Monday, January 13, 2020

Sunshine and GASB 72

As of FY-2015 NYCERS was required to report a breakdown of the reliability of the reported value of the NYCERS investments. This reporting requirement is based on GASB Statement No. 72. GASB is the Government Accounting Standards Board, comparable to the private sector accounting board, FASB. You can see the history of NYCERS GASB 72 reporting in the table below.

NYCERS describes this requirement as follows:

GASB Statement No. 72, Fair Value Measurement and Application requires the Funds to use valuation techniques which are appropriate under the circumstances and are either a market approach or income approach. GASB 72 establishes a hierarchy of inputs used to measure fair value consisting of three levels.

Level 1 inputs are quoted prices in active markets for identical assets or liabilities.

Level 2 inputs are inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs, and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.

GASB 72 also contains note disclosure requirements regarding the hierarchy of valuation inputs and valuation techniques that was used for the fair value measurements. There was no material impact on the funds financial statements as a result of the implementation of GASB 72.

In plain English, Level 1 is based on price quotes for stocks published on the public stock exchanges. This makes Level 1 assets very liquid. Level 2 is based on reported values for bonds and fixed income instruments. This level has market access but not as easy as Levl 1.Level 3 is based on estimates from the general partners of limited partnerships for non publicly traded investments. Level 3 has no real market access.

NYCERS makes no comment on the Net Asset Value group but it looks like this represents hedge fund assets that NYCERS is trying to clear off its books.

Level 3 is the most risky investment class, the most expensive to manage, least reliable and it appears the least productive.

In FY-2019 NYCERS paid the following investment management fees:

  1. $66.1M for Level 1 assets of which $26.5M was for foreign taxes.
  2. $20.3M for Level 2 assets
  3. $140.5M for Level 3 assets

Ranking of NYCERS Assets via GASB 72
Fiscal Year Level 1 Assets (in thousands) Level 2 Assets Levle 3 Assests Assets at Net Asset Value/td> Total
FY-2014 $27,028,432 $17,437,139 $10,642,729 $0 $55,108,300
FY-2015 $27,707,076 $17,175,757 $10,796,968 $0 $55,679,801
FY-2016 $27,330,534 $15,924,399 $10,377,791 $1,123,861 $54,756,585
FY-2017 $32,312,375 $17,461,428 $10,914,801 $95,987 $60,784,591
FY-2018 $31,219,885 $23,282,843 $10,880,803 $66,675 $65,450,206
FY-2019 $34,128,310 $22,782,825 $11,534,369 $6,979 $68,452,483

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