Sunday, December 1, 2013

The New Chair of the NYCERS Board of Trustees

Mayor de Blasio will soon be appointing a new commissioner for the Department of Finance. The position, unfortunately, has a tradition of being filled with political operatives as opposed to public finance/taxation professionals.

The commissioner is, ex officio, a trustee of both the city police and fire pension funds.

The mayor will also be appointing his representative on both the NYCERS and TRS Boards of Trustees. The Mayor can appoint anyone to these two unpaid positions. On the NYCERS board the mayor's representative is the statutory chair. At TRS the chair is elected by the trustees.

Because of the mayor's enormous political and budgetary power, the mayor's representative is the most important member of the NYCERS Board of Trustees.

Prior to 1990, the power structure of the NYCERS Board of Trustees, to a large extent, mirrored the Board of Estimate which was the original governing body of NYCERS up until 1968. With the destruction of the Board of Estimate in 1990 the mayor's power within the city increased radically. That was alos true at NYCERS.

While the mayor's representative has only one vote, it is the most important vote. Even a dissenting vote from the chair on an investment decision is a warning signal to the other trustees.

Mayor Bloomberg's appointees to the NYCERS and the TRS Boards have been a disaster. The mayor has constantly complained about the rising costs of pensions during his three terms but his representatives have failed to control investment costs or institute a sound investment strategy that earns a market rate of return.

Mayor de Blasio's appointee will have the challenge of bringing the annual investment costs for the five pension funds down from the $472.5M (FY-2013) to a rational annual amount of $100M (FY-2002) along with pushing to adopt an index/core strategy which has the potential to earn on average an additional $1.5B a year in asset value for the five city pension funds.

With respect to NYCERS here are some operational recommendations that I hope the mayor's new representative considers:

  1. Hire a totally independent investment consultant with no revenue connections to the investment management community.
  2. Make all investment contracts public record and provide every trustee with a copy of each contract. It is most likely that the trustees have never seen any of these contracts.
  3. Make the Board's investment meetings totally open for all items unless the Law Department gives written direction that a specific item must be dealt with in executive session.
  4. Put in place a tight accounting control of the invoice/payment process for all investment expenses and publicly report all payments to the trustees at each meeting and once a year provide the trustees with a copy of the final annual reconciliation of investment expenses for the year.
  5. Utilize the NYCERS web site to provide public disclosure of investment data and decisions. The Comptroller's attempt in this area has failed to deliver on the information it promised to provide.
  6. Make available to the trustees the full cash flow history of each private equity, real estate, and hedge fund contract on a real time basis. (NYCERS web site)
  7. Explore the feasbilty of dropping of all asset classes that do not fit within a index/core strategy.
  8. Set 10 basis points as the general limit on fees for all investment contracts. I suspect that this will be a very effective screen for unproductive investments.
  9. Almost certainly drop all emerging manager contracts unless their fees are brought under the 10 basis point limit.
  10. Review the quality of NYCERS's senior administrative management. This staff was put in place while Martha Stark was chair.
  11. On an annual basis provide the trustees with a copy of a complete reconciliation of administrative expenses, This report was dropped in FY-2010. (NYCERS web site)
  12. Radically upgrade the agency's monthly production report to include open and closing transaction balances along with incoming work, work completed during the month, and aging information on the outstanding work. (NYCERS web site)

1 comment:

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