Assest Allocation
The most important decision that the NYCERS trustees make is the investment asset allocation of the funds of the trust. The asset allocation is a list of types of investments and the percentage of funds assigned to each type or class. Currently the trustees have chosen a complicated and very expensive allocation.
The current list of classes and percentages is as follows:
- US Equities -28.6%
- International Equities – 11.5%
- Emerging Market Equities – 4.9%
- Fixed Income – Structured – 20.9%
- Fixed Income – High Yield – 4.1%
- Fixed Income – TIPS -3.3%
- Fixed Income – Converts – 1.8%
- Private Equity – 10.5%
- Private Real Estate7.3%
- Private Infrastructure – 2.4%
- Private Credit – 4.4%
As a reference the allocation in 2000 was as follows:
- US Equities -56.2%
- International Equities – 14.9%
- Fixed Income – Structured – 24.8%
- Fixed Income – High Yield – 4.0%
- Private Equity – 0.1%
The NYCERS Annual Finacial Statement
Each year, NYCERS issues a financial statement which includes accounting statements and investments results and costs. In particular, the report posts the rate of return for the entire portfolio and each allocation class. Also posted are the investment expenses for the year.
Rate of Return
In the first table below , “Rate of Return” , there is a list covering 1998 to 2023 of
- rates of return (ROR) for the full NYCERS portfolio and
- the ROR for the two classes, 1) US Equities and 2) Fixed Income – Structure.
You will see that since 2002 the average portfolio ROR is 7.13% (22 years), while the average ROR for the two classes, US Equities and Fixed Income – Structured with a 67%/33% allocation is 7.73% over the same 22 years. So how would this difference translate into a change in the NYCERS annual closing balances? I will try to give you an estimate below.
Notes:
- In 2007, both private equity and investment expenses started a steady long term increase.
- In 2015, NYCERS started to report asset rate of returns net of fees. Prior to that returns were reported gross of fees which inflated returns.
Closing Balances
In the second table below, “Closing Balance for NYCERS”, you will see that
- the closing balances for 2001 at $37.30 billion and
- the closing balance for 2023 at $81.4 billion.
That is an average increase of 4.11% over 22 years. This is less than the average portfolio ROR, 7.13%, because each year a part of portfolio return is used to pay benefits and expenses for that year.
You will also see in this table the investment expenses over the 25 years from 1999 to 2023.
Simulated Closing Balances
In order to gauge the effect of using the simple two class asset allocation, I simulated the closing balances from 2002 to 2023 using the two-class investment strategy, I used the closing balance for 2001, $37.3 billion, as the starting base and created the simulated closing balances for each year as follows (see Closing Balance table below):
-
for each year I added the ROR for the actual closing balance to the annual delta created by subtracting the portfolio ROR from the ROR of the two-class strategy and
-
then multiplying the previous simulated closing balance by the sum of the two percentages plus one to arrive at the simulated closing balance for that year.
In the early years, the portfolio allocation kept ahead of the two-class strategy but by 2013 the portfolio strategy started to steadily fall behind the two-class strategy. By 2023 the closing balance of the two- class strategy was at $91.59 billion while the portfolio closing balance was only at $81.4 billion. Remember that 2015 is the year that NYCERS stared reporting ROR net of fees.
It is reasonable to suspect that the difference between the two strategies may be greater than the $10 billion.
Private Equity and Real Estate LLC's
As of 2007, you will see in the Rate of Return table that the amount of money being allocated to private equity (2018 - real estae LLC) started to grow significantly. The private equity and real estate classes are very expensive. There is also an issue with their assigned values in the actual NYCERS closing balances. The quoted values of these two assets are very
unreliable because there are no public markets for these asset classes. The two-class strategy, however, does not have this problem because they both have public markets trading their assets.
Investment Expenses
Finally, if you focus on the investment expense over the 2002 to 2023 period in the Claoing Balance table, you will see that NYCERS paid a total of $3.9 billion of which $2.0 billion was incurred in the last eight years. My conservative projection of the investment expense for the same period using only the two classes is $1.3 billion, a $2.6 billion difference. I based my estimate on the 2002 ratio of investment expenses to the closing balance, 1.14%.
