All the King's Horses...

As of December 31, 2012 NYCERS had 263 open contracts with investment managers. For details see pages 103 and 119-124 of NYCERS FY-2012 CAFR .

In the table below I have listed 12 of these managers along with the assets they have under management and the fees NYCERS paid them in FY-2012. I picked these managers because not only are they sufficient to manage the total NYCERS portfolio, they are significantly more effective and efficient than the mob of plus 230 current managers. These twelve managers represent the index/core strategy I referred to in a previous posting.

It is always enlightening to see specific details about big picture issues. You can get clear sense of what is going on. Of course, limiting the investment activity to these twelve managers would have a profound effect on the broad investment community. What is good for NYCERS, is not necessarily what is good for "Wall Street".

These 12 managers handle approximately 28.5% of NYCERS assets but their fees represent only 3% ($3.88M) of the total $130.81M paid in investment fees in FY-2012. It is reasonable to estimate that if they handled all of NYCERS assets, the annual fees would run about $10M. Total returns would be higher and the internal management at the Comptroller's Office and NYCERS would be far simpler and transparent.

The Comptroller wouldn't have to worry about replacing his departing private equity specialist. It is highly unlikely any competent investment specialist would sign up for the last 7 months of Liu's term.

NYCERS - The Index/Core Strategy Managers

Manager	Category	Asssets: December 31, 2012	Fees: FY-2012
Blackrock R3000	Russell 3000 Index	$3,710.66M	$184,173
State Street R3000	Russell 3000 Index	$1,803.35M	$304,439
Sate Street Global Advisors	EAFE (developed international) Index	$1,119.15M	not reported
Blackrock EM	Emerging Markets Index	$1,078.31M	$99,331
Blackrock	Government & Agency Bonds	$425.68M	$186,104
PIMCO	Government & Agency Bonds	$460.52M	$186,881
Blackrock	Mortgage Bonds	$675.25M	$305,410
Neuberger Bermann	Mortgage Bonds	$733.52M	$511,144
PIMCO	Mortgage Bonds	$760.26M	$350,840
Barrow Hanley	Corporate Bonds	$562.92M	$642,933
Taplin, Canida	Corporate Bonds	$580.87M	$349,386
T. Rowe Price	Corporate Bonds	$678.66M	$648,665

Note: A "not reported" item is an accounting error on a financial report (accrual method).

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Listed below is a sample of some of the investment managers under contract with NYCERS who are unnecessary for the effective performance of the NYCERS portfolio. I'll bet the trustees have no idea that there are some many mangers and how much they are being paid.

