Monday, November 9, 2015

Changing Stories about the 2015 Pension Investment Fee Explosion

On Nov. 3, 2015 I pointed out the investment fee explosion for the five NYC pension funds and the Comptroller's lame comments about the fees and the miserable performance of the pension funds. I also made the comment that I suspected "the Comptroller's Office was in shambles when it comes to accurate records of the payment of investment fees."

On Nov. 4, 2015 the Comptroller was quoted in P&I with a new story about why the fees are so high. It's no longer that the assets have increased or that they are being more comprehensive. The following is the the new excuse.

“Since we started the hard work of reforming the investment environment 22 months ago, we've uncovered layer after layer of Wall Street fees,” city Comptroller Scott Stringer said Wednesday in an e-mail. Mr. Stringer is the fiduciary for the five pension funds that make up the $162.9 billion retirement system.

“In our review of this year's financial report we've found even more charges — millions of dollars in 'incentive fees' — that had gone largely unreported in previous reports,” Mr. Stringer added.

“While we believe we've captured the bulk of the fee data, we will continue to refine our reporting and transparency processes until we have a complete picture of all fees and expenses paid,” said Eric Sumberg, a spokesman for Mr. Stringer, in an e-mail. “The comptroller has made transparency and fee disclosure priority issues for his administration.”

It has been clear for years that the investment fee problem is out of control. $522M is an obscene amount to pay for investing the assets of the five city pension funds. In the past I have been clear that 10 basis points should be the target level for fees.

Now this year we learn that the situation is worse ($705M) and not totally nailed down.

The obvious questions are:

  • Now that the Comptroller has uncovered all these layers of fee, why hasn't he reported all the details?
  • How did the fees go unreported in the first place?
  • How were the unreported fees paid?
  • how would you describe the unreported fees?
  • Who received the unreported fees?
  • What are the dollar amounts of the fees and the recipients?
  • How do you know that you have found all the fees?
  • Are the fees necessary given the miserable performance of the managers?
  • How accurate is the 2014 CAFR which the Comptroller released last year?
  • In general how reliable are any of the figures that the Comptroller has reported? Maybe this why the NYS DFS can never get the pension audits done. The black hole is too deep.

The final and most crucial question is, will the Comptroller release all the pension investment contracts to the public or will he continue to keep them secret and hidden from the public in spite of the fact that they are paid with taxpayer and employee money? When a contract has a clause that is prohibited by law, the contract is void. Of course, one of the parties must take action to void the contract.

Note: For the record the five funds do not have $162.9B in assets. They have $145.7B as of June 30, 2015. The TRS & BERS TDA's have $28.9B and the Police, Fire, and Correction Force VSFs' have $3.8B. The TDA and VSF funds are not available for covering the pension liabilities of the five funds. The Comptroller's Office always likes to quote the combined amounts but it is not accurate.

Note: Comptroller Stringer has been a trustee of NYCERS since 2006. Of course, he is not the only trustee.

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