERS portfolio, in particular , U.S. equities and private equity funds.

The chart clearly lays out systematic lunacy in NYCERS investment strategy as highlighted by the differences in these two classes. One, U.S. equities is effective and inexpensive and the other, private equity, is ineffective and grossly expensive.

Private equity and other limited partnerships have exploded in the last 25 years. NYCERS is not alone in this insanity. Many other pension funds are infected with this disease including the other four city pension funds.

We all know the story of "The Emperor's New Clothes". This emperor is not only vain but deaf, dumb, and blind. On a more fundamental basis this is how the rich legally take from the poor.

Overview

As of June 30, 2024, NYCERS had a closing balance of $87.93 billion in assets up from $82.43 in FY-2023.

NYCERS paid $572.03 million in investment expenses in FY-2024 up from $489.90 million in FY-2023.

The total expenses for the five city pension funds were $1.95 billion for FY-2024.

The City is always pressed for revenue and yet it allows this bleeding to continue.

U.S. Stocks

Of the $87.93B amount, NYCERS reported $$22.10B in U.S. stocks for which NYCERS paid $16.76 million in management fees.

Of the $22.10B amount, $15.26 billion was in two index funds for which NYCERS paid only $307,483 in management fees.

The value of this asset class is based on the closing values of U.S. stock markets as of June 30, 2024. The open markets make this asset class totally liquid.

NYCERS reported that this class had a rate of return for the year of 22.98% for FY-2024. This figure is based on the closing market stock prices as of June 30th of the previous year and the current year, dividends paid during the year, and the purchase and sale of stocks during the year. Fees are netted out starting in 2015.

Private Equity

Of the $87.93B amount, NYCERS reported $9.20 billion in private equity funds for which NYCERS paid $229.09 million in fees and organization costs.
NYCERS provides no description of what organization costs are. Of the $229.09 million amount organization costs were $64.74 million.

The value of this asset class is based on a best guess (NAV) by the 81 general partners running all the private equity funds. This is because there are no public markets for private equity funds. You have to take this number with a big grain of salt. Some general partners manage more than one fund.

NYCERS reports that this class had a rate of return for the year of 5.09% for FY-2024.

NYCERS does not document how this number is arrived at. Actually, there is no rate of return for private equity funds as a class, only for individual funds and only at the point when the fund closes and makes its last distribution. Each fund should be reported out when it closes. Of course, this would create tremendous PR problems. While some funds may have respectable returns in spite of high fees, others would be horrific disasters.

I suspect, however, that the black box contracts that NYCERS signs with the general partners prohibit NYCERS from publishing the final results.

Also, because there are no public markets for private equity funds, this class is not liquid. NYCERS could possibly sell its position in a particular fund but only at a steep discount and only if there was a buyer.

Investment Expense Tables 2020-2024

Investment Costs for Different Classes

CLass/Year (in millions)	2024	2023	2022	2021	2020	*	2015	2010	2005	2000
Fixed Income	$26.63	$24.99	$26.95	$27.65	$23.92	*	$17.81	$14.80	$10.35	$10.22
US Equities	$16.75	$13.67	$16.88	$14.71	$8.85	*	$17.06	$14.68	$6.47	$8.74
Private Equity	$163.36	169.77	$77.61	$67.94	$66.09	*	$40.35	$58.77	$9.70	$2.83
Private Eq. Org. Costs	$64.73	$34.69	$19.82	$19.16	$21.73	*	$13.03	$28.84	*	*
Alternative Opport/Global FI	$34.17	31.22	$21.65	$21.70	$14.97	*	$12.65	*	*	*
Alternative Opport/Global FI Org. Costs	$2.40	3.88	$1.67	$1.76	$0.25	*	$4.51	$0.0	*	*
Private Real Estate	89.93	$75.18	$46.68	$43.20	$31.96	*	$17.78	$17.32	$1.66*	*
Real Estate/Infrastructure Org. Costs	$38.41	23.64	$20.21	$10.68	$8.17	*	$5.11	$3.15	*	*
Infrasructure	$39.98	$36.64	$20.80	$15.72	$13.32	*	*	*	*	*
International Equities	$45.44	41.11	$44.69	$41.38	32.22	*	$31.73	$28.15	$15.84	$14.82
Hedge Funds	*	*	*	*	*	*	$39.79	*	*	*
Mutual Fund - Domestic Equity	*	*	*	*	*	*	-$0.01*	$0.65*	*	*
Mutual Fund - Mortgages	$0.27	$0.27	$0.29	$0.32	$0.30	*	$1.62	$0.90	*	*
Teasury Infaltion Protect Secs.	*	*	*	*	*	*	$1.34	$0.88	$0.05	*
Mutual Fund - Bank Loan	$0.0	$0.0	$0.01	$0.71	$1.36	*	$3.34	*	*	*
Consultants	$2.50	$2.55	$2.45	$2.72	$2.82	*	$3.51	$4.44	$1.45	$0.71
Legal Fees	$0.75	$1.12	$0.70	$0.66	$0.67	*	$0.10	*	*	*
Foreign Taxes	$40.57	$25.59	$39.70	$37.90	$24.07	*	$15.48	$1.12	*	*
Subsidy to Comptroller	$3.92	$3.64	$3.94	$4.26	$4.02	*	2.11	*	*	*
Miscellaneous	$2.43	$1.89	$5.15	$2.81	$2.19	*	$4.51	$1.57	$0.60	$0.12
Total Expenses	$572.3	$489.90	$349.22	$313.23	$245.67	*	$231.76	$175.26	$46.11	$37.43
Total Assets (in billions)	$87.93	$82.43	$78.53	$87.08	$70.25	*	$55.03	$35.38	$35.53	$42.82

