Friday, April 29, 2016

NYCERS dumps Hedge Funds

It appears that the NYCERS trustees have finally woken up. On April 14, 2016 the trustees voted to dump their hedge fund investments. What took them so long? Still there was one trustee who voted to stay with hedge funds, Teamster's Local 237. I find this position by a labor union very troubling

Now if they can only dump their private equity and real estate investments. But they can't do that, even if they want to. The idiots signed "no cut" contracts with no termination dates.

What is worse, is that they don't know what the contracts say. The Comptroller won't even let them see the contracts, contracts he signed. It gets even worse. The trustees authorize the Comptroller every year in June to continue this craziness for another 12 months.

I have written for a long time about this insanity. Don't let them tell you that they didn't know until now.

In a desperation move the investment community is attacking this action as being politically motivated. I'm sure there is a healthy dose of politics involved but the investment managers are terrified that if this movement gets going, they will all be taking orders behind the counter at McDonald's. That is if they get there first.

Saturday, February 6, 2016

NY Times: NYC Pension Funds and "Operational Failure"

On Tuesday, January 26, 2016, the NY Times reported the public release of a study analyzing the investment capabilities of the NYC Comptroller's Office. The NY Times article focused on the expression "danger of operational failure" to summarize the opinion of the report. The city paid Funston Advisory Services $1.4M for the 406 page report.

According to the following exert below from the report, the Comptroller's Office is currently not up to the job and needs lots of money to get the office into shape.

Our overall conclusion is that additional resources are required or the current investment strategy presents a very high level of operational risk. This is a problem that has been growing over the course of multiple administrations. It requires a long-term solution, long-term leadership, the support of the Systems, and long-term resourcing, but it also demands immediate action.

Continuous improvement (doing what BAM already does, but better) is necessary but not sufficient. Discontinuous improvement (doing new things in new ways) is also required. Unfortunately, given its existing resources and demands, BAM’s management currently has little or no capacity to implement many of the recommendations of this report.

To me it appears that the study was designed to help the Comptroller hold onto his annual designation as investment manager and his control over the investment process at the five city pension funds. I also suspect that the Mayor's Office is pushing to outsource the management functions of the pension fund so as to remove the heavy political influence that emanates from the Comptroller's Office.

As a example of this political influence, one of the people listed by Funston Advisory as a member of their team is a man named Jon Lukomnik. Jon worked for The NYC Comptroller Alan Hevesi from 1994 to 1998 as his representative on the NYCERS Board of Trustees. In FY-1997 Jon lead the move to allow Hevesi complete control of all of the NYCERS investment contracts and the payment of the fees outlined in those contracts. This is exactly one of the primary sources of the current chaos in the Comptroller's Office. As NYCERS executive director I specifically opposed this move in 1997 but for some reason the mayor's Law Department went along with this take over.

As long ago as 2011, I pointed out the improper activities by the Comptroller's Officewhen it came to investment contracts and fees for the pension funds. As recently as November of 2015, I again pointed out the mess at the Comptroller's Office. This report, however, documents in details how bad the internal operational problems are at the Office of the Comptroller.

The real reason the Comptroller's Office has become overwhelmed with the investment process is that trustees of the five city pension funds have made terrible investment decisions over the last 15 years.

The solution to the trouble at the Comptroller's Office is not more staff, higher salaries, and more spending. The real change needed is much more simple than what the report recommends but just as radical.

Instead of spending more money and hiring more people, all five funds should radically simplify their investment strategies. Invest only in 1) direct US stock index funds (S&P 500 or Russell 3000) and 2) Treasury, high rated corporate, and agency bonds.

They should reduce the number of investment managers and have a target of ten managers for each fund. They should also set a target for investment fees of 10 basis per year.

When the dust settles, the Comptroller's Office will be able to do its job with mere mortals. The five pension funds will earn more returns on their assets, pay far less in fees and the city will save on pension costs.

Of course, the Comptroller would be totally irrelevant politically and lots of of people on Wall Street would be out of a job.

While the trustees are reforming things, they should consider the following suggestion. Since the pension funds are already paying the Comptroller to do such a tenuous job managing their investment activities, they should put out a RFP for the work to see if they could get the job done better at lower cost. That is what the Comptroller did with his pension custodial and cash management work.

And another thought. Don't you think that when a new Comptroller comes into office, that he/she will want to replace all those highly paid provisionals in the Bureau of Asset Management with his/her own "experts".