NYCERS - Some of the Unnecessary Investment Managers

Manager	Category	Asssets: December 31, 2012	Fees: FY-2012
Research Affiliates	Domestic Equity Index	$912.84	$1,293,845
Attucks	Domestic Equity (Minority/Women)	$216.49M	$1,179,486
Capital Prospects	Domestic Equity (Minority/Women)	$51.44M	$268,539
Progress Management	Domestic Equity (Minority/Women)	$281.14M	$1,468,541
F.I.S. Managers	Domestic Equity (Minority/Women)	$166.85M	$828,940
Walden Asset Mgnt	Domestic Equity (Environmental)	$253.86M	$308,333
Breeden Capital Mgmt	Domestic Equity (Environmental)	not reported	$1,118,833
Progress Management	International Equity (Minority/Women)	$42.79M	$310,251
Ballie Gifford	International Equity	$432.79M	$1.037,943
GE Asset Management	International Equity	$109.52M	$1,162,633
Mondrain	International Equity	$239.08M	$1,214,513
Sprucegrove	International Equity	$529.97M	$1,047,245
Philadelphia	International Equity	$315.79M	$1,373,394
Thornburg	International Equity	$570.97M	$2,248,851
F&C SGE	International Equity (Environmental)	$55.60M	$337,259
Generation GE	International Equity (Environmental)	$133.85M	$1,772,148
Governance for Owners	International Equity (Activist)	$254.74M	$841,776
Acadian	Emerging International Equity	$318.37M	not reported
Ballie Gifford	Emerging International Equity	$334.09M	$2,501,886
DFA	Emerging International Equity	$558.15M	$1,519,145
Eaton Vance	Emerging International Equity	$569.31M	$554,824
Permal Asset Management	Hedge Fund	$254.98M	$1,452,171
Blue Trend	Hedge Fund	$115.19M	not reported
Brevan Howard	Hedge Fund	$199.42M	not reported
Brigade Lev Cap Str	Hedge Fund	$116.16M	not reported
Caspian Select Cf	Hedge Fund	$88.31M	not reported
D.E. Shaw	Hedge Fund	$227.95M	not reported
Aisling Capital II	Private Equity	$4.28M	$71,973
Aisling Capital III	private Equity	$6.27M	$274,905
Allergra	private Equity	$0.06M	not reported
American Sec Partners VI	private Equity	$24.83M	$685,718
Ampersand 2006	private Equity	$24.42M	not reported
Ampersand 2009	private Equity	$16.37M	not reported
Apollo Investment Fund V	private Equity	$11.16M	not reported
Apollo Investment Fund VI	private Equity	$92.17M	not reported
Apollo Investment Fund VII	private Equity	$82.90M	$1,205,026
Ares Corp Opp	private Equity	$18.29M	$121,554
Ares Corp Opp II	private Equity	$26.48M	$209,001
Ares Corp Opp III	private Equity	$70.96M	$1,111,806
Ares Corp Opp IV	private Equity	$3.86M	not reported
Axa Secondary Fund V	private Equity	$56.56M	$1,368,478
BC European Capital	Private Equity	$47.70M	$2,092,480
BDCM Opportunity Fund	private Equity	$7.95M	$395,168
BDCM Opportunity Fund II	private Equity	$29.87M	$399,327
BDCM Opportunity Fund III	private Equity	$14.66M	$675,930
Blackstone Capital Ptnrs IV	Private Equity	$15.88M	not reported
Blackstone Capital Ptnrs V	Private Equity	$9.38M	$553,449
Blackstone Capital Ptnrs VI	Private Equity	$26.76M	$1,136,958
Blackstone Mezzanine Ptnrs II	Private Equity	$11.62M	$245,257
Blue Wolf Capital Fund II	Private Equity	$17.18M	not reported
EQT VI	Private Equity	$25.24M	$1,674,292
Fourth Cinven Fund	Private Equity	$68.06M	$901,122
Green Eq Inv VI	Private Equity	$14.6M	not reported
Landmark Equity XI	Private Equity	$10.78M	not reported