An Agency Adrift

During the 12/12/2024 NYCERS Board of Trustees meeting, the executive director, Melannie Whinnery, presented the FY-2024 budget reconciliation report. The key item in the report was that NYCERS had only spent $130.3M, which was $38.1M less than the budgeted amount of $168.4M.

The cause of the shortfall was reported to be mainly due to:

1. $27.2 M delayed payments for the Legacy Replacement Project (LRP, an IT upgrade project) because of the delayed implementation of the project and
2. $9.0 M unspent payroll allocation because of difficulty in hiring new authorized personnel.

The LRP shortfall

In the FY-2024 budget, the LRP project was budgeted at $61.03M for consulting services. I guess we can assume that, in spite of the shortfall and delays, NYCERS did pay $33.83M ($61.03M-$27.20M) for consulting on the LRP project in FY-2024.

Listed below are the official NYCERS budget and ACFR non-payroll costs for the previous eight years:

Non-Payroll Shortfalls

Year	Budgeted	Actual	Underspent
2024	$98.0M	$69.8M	$28.2M
2023	$90.4M	$47.8M	$42.6M
2022	$84.5M	$52.7M	$31.8M
2021	$50.2M	$38.7M	$11.5M
2020	$45.9M	$31.9M	$14.0M
2019	$43.5M	$38.4M	$5.1M
2018	$21.8M	$19.2M	$2.6M
2017	$20.9M	$20.2M	$0.7M

Since FY-2020, as seen in the table above , NYCERS has been significantly underspent the budgeted amounts for its non-payroll expenses with the LRP project being the big-ticket item.

The LRP project was proposed in the spring of 2015 and was originally to start in FY-2016. Miscellaneous components of the project finally did get started in FY-2018. An RFP for the LRP was issued in December 2017. It was, however, withdrawn six months later in June 2018.

The current executive director was hired in the fall of 2017

In FY-2021 the LRP contract was finally awarded to Accenture for $85M with a five-year term ending in June 2026. As reported at the December Board meeting, a stripped-down version of Phase 2 is supposed to be in place by the first quarter of 2025.

Phase 1 appears to have been in place by the spring of 2023. It basically entailed the selection of an off-the-shelf commercial pension administration software package, PENFAX. The annual license charges started in FY-2022 and are currently budgeted at $4.4M in FY-2025. This is just for the licenses and not the customized application. The package will need extensive customization which I suspect will be the core work of Phase 2 through Phase 5.

This project is way behind schedule and will be way over budget, assuming it is ever implemented. I cannot overstate the enormous costs that are being incurred by this project. NYCERS never lets on that this project is its tenth year of dvelopment and that it was origianlly a five year project.

LRP Costs

For the seven years since FY-2018, the costs for

1. software licenses have increased from $2.2M to $10.8M with a total cost for the seven years of $39.9M, and
2. computer consulting has increased from $3.0M to $40.4M with a total cost for the seven years of $104.4M. Yes, over $100 million.

These significant costs are despite the shortfall in spending.