The following is another quote from the report that is indicative of the quality of the report:

The reduction in the number of investment committee meetings will go a long way toward alleviating BAM’s workload. This reduction will free up executive time to address much needed strategic and operational improvements, but BAM still requires additional resources for both staffing and modernized systems. In combination with our recommendations, BAM can make significant progress toward becoming a world-class investment operation.

If the proposed reduction of investment committee meetings had failed to be accepted, we believe BAM and the Systems would have had a basic choice to consider: 1) increase the level of BAM resources to fully implement the recommendations (people, processes and systems) contained in this report; or 2) reduce the complexity of the asset allocation to a level which can be supported by the current level of resourcing.

This is utter garbage. The jamming of the monthly investment board meetings for the five city pension funds into one meeting accomplishes only one thing. That is the staff at the Comptroller's Office only has to put on its dog and pony show once a month instead of five times. The cock and bull story about the five board meetings per month being such a burden is just a smoke screen for the total chaos that is happening in the Comptroller's Office.

It is interesting that up to 70% of any investment meeting is held in hidden executive session. How does the Comptroller's staff handle access to info for specific pension fund that it deems to be covered by executive session when five different groups of trustees are sitting in the meeting? I hope everyone realizes that the five funds do make different investment decisions. TRS has actually been able to avoid investing in hedge funds.

Of course, we all know that there is very little that honestly qualifies for executive session.

If there wasn't so much garbage in the investment portfolios, it would take the Comptroller's staff one day to prepare for a regular investment board meeting. Of course you might start to wonder what they were doing for the rest of the month.

The Board of Trustees for each of the five systems are responsible for the prudent investment of the each of the funds, not the Comptroller. His/her annual delegation is at the discretion of the trustees of each of the five funds.

Friday, January 29, 2016

Late Deposit Date for NYCERS January Pension Checks

NYCERS is making the EFT deposit for the retirees' January 31, 2016 pension checks on February 1, 2016. That is one day late. This is totally incorrect and will cause many retirees serious cash flow problems. The January 31 check represents payment for the month of January.

Guess what? When I got to the bank on January 30, the pension check had been deposited. NYCERS needs to update their chart.

The pension payments are due as of the last day of the month. If the deposit can not be made on that day due to banks being closed, the deposit has always been made properly on the day before, not the day after. On any given month the retirees have to wait until the end of the month to get the payments due for the days starting with the first day of that month. The check does not represent the following month's benefit.

NYCERS has no authority to delay the payment of pension benefits. NYCERS is in effect getting a one day loan of $250M for free.

The month of April is even worse. The EFT deposit date is May 2. That is two days late.

Someone might call this theft.

Wednesday, January 20, 2016

What's It Like Having Your Ex Working For You?

In November, 2005, Martha Stark and the other NYCERS Trustees knowingly hired a totally unqualified person off of Shelley Silver's staff to be the executive director of NYCERS. That person was Diane D'Alessandro.

On Monday, November 30, 2015, D'Alessandro hired a woman named Ellen Carton as a "deputy director" of HR at NYCERS. What is significant about this fact is that she was the domestic partner of D'Alessandro for over 18 years.

NYCERS's claims the relationship was legally ended in 2004. I am not sure how you end a domestic partnership as opposed to a marriage.

What rational chief executive hires her ex spouse as a senior HR manager for her organization? You would never hire your current spouse, never mind your former spouse. It is a mind blowing concept. The potential conflicts would make for a fabulous novel but not a well run organization. But, unfortunately, we all know we are not dealing with a well run organization.

It now seems that the NYC Department of Investigation is looking into this story.

Ms. Carton was appointed at a salary of $127,000/yr. There was no public posting for the position. NYCERS states that Ms. Carton is reporting to Ms. Vilma Ebanks, the deputy director of HR at NYCERS. It is unclear what Ms. Carton's HR qualifications are, if any. According to Carton her consulting practice had closed.

In May of 2014, D'Alessandro hired Ms. Ebanks as a "deputy director" of HR at a salary of $115,000. Again there was no posting for that position. Ebanks had worked at DC-37 for many years before moving to NYCERS. Fourteen months later, Ebanks salary was increased to $131,000.

On a side note, It appears that Ms. Ebanks lives with Michael Musuraca. For many years Musuraca represented DC-37 on the NYCERS Board of Trustees. He was on the Board in 2005 when the Board appointed D'Alessandro. In 2009 he went work for a private equity firm, Blue Wolf Capital, but not before he voted to hire Blue Wolf as private equity firm for NYCERS. Here is a little more background on Blue Wolf.

Both of these hirings follows the same pattern that D'Alessandro used when she hired Diane Bratcher.