Landmark Equity XIV	Private Equity	$59..39M	not reported
Landmark Fund XIII	Private Equity	$25.40M	not reported
New Mountain Ptnrs	private Equity	$1.86M	-$231,107
New Mountain Ptnrs II	private Equity	$27.50M	-$450,855
New Mountain Ptnrs III	private Equity	$54.50M	$1,424,805
Onex Ptnrs III	private Equity	$7.95M	$1,089,789
Quadrangle Cap Partners II	Private Equity	$42.57M	$503,573
Ripplewood Partners II	Private Equity	$8.89M	$21,583
Tailwind Capital	Private Equity	$1.88M	$606,463
Vista Equity III	Private Equity	$31.82M	$336,956
Vista Equity IV	Private Equity	$33.68M	$1,483,426
Wellspring Cap Ptnrs V	Private Equity	$9.09M	$908,561
Welsh Carson Anderson & Stone XI	Private Equity	$31.42M	not reported
Yucaipa American Alliance FD	Private Equity	$65.58M	$637,938
Yucaipa American Alliance FD II	Private Equity	$150.53M	$423,574
Yucaipa Corp Initiative II	Private Equity	$22.40M	$624,375
Amer Value Ptnrs I	Real Estate	$24.57M	-$326,904
Apollo Europe III	Real Estate	$25.97M	$523,333
Apollo RE Fund V	Real Estate	$10.76M	$278,780
Blackrock Carbon III	Real Estate	$31.18M	not reported
Blackstone RE Ptnrs EU III	Real Estate	$37.09M	$750,000
Blackstone IV	Real Estate	$17.13M	$317,794
Blackstone VI	Real Estate	$131.89M	$1,466,194
Blackstone VII	Real Estate	$77.399M	$1,784,556
Brookfield Strategic RE Ptnrs	Real Estate	$12.26M	not reported
Canyon Johnson Urban Fund	Real Estate	$0.01M	-$19,101
Canyon Johnson Urban Fund II	Real Estate	$19.99M	-$133,311
Canyon Johnson Urban Fund III	Real Estate	$22.50M	$300,000
Capri Urban Investors	Real Estate	$39.36M	$744,550
Carlyle R.P. Fund V	Real Estate	$14.49M	$636,344
Carlyle Realty VI	Real Estate	$22.12M	$118,142
Colony Realty Ptnrs II	Real Estate	$8.75M	not reported
H/2 Special Opportunity Fund II	Real Estate	$12.56M	not reported
Heitman America	Real Estate	$138.63M	$616,535
JPM Strategic Property Fund	Real Estate	$165.35M	$1,464,228
JPM Special Situation Fund	Real Estate	$72.94M	$1,117,013
Silverpeak RE Ptnrs III	Real Estate	$9.16M	$300,510
The City Investment Fund	Real Estate	$92.15M	not reported
Thor Urban Property Fund II	Real Estate	$26.59M	$1,030,292
Tishman Speyer/Citigroup	Real Estate	$38.60M	not reported
UBS Trumbull Property Fund	Real Estate	$186.05M	$1,263,748
Urban America II	Real Estate	$13.49M	not reported
Walton St RE Fund VI	Real Estate	$47.12M	-$62,722
Westbrook RE Fund VII	Real Estate	$30.85M	$498,359
Westbrook RE Fund VIII	Real Estate	$47.77M	$751,032
Loomis Sayles	Enhanced Yield Bonds (Junk)	$547.40M	$1,933,194
Shenkman	Enhanced Yield Bonds (Junk)	$249.91M	$1,015,023
T. Rowe Price	Enhanced Yield Bonds (Junk)	$485.14M	$1,400,339
Advent	Convertible Bonds	$275.87M	$1,330,140
Lord Abbett	Convertible Bonds	$144.78M	$326,330
Victory	Convertible Bonds	$146.32M	$448,484
Comptroller's Payroll	subsidy	$0.00M	$1,983,615
Unknown	Private Equity Organizational Costs	$0.00M	$7,893,741
Unknown	Real Estate Organizational Costs	$0.00M	$4,770,660
Aksia	consultant	$0.00M	$540,867
PCG	consultant (private equity)	$0.00M	$463,888
Stepstone	consultant (private equity)	$0.00M	$916,667
Torreycove	consultant	$0.00M	$456,654
Townsend Group	consultant (real estate)	$0.00M	$384,790