You would think that there must be members of NYCERS, NYC workers belonging to DC-37, who could do this work more effectively and at less cost.

Note: DC-37 is a NYCERS trustee.

There are eleven consulting companies who have been paid over $2.0M in the last seven years:

Consultants Paid over $2M

1	Accenture	$41.0M
2	Gartner	$12.1M
3	InfoPeople	$8.6M
4	Universal Technologies	$7.5M
5	Rangam Consultants	$5.4M
6	Spruce Technology	$4.2M
7	Blue Hill Data Services	$4.2M
8	Experis US Inc. ---	$2.8M
9	Linea Solutions	$2.5M
11	Computer Management Resources	$2.5M
19	ZebraEdge Inc.	$2.2M

There are another twelve companies who have been paid over $1.0M in the last seven years. That is at least $12M plus.

There are another eight companies who have been paid over $500,000 in the last seven years. That is at least $4M plus.

We are not talking about DOD here. This is just a large municipal pension system, one of five in NYC.

The Staffing Shortfall and the Option Letter Delay

In the spring of 2023, as part of the NYCERS FY-2024 budget presentation, the executive director outlined serious production problems at the agency, especially the delays in producing option letters for new retirees (9/3/2923). Because of these problems the executive director asked for thirty two new full-time employees. The trustees approved only an increase of sixteen employees, raising the agency’s total of full-time employees to 501.

In the spring of 2024, the executive director, in a remote video meeting with the Municipal Labor Committee, projected that the option letter delay would be reduced to six months by the end of July 2024. She did, however, gave herself some leeway in that the agency was having trouble hiring new employees. July came and went without hitting the six-month mark.

As of the December 12, 2024, NYCERS Board meeting, NYCERS staff reported that the option letter delay was at nine months ( November 2024) down from 13 months in the fall of 2023. The new six-month target date was now moved to the first quarter of 2025. It was noted that the number of retirement applications had dropped in 2024, which was a help with decreasing the delay with producing the option letters.

At the same Board meeting the staff attributed the delay in solving this problem to the agency’s failure to hire new employees.

In FY-2021 and FY-2022 NYCERS had no problem hiring forty-five new employees.

Listed below are the official NYCERS budget and ACFR payroll costs for the previous eight years:

Payroll and Fringe Shortfalls

Year	Budgeted	Actual	Underspent
2024	$67.9M	$60.2M	$7.7M
2023	$56.0M	$57.7M	-$1.7M
2022	$51.3M	$52.3M	-$1.0M
2021	$48.1M	$48.7M	-$0.6M
2020	$45.9M	$45.7M	$0.2M
2019	$43.9M	$43.7M	$0.2M
2018	$40.9M	$40.4M	$0.5M
2017	$39.7M	$39.5M	$0.2M

History of NYCERS Administrative Expenses: 2000 - 2024

The following is a of NYCERS administrative expenses from 2000. The information comes from NYCERS Comprehensive Annual Financial Report.

As a point of reference NYCERS had an annual budget of $8.8M in FY-1996, the last year NYCERS was part of the city budget.