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NYCERS Rate of Return from 2002 to 2023
| Fiscal Year
| Total Portfolio ROR
| Eq - FI only ROR (67%/33%)
| US Equity ROR
| Struct F.I. ROR
| Private Equity ROR
| Real Estate ROR
| PE assets (in billions)
| RE assets (in billions)
|
| 2023 | 8.18% | 11.88% | 18.07% | -0.68% | 0.50% | -1.85% | $8.427 | $5.865
|
| 2022 | -8.39% | -12.62% | -13.64% | -10.56% | 25.02% | 29.56% | $7.986 | $5.672
|
| 2021 | 26.63% | 30.21% | 45.14% | -0.09% | 49.61% | 7.75% | $6.422 | $4.360
|
| 2020 | 3.58% | 6.92% | 4.25% | 12.34% | 1.83% | 1.81% | $4.661 | $3.802
|
| 2019 | 7.13% | 8.40% | 8.37% | 8.45% | 14.66% | 8.47% | $4.657 | $3.565
|
| 2018 | 8.56% | 9.74% | 14.71% | -0.34% | 17.83% | 12.19% | $4.467 | $3.398
|
| 2017 | 12.99% | 12.23% | 18.09% | 0.34% | 16.45% | 10.24% | $9.259 | nr
|
| 2016 | 1.52% | 3.29% | 1.68% | 6.56% | 6.36% | 12.95% | $9.873 | nr
|
| 2015 | 3.11%
| 4.87% | 6.35% | 1.88% | 12.24% | 16.06% | $9.825 | nr
|
| 2014 | 17.04% | 18.90% | 24.96% | 6.61% | 15.20% | 13.20% | $9.630 | nr
|
| 2013 | 12.24% | 15.35% | 22.75% | 0.33% | 8.38% | 12.89% | $8.255 | nr
|
| 2012 | 1.32% | 4.54% | 2.23% | 9.24% | 7.50% | 0.99% | $6.748 | nr
|
| 2011 | 23.12% | 23.55% | 32.50% | 5.37% | nr | nr | $5.257 | nr
|
| 2010 | 14.09% | 15.41% | 16.33% | 13.54% | nr | nr | $4.123 | nr
|
| 2009 | -18.18% | -15.62% | -26.16% | 5.78% | nr | nr | $3.263 | nr
|
| 2008 | -4.60% | -6.31% | -12.84% | 6.94% | nr | nr | $2.885 | nr
|
| 2007 | 18.39% | 15.58% | 20.02% | 6.58% | nr | nr | $1.834 | nr
|
| 2006 | 9.83% | 5.98% | 9.45% | -1.07% | nr | nr | $0.846 | nr
|
| 2005 | 9.22% | 8.01% | 7.91% | 8.21% | nr | nr | $0.536 | nr
|
| 2004 | 16.03% | 13.98% | 20.45% | 0.83% | nr | nr | $0.286 | nr
|
| 2003 | 3.94% | 4.45% | 0.72% | 12.02% | nr | nr | $0.155 | nr
|
| 2002 | -8.64% | -8.64% | -17.05% | 8.42% | nr | nr | $0.098 | nr
|
| 2002-2023 Average
| 7.14% | 7.73% | 9.29% | 4.58% | 14.63% | 10.36% | |
|
| 2001 | na | na | na | na | na | na | na | nr
|
| 2000 | 9.43% | 7.58% | 9.06% | 4.57% | nr | nr | $0.036 | nr
|
| 1999 | 13.47% | 13.97% | 19.80% | 2.12% | nr | nr | $0.000 | nr
|
| 1998 | 21.29% | 23.21% | 28.55% | 12.38% | nr | nr | $0.00 | nr
|
| Average | 8.34% | 9.62% | | | | | |
|
| 1998-2023 Average
| 8.04% | 8.59% | | | | | |
|
Closing Balances of NYCERS Assets from 1999 to 2023
| Fiscal Year |
Invest Fees (millions)
| Simple invest fees (millions)
| Close Bal (billions)
| CB % change
| Delta - Portfolio vs Eq&FI only
| Improved % Change
| Simulated Close Bal (billions)
|
| 2023 | $489.90 | $93.39 | $81.40 | 5.03% | 3.70% | 8.73% | $91.59
|
| 2022 | $319.20 | $88.92 | $77.50 | -9.78% | -4.23% | -14.01% | $84.23
|
| 2021 | $313.20 | $98.56 | $85.90 | 22.89% | 3.58% | 26.47% | $97.96
|
| 2020 | $245.70 | $80.20 | $69.90 | 2.04% | 3.34% | 5.38% | $77.45
|
| 2019 | $240.50 | $78.59 | $68.50 | 5.06% | 1.27% | 6.33% | $73.50
|
| 2018 | $241.80 | $74.81 | $65.20 | 6.36% | 1.18% | 7.55% | $81.77
|
| 2017 | $223.80 | $70.33 | $61.30 | 10.45% | -0.76% | 9.69% | $69.12
|
| 2016 | $213.00 | $63.68 | $55.50 | 1.09% | 1.77% | 2.86% | $64.27
|
| 2015 | $231.80 | $62.99 | $54.90 | 1.29% | 1.76% | 3.06% | $58.59
|
| 2014 | $184.60 | $62.19 | $54.20 | 14.83% | 1.86% | 16.70% | $55.27
|
| 2013 | $183.30 | $54.15 | $47.20 | 10.54% | 3.11% | 13.65% | $47.37
|
| 2012 | $129.50 | $48.99 | $42.70 | 0.71% | 3.22% | 3.93% | $41.68
|
| 2011 | $145.10 | $48.65 | $42.40 | 19.77% | 0.43% | 20.20% | $40.10
|
| 2010 | $175.30 | $40.62 | $35.40 | 10.97% | 1.32% | 12.29% | $33.36
|
| 2009 | $138.20 | $36.60 | $31.90 | -19.65% | 2.56% | -17.09% | $29.71
|
| 2008 | $115.30 | $45.55 | $39.70 | -6.59% | -1.35% | -7.94% | $35.83
|
| 2007 | $98.10
| $48.76 | $42.50 | 13.94% | -2.81% | 11.14% | $38.92
|
| 2006 | $69.40 | $42.80 | $37.30 | 5.07% | -3.85% | 1.22% | $35.02
|
| 2005 | $53.90 | $40.73 | $35.50 | 3.80% | -1.21% | 2.59% | $34.60
|
| 2004 | $42.97 | $39.24 | $34.20 | 8.57% | -2.05% | 6.52% | $33.73
|
| 2003 | $29.27 | $36.14 | $31.50 | -3.96% | 0.51% | -3.45% | $31.67
|
| 2002 | $37.63 | $37.63 | $32.80 | -12.