As of June 30, 2015, the NYCERS HR division was a direct report to the executive director, Diane D'Alessandro. This has been the case since 1998 when I first created the HR division. As of June 30, 2015 Ms. Felita DiLorenzo (aka Baksh/Ramsami) was running the HR division and reported to D'Alessandro.

NYCERS now claims that Ms. Ebanks is the HR director and reports to Ms. Chiarello, the NYCERS deputy executive director. That is the number two person in the agency.

As part of this story, in July of 2013, NYCERS entered into a contract with a small two person firm out of Tempe, AZ. The name of the firm is CWI Coaching & Consulting. The principals of the firm are Bruce and Kathleen Clark. Ms. Clark is the main contact with NYCERS. It is unclear how CWI was chosen to do whatever they are supposed to be doing for NYCERS. The original contract was for $80,000 but it was modified upwards during the year to $130,000.

Ms. Clark claims to have been introduced to Ms. Carton in NY in 2013. Based on Ms. Clark's response to whether D'Alessandro introduced the two, it is reasonable to assume that D'Alessandro made the introduction.

Shortly after that Ms. Carton started working with Ms. Clark on the NYCERS project. That may have the reason for the budget modification.

NYCERS actually paid CWI $129,736 in FY-2014 and $99,965 in FY-2015.

Going forward NYCERS has an open contract with CWI for the FY-2016 through FY-2018 period. The quoted cost for FY-2016 is $140K,000, for FY-2017, $161,000, and for FY-2018, $185,000.

Based on a December 10, 2015 Board of Trustees presentation by the IT deputy director, Liz Reyes, CWI appears to be a big player in the $132M Legacy Replacement Project. Needless to say, Reyes is in the same boat as D'Alessandro.

Renewal of the Lease for the NYCERS Disaster Recovery Site at Long Island City

In late spring of 2006 NYCERS signed a ten year lease for a disaster recovery site in Long Island City. It comes up for renewal this year.

As of today NYCERS still does not have a Certificate of Occupancy for the site. This means that there has never been a full fledged test of a recovery plan since legally workers are not permitted on the site. I have no idea how NYCERS can safely run their file backup system at this site when there is no permanent staff at the site. As far as I know there is no plan B.

NYCERS has an option to renew the lease for up to two five year periods.

What do you think D'Alessandro will do? What do you think the trustees will do?

Monday, January 4, 2016

NYCERS Investment Performance and Fees for FY-2015

As of June 30, 2014 NYCERS had a closing balance of $54,422.0M.

As of June 30, 2015, one year later, NYCERS had a closing balance of $54,889.3M

During FY-2015 NYCERS had revenue of $5,089.1M and expenses of $4,571.0M. That is a net inflow of $518.1M.

After the net inflow is subtracted from the June 30, 2015 closing balance, the adjusted FY-2015 closing balance is $54,371.2M. That is a decrease in assets for the year of $50.8M. This is essentially a no change in the value of the assets for the year.

During FY-2015, the S&P 500 index increased from 1960.23 to 2063.11 and the Barcaly's US Aggregate Bond Index increased by 1.86%. With a 70% stock/ 30% bond allocation, you should have had a target of 4.12% increase in assets for FY-2015.

At no point have the NYCERS Trustees made a public statement explaining why the fund performed so poorly or what they are going to do about it.

In conjunction with this poor performance NYCERS "reported" paying $231.8M in investment expenses for FY-2015. In FY-2014 NYCERS "reported" paying $184.6M. Listed below are the specifics of the $231.8M:

  1. $28.4M : general stock & bond managers
  2. $ 2.9M : Emerging managers - US equity
  3. $ 0.4M : Emerging managers - US Fixed inc.
  4. $ 7.0M : Junk bond managers
  5. $ 2.3M : Convertible Bond managers
  6. $40.4M : PE managers
  7. $12.7M : PE Opportunity & Global FI
  8. $31.7M : International Equity managers
  9. $17.8M : RE managers
  10. $39.8M : Hedge fund managers
  11. $ 3.5M : investment consultants
  12. $ 0.1M : legal fees (investment)
  13. $13.0M : PE organizational fees
  14. $ 5.1M : RE organizational fees
  15. $ 4.5M : PE Opp/Global organizational fees
  16. $15.5M : Foreign taxes
  17. $ 2.1M : Comprtroller's subsidy
  18. $ 4.5M : Miscellaneous

No one knows who the organization fees are paid to. That is $22.6M off into the great beyond.

Don't you wonder what the miscellaneous stuff was that the $4.5M bought?

What will the Comptroller's subsidy be in FY-2016 what with all the huge pay increase that the "investment" staff got in August?