NYCERS Admin Expenses

Fiscal Year	Personnel Expenses	Contracts & Consultants	Phone, Mail, & Printing	Rentals	Software, Hardware, Support, Supplies, & Maintenance	Depreciation & Credits	Total
FY-2024	$60,156,204	$42,434,468	$1,236,809	$9,257,263	$17,189,819	$0	$130,274,563
FY-2023	$57,736,915	$19,910,959	$1,037,015	$9,282,322	$17,825,949	$0	$105,793,160
FY-2022	$52,303,943	$27,418,528	$1,029,424	$9,329,701	$14,906,397	$0	$104,987,993
FY-2021	$48,693,043	$14,058,975	$1,290,546	$6,617,040	$16,753,334	$0	$87,412,938
FY-2020	$45,736,806	$11,337,750	$1,173,896	$6,870,614	$12,548,240	$0	$77,667,306
FY-2019	$43,717,712	$15,884,418	$1,114,263	$6,637,059	$14,719,873	$0	$82,073,325
FY-2018	$40,444,145	$4,310,427	$1,072,077	$6,348,888	$7,513,233	$0	$59,688,770
FY-2017	$39,505,894	$3,829,758	$1,561,282	$5,909,352	$8,864,342	$0	$59,670,628
FY-2016	$37,950,289	$4,687,929	$1,360,397	$5,453,383	$7,230,989	$0	$56,682,988
FY-2015	$37,368,409	$3,652,154	$1,336,002	$5,037,893	$7,239,560	$0	$54,635,018
FY-2014	$33,571,938	$3,773,082	$1,269,387	$4,863,720	$6,952,691	$0	$50,430,818
FY-2013	$33,064,087	$3,102,385	$1,078,411	$4,674,442	$6,797,095	$0	$48,666,420
FY-2012	$32,623,085	$3,088,256	$1,096,186	$4,796,584	$9,780,637	$0	$51,384,748
FY-2011	$31,748,443	$4,108,186	$995,415	$4,741,621	$4,780,811	$0	$46,374,476
FY-2010	$31,527,659	$5,434,495	$1,041,471	$4,278,903	$6,678,071	$715,000	$49,675,599
FY-2009	$30,187,604	$4,043,775	$914,311	$4,047,949	$8,198,354	$1,430,000	$48,821,993
FY-2008	$28,344,427	$6,401,745	$997,316	$4,138,211	$5,687,716	$1,430,000	$46,999,415
FY-2007	$27,123,219	$2,677,793	$1,055,233	$5,203,902	$4,205,095	$1,430,000	$41,695,242
FY-2006	$24,992,543	$3,124,688	$1,497,895	$4,797,895	$4,472,246	$1,430,132	$40,291,469
FY-2005	$24,474,710	$3,039,970	$827,277	$4,454,258	$3,118,356	$1,430,296	$37,306,867
FY-2004	$22,631,504	$3,124,800	$845,391	$4,192,543	$3,376,187	$1,430,000	$35,559,081
FY-2003						$1,430,000	$34,101,000
FY-2002						$1,430,000	$31,548,000
FY-2001						$1,430,000	$31,584,000
FY-2000	$15,990,745	$1,587,290	$718,686	$1,531,536	$2,691,719	$725,000	$23,244,976

Climate Change - Private Equity - NYC Comptroller

On October 22, 2024, Comptroller Lander announced a proposal to curtail the activities of private equity firms that enter into future contracts with three of the NYC pension funds. Police and Fire funds are not part of the proposal.

Conceptually this is a positive effort in dealing with climate change. It is, however, not possible to put into effect.

I have been critical of private equity investments for a long time. They are expensive, high risk, illiquid, and, on average, less effective than the S/P 500 index. They are also black box operations that limited partners have no control over. Limited partners, like the pension funds, commit money to the partnerships and hopefully many years later get their money back and possibly some positive return.

The pension fund trustees have no access to the private equity contracts that the Comptroller signs with private equity partnerships. They are “trade secrets”. Once the Comptroller signs the private equity contract, he has no idea what investment decisions that the general partner makes. He also cannot terminate the contract. The idea of restricting the general partner’s decision is not possible.

I will give Lander the benefit of the doubt and assume that he is not aware of the workings of private equity. That is, however, a scary assumption concerning the investment responsibilities of the NYC Comptroller.

A serious climate change initiative would be to no longer enter into new private equity contracts. It would also be a money saver.

A Better Way: $92B rather than $81B

Assest Allocation

The most important decision that the NYCERS trustees make is the investment asset allocation of the funds of the trust. The asset allocation is a list of types of investments and the percentage of funds assigned to each type or class. Currently the trustees have chosen a complicated and very expensive allocation. The current list of classes and percentages is as follows:

1. US Equities -28.6%
2. International Equities – 11.5%
3. Emerging Market Equities – 4.9%
4. Fixed Income – Structured – 20.9%
5. Fixed Income – High Yield – 4.1%
6. Fixed Income – TIPS -3.3%
7. Fixed Income – Converts – 1.8%
8. Private Equity – 10.5%
9. Private Real Estate7.3%
10. Private Infrastructure – 2.4%
11. Private Credit – 4.4%

As a reference the allocation in 2000 was as follows:

1. US Equities -56.2%
2. International Equities – 14.9%
3. Fixed Income – Structured – 24.8%
4. Fixed Income – High Yield – 4.0%
5. Private Equity – 0.1%

The NYCERS Annual Finacial Statement

Each year, NYCERS issues a financial statement which includes accounting statements and investments results and costs. In particular, the report posts the rate of return for the entire portfolio and each allocation class. Also posted are the investment expenses for the year.