Note: The following is a great NY Times article on how trustees can lose their way.

Denial of Legal Benefits: Incompetence and Arrogance

It is difficult to see NYCERS treat disabled retirees with contempt when the agency has statutory backing for its heartless and sloppy actions. It is absolutely despicable when NYCERS does this without legal backing.

In 2009, I wrote about about errors in the newly issued NYCERS Tier 4 summary plan description (SPD), in particular filing for retirement under Tier 4. At the time the issue was hypothetical. I now have come across a real live person who NYCERS is denying his legitimate right to retire under Tier 4.

This person is currently disabled and receiving a Social Security disability benefit. After working for the city for 16 years he left the city in 2000. He is now 55.

NYCERS has refused to accept his Tier 4 retirement application and is forcing him to apply for retirement under Tier 3. The benefit for this person at age 55 under Tier 3 & 4 will be the same, however, under Tier 3 this person's benefit will be reduced at age 62 by 50% of his Social Security retirement benefit.

The Tier 4 & 3 benefit for this person is only 19.4% of his three year average earnings with a 27% reduction for early retirement at age 55. Assuming this person's three year average salary was $50,000, his annual benefit would be $9,700 at age 55. At age 62, however, the Social Security offset could easily be $8,000 per year. This drops the person's benefit and NYCERS liability to $1,700 a year when this person turns 62. It is also possible that the offset could obliterate the Tier 3 benefit and in turn, put the pensioner's health insurance coverage at risk.

The Tier 4 benefit is not what you would call a gold mine. In fact, it is typical of a NYCERS pension for average city worker. NYCERS, however, is flaunting the law and depriving this man of his legal benefit. Over the years I have seen NYCERS and the city try to save money by denying legal rights to both part-time and female workers but let a former police commissioner get pension service credit for double dip Section 211 service.

To obtain his rightful benefit, this member will have to sue NYCERS. Along with the resulting legal expense, it is not certain that he will win. At least, I would testify that as of 2005 this member was eligible for a Tier 4 early retirement benefit and that, in my opinion as the executive director at the time the law was passed, the current executive director is illegally denying this person his statutory Tier 4 retirement benefit.

When Will the City Wake Up?

About a month ago I wrote about NYCERS's miserable investment performance over the last 13 years in contrast to a simple index(stocks)/core(bonds) strategy. It was so bad that I wondered how the other city pension funds did. So I did a comparable analysis of the performance of TRS and the Police Pension Fund, the two other large systems. You can check the detailed spreadsheets for NYCERS , TRS , and Police with the highligthed links.

TRS and Police did almost as bad as NYCERS as seen in the first table below. The analysis, however, did surface an issue when looking at the three systems together. They had significantly different income flows over the 13 year period. NYCERS & TRS had negative income flows, while Police had a positive income flow.

This positive flow hides the poor investment performance for Police. In contrast, TRS's large negative flow makes its investment performance look worse than it really is.

The last column in the first table shows the new 7% pension liability amount computed by the NYCERS/TRS actuary.

If the investment strategy and the funding (see table 2) were better, NYCERS and TRS would be in great shape, even without the benefit of the new Tier 6 benefit limits. Police has a much deeper problem but upgrading the investment strategy would be a big step forward in getting the problem under control.

NYCERS - TRS - Police Pension Fund Investment Performance: 2000 - 2012

System	Closing Balance	Closing Balance	Income Flow	Closing Balance	Actuarial Liability
****	Actual	Index/Core	2000-2012	Zero Income Flow	2012
				Index/Core	(7%)
NYCERS	$42.8B	$55.5B	-$4.4B	$63.2B	$62.9B
TRS	$32.8B	$41.0B	-$8.8B	$53.5B	$55.1B
Police	$25.5B	$31.2B	$4.5B	$26.1B	$38.1B

NYCERS - TRS - Police Pension Fund Benefits & Contributions: 2000 - 2012

System	Benefits paid	Employer Contributions
NYCERS	$38.9B	$15.6B
TRS	$41.6B	$18.6B
Police	$20.2B	$16.5B

NYCERS - TRS - Police Pension Fund Retiree & Members: 2011

System	Retirees	Vested Members	Inactive Members	Active Members
****	2011	2011	2011	2011
NYCERS	135,468	8,914	18,969	182,021
TRS	74,064	8,932	10,938	109,636
Police	45,755	780	1,643	33,705

Note: Since July 1, 2009 Police and Fire pension benefits for new employees have been reduced to Tier 3 levels.

Note: Since April 1, 2012 all NYS pension benefits for new employees have been reduced by Chapter 18 of the Laws of 2012 (Tier 6).