This is all such obvious insanity. None are so blind as those who will not see.

Friday, January 1, 2016

Big Trouble with NYCEwork

On December 11, 2015 NYCERS filed a breach of contract claim against enChoice, a firm that NYCERS had hired in FY-2008 to implement a replacement system for its then current document imaging system. NYCERS is seeking $1,444,570 in damages plus interest and costs.

Last May I wrote about the lunacy at NYCERS when it comes to Information Technology (IT) issues. I particularly pointed out the serious problems that NYCERS was having with its new document management/workflow system. The following are NYCERS and my comments:

Comment from NYCERS:

RECENT HISTORY Over the past nine years, NYCERS has made significant infrastructure improvements. Document Management NYCERS continues to ensure the preservation and security of all vital records and to promote an environmentally sound approach to document management. This effort includes the incorporation of all incoming documents into the NYCEWORK system in an electronic format and the ongoing digitization of historical paper documents.

In 2014, NYCERS prepared, scanned and indexed over 200,000 incoming documents and converted over 1 million historical records into digital images. Since the inception of the document management project, over 38 million paper records have been imaged, saving approximately $600,000 in document storage fees.

My analysis:

From this quote you would think that document management was introduced during the last few years. In fact, it was there when D'Alessandro walked in the door. The system in place at that time used a software package called Staffware. It was working well but it was being stressed by the volume of documents that NYCERS was dealing with. It actually continued to function up until 2014 when a new software package, Filenet/NYCEWORK, was finally put into production. I wonder where the $600,000 in saved storage fees came from?

Unfortunately, while Staffware needed to be either upgraded or replaced, Filenet runs significantly slower than Staffware did. That in turn has created incremental delays at every step of every process in the agency. It has created havoc with the production levels for all major functions in the agency.

In FY-2008, NYCERS hired the company enChoice to do the upgrade. enChoice is an IBM partner specializing in implementing IBM's document management software, FileNet. NYCERS labeled the upgrade effort "NYCERwork". Over the next four years the NYCERS IT director, Liz Reyes, had enChoice working on this project.

NYCERS paid enChoice the following amounts:

  • $1,609,278 in FY-2008
  • $ 327,141 in FY-2009
  • $ 267,465 in FY-2010
  • $ 25,941 in FY-2011
Then, in NYCERS FY-2013 Annual Report, the agency's executive director, Diane D'Alessandro, made the follow statement:

NYCEWORK: A NEW DOCUMENT MANAGEMENT/WORKFLOW SYSTEM

NYCERS recognizes the imperative to update and link systems that process memberships, evaluate service, calculate pensions, and handle requests for account information as efficiently as possible. In June 2012, after extensive preparations, we launched NYCEwork, our document imaging and workflow system. NYCEwork maintains images of every document in a member’s lifecycle, beginning with the membership application and ending with the final payment of a retirement allowance to the member or survivor benefit to the designated beneficiary. In order to create a complete, imaged record and continue all of the ongoing work that business units handle, the IT team had to ensure that all active and closed work items and every relevant document were transferred from the outmoded Staffware system into NYCEwork, while at the same time accepting new forms and applications for the business units to process.

With the filing of the suit it is now clear to everyone that Reyes failed to properly manage the NYCEwork project.

What is really frightening about this failure is that the suit in no way fixes the problem. The day to day production problems are still there. There are threats to the integrity and security of the documents that have been committed to NYCEwork. Based on NYCERS claim to storage savings I have to asume the original documents have been destroyed. In addition, I know NYCERS's backup and recovery systems are totally ineffective.

And this is the management that wants to spend $132M over five years to do do an IT legacy upgrade.

The NYCERS trustees need to replace the senior management at NYCERS. If they don't, five years from now they will be looking at more breach of contract suits, more broken systems, a $132M in losses (if they are lucky), and five lost years.

Doesn't it ever occur to anyone that D'Alessandro worked for Shelley Silver before she came to NYCERS and that Martha Stark appointed her.

Note:

This is not the first contract suit that NYCERS has brought against an IT firm. At the same time enChoice was ramping up in FY-2008, NYCERS was also working with IBM ($2.36M over two year) to convert the NYCERS file system to a DB2 database system. Reyes again failed with this project and NYCERS subsequently sued IBM. Clevewrly IBM settled with NYCERS by giving them a 20% discount on the purchase of hardware and services capped at $1M for a fixed period. NYCERS was only able to utilize $250,000 of the discount before the time period lapsed. These girls are really on the ball.

What is clear is that over the last 10 years the NYCERS administration has failed to put in place a modern relational database system for its applications.