Rate of Return

In the first table below , “Rate of Return” , there is a list covering 1998 to 2023 of

• rates of return (ROR) for the full NYCERS portfolio and
• the ROR for the two classes, 1) US Equities and 2) Fixed Income – Structure.

You will see that since 2002 the average portfolio ROR is 7.13% (22 years), while the average ROR for the two classes, US Equities and Fixed Income – Structured with a 67%/33% allocation is 7.73% over the same 22 years. So how would this difference translate into a change in the NYCERS annual closing balances? I will try to give you an estimate below.

Notes:

• In 2007, both private equity and investment expenses started a steady long term increase.
• In 2015, NYCERS started to report asset rate of returns net of fees. Prior to that returns were reported gross of fees which inflated returns.

Closing Balances

In the second table below, “Closing Balance for NYCERS”, you will see that

• the closing balances for 2001 at $37.30 billion and
• the closing balance for 2023 at $81.4 billion.

That is an average increase of 4.11% over 22 years. This is less than the average portfolio ROR, 7.13%, because each year a part of portfolio return is used to pay benefits and expenses for that year.

You will also see in this table the investment expenses over the 25 years from 1999 to 2023.

Simulated Closing Balances

In order to gauge the effect of using the simple two class asset allocation, I simulated the closing balances from 2002 to 2023 using the two-class investment strategy, I used the closing balance for 2001, $37.3 billion, as the starting base and created the simulated closing balances for each year as follows (see Closing Balance table below):

• for each year I added the ROR for the actual closing balance to the annual delta created by subtracting the portfolio ROR from the ROR of the two-class strategy and
• then multiplying the previous simulated closing balance by the sum of the two percentages plus one to arrive at the simulated closing balance for that year.

In the early years, the portfolio allocation kept ahead of the two-class strategy but by 2013 the portfolio strategy started to steadily fall behind the two-class strategy. By 2023 the closing balance of the two- class strategy was at $91.59 billion while the portfolio closing balance was only at $81.4 billion. Remember that 2015 is the year that NYCERS stared reporting ROR net of fees.

It is reasonable to suspect that the difference between the two strategies may be greater than the $10 billion.

Private Equity and Real Estate LLC's

As of 2007, you will see in the Rate of Return table that the amount of money being allocated to private equity (2018 - real estae LLC) started to grow significantly. The private equity and real estate classes are very expensive. There is also an issue with their assigned values in the actual NYCERS closing balances. The quoted values of these two assets are very unreliable because there are no public markets for these asset classes. The two-class strategy, however, does not have this problem because they both have public markets trading their assets.

Investment Expenses

Finally, if you focus on the investment expense over the 2002 to 2023 period in the Claoing Balance table, you will see that NYCERS paid a total of $3.9 billion of which $2.0 billion was incurred in the last eight years. My conservative projection of the investment expense for the same period using only the two classes is $1.3 billion, a $2.6 billion difference. I based my estimate on the 2002 ratio of investment expenses to the closing balance, 1.14%. >

