Private Equity: Disclosure (lack of) and Cutting Losses

In September, 2011 the NYCERS trustees hired an new investment consultant for private equity investments. The new firm is StepStone Group LLC. They replaced Pacific Corporate Group who had been under contact since 1998 when Hevesi was Comptroller.

At the September 25, 2012 NYCERS Board of Trustees investment meeting, StepStone issued a 36 page report on the March 31, 2012 status of the NYCERS private equity investments. The private equity reports always lag the reporting of the more traditional investments.

The copy of the report included in the "revised" public agenda for the meeting was missing the last 10 pages of the report which comprised two exhibits labeled:

--- IA) Portfolio Investments by Status
--- IB) Performance by Vintage Year

The "revised" agenda is available on the Comptroller’s web site. I suspect that the revision was due to the fact that the staff at the Comptroller’s office forgot to redact the information showing how bad the situation is with respect to the NYCERS private equity investments.

From my previous experience of requesting investment information under New York State F.O.I. Law, NYCERS purposely hides specific performance information about the private equity managers. NYCERS also hides information about the real estate managers. NYCERS is required by the NYS Freedom of Information Law to provide this information to the public. You can read a detailed advisory opinion (OML-AO-3931) from the State of New York Department of State - Committee on Open Government addressing this specific issue.

Of course, if an agency is not sued in court for violating the NYS Freedom of Information Law, it can effectively violate the law with impunity.

On a more basic level, the report was paid for with the members’ and retirees’ money. The report belongs to them and not the trustees, some of whom are not even participants of the pension system. StepStone tries to claim that the report is confidential but that is not possible when functioning in the public sector as indicated in the advisory opinion referenced above.

Sale of eleven PE partnerships

Equally disturbing is the start of the sale of NYCERS private equity partnerships in the secondary market.

In the part of the report released to the public StepStone notified the trustees of the sale of eleven of the 141 partnerships in the secondary market. The sale was done in two parts. The first included five partnerships sold at a 6.6% discount. The second included the remaining 6 sold at a 5.4% discount.

Stepstone does not indicate why they were sold. It does not indicate why these eleven were chosen. It does not indicate whether these eleven were highly rated assets or of inferior quality. It does not provide a cash flow history of any of the eleven partnerships. Without the cash flow history it is impossible to determine the final performance of any of the eleven partnerships.

StepStone does not detail the financial impact of the quoted discount of the two sales. It focuses on the idea that the sales have released NYCERS from an unfunded liability of $129.5M. This sounds a lot like cutting your losses.