NYCERS Rate of Return from 2002 to 2023

Fiscal Year	Total Portfolio ROR	Eq - FI only ROR (67%/33%)	US Equity ROR	Struct F.I. ROR	Private Equity ROR	Real Estate ROR	PE assets (in billions)	RE assets (in billions)
2023	8.18%	11.88%	18.07%	-0.68%	0.50%	-1.85%	$8.427	$5.865
2022	-8.39%	-12.62%	-13.64%	-10.56%	25.02%	29.56%	$7.986	$5.672
2021	26.63%	30.21%	45.14%	-0.09%	49.61%	7.75%	$6.422	$4.360
2020	3.58%	6.92%	4.25%	12.34%	1.83%	1.81%	$4.661	$3.802
2019	7.13%	8.40%	8.37%	8.45%	14.66%	8.47%	$4.657	$3.565
2018	8.56%	9.74%	14.71%	-0.34%	17.83%	12.19%	$4.467	$3.398
2017	12.99%	12.23%	18.09%	0.34%	16.45%	10.24%	$9.259	nr
2016	1.52%	3.29%	1.68%	6.56%	6.36%	12.95%	$9.873	nr
2015	3.11%	4.87%	6.35%	1.88%	12.24%	16.06%	$9.825	nr
2014	17.04%	18.90%	24.96%	6.61%	15.20%	13.20%	$9.630	nr
2013	12.24%	15.35%	22.75%	0.33%	8.38%	12.89%	$8.255	nr
2012	1.32%	4.54%	2.23%	9.24%	7.50%	0.99%	$6.748	nr
2011	23.12%	23.55%	32.50%	5.37%	nr	nr	$5.257	nr
2010	14.09%	15.41%	16.33%	13.54%	nr	nr	$4.123	nr
2009	-18.18%	-15.62%	-26.16%	5.78%	nr	nr	$3.263	nr
2008	-4.60%	-6.31%	-12.84%	6.94%	nr	nr	$2.885	nr
2007	18.39%	15.58%	20.02%	6.58%	nr	nr	$1.834	nr
2006	9.83%	5.98%	9.45%	-1.07%	nr	nr	$0.846	nr
2005	9.22%	8.01%	7.91%	8.21%	nr	nr	$0.536	nr
2004	16.03%	13.98%	20.45%	0.83%	nr	nr	$0.286	nr
2003	3.94%	4.45%	0.72%	12.02%	nr	nr	$0.155	nr
2002	-8.64%	-8.64%	-17.05%	8.42%	nr	nr	$0.098	nr
2002-2023 Average	7.14%	7.73%	9.29%	4.58%	14.63%	10.36%
2001	na	na	na	na	na	na	na	nr
2000	9.43%	7.58%	9.06%	4.57%	nr	nr	$0.036	nr
1999	13.47%	13.97%	19.80%	2.12%	nr	nr	$0.000	nr
1998	21.29%	23.21%	28.55%	12.38%	nr	nr	$0.00	nr
Average	8.34%	9.62%
1998-2023 Average	8.04%	8.59%

Closing Balances of NYCERS Assets from 1999 to 2023

Fiscal Year	Invest Fees (millions)	Simple invest fees (millions)	Close Bal (billions)	CB % change	Delta - Portfolio vs Eq&FI only	Improved % Change	Simulated Close Bal (billions)
2023	$489.90	$93.39	$81.40	5.03%	3.70%	8.73%	$91.59
2022	$319.20	$88.92	$77.50	-9.78%	-4.23%	-14.01%	$84.23
2021	$313.20	$98.56	$85.90	22.89%	3.58%	26.47%	$97.96
2020	$245.70	$80.20	$69.90	2.04%	3.34%	5.38%	$77.45
2019	$240.50	$78.59	$68.50	5.06%	1.27%	6.33%	$73.50
2018	$241.80	$74.81	$65.20	6.36%	1.18%	7.55%	$81.77
2017	$223.80	$70.33	$61.30	10.45%	-0.76%	9.69%	$69.12
2016	$213.00	$63.68	$55.50	1.09%	1.77%	2.86%	$64.27
2015	$231.80	$62.99	$54.90	1.29%	1.76%	3.06%	$58.59
2014	$184.60	$62.19	$54.20	14.83%	1.86%	16.70%	$55.27
2013	$183.30	$54.15	$47.20	10.54%	3.11%	13.65%	$47.37
2012	$129.50	$48.99	$42.70	0.71%	3.22%	3.93%	$41.68
2011	$145.10	$48.65	$42.40	19.77%	0.43%	20.20%	$40.10
2010	$175.30	$40.62	$35.40	10.97%	1.32%	12.29%	$33.36
2009	$138.20	$36.60	$31.90	-19.65%	2.56%	-17.09%	$29.71
2008	$115.30	$45.55	$39.70	-6.59%	-1.35%	-7.94%	$35.83
2007	$98.10	$48.76	$42.50	13.94%	-2.81%	11.14%	$38.92
2006	$69.40	$42.80	$37.30	5.07%	-3.85%	1.22%	$35.02
2005	$53.90	$40.73	$35.50	3.80%	-1.21%	2.59%	$34.60
2004	$42.97	$39.24	$34.20	8.57%	-2.05%	6.52%	$33.73
2003	$29.27	$36.14	$31.50	-3.96%	0.51%	-3.45%	$31.67
2002	$37.63	$37.63	$32.80	-12.06%	0.00%	-12.07%	$32.80
Expense Ratio 20202		114.7%
2002 up Avg				4.11%		5.48%
2001	$41.30		$37.30	-12.85%	$37.30
2000	$37.43		$42.80	2.15%	-1.85%
1999	$25.16		$41.90	1.92%	0.50%
1998	na	na	na	na
Total Expenses 2002-2023	$3,921.48	$1,293.52
Diff in Expenses		$2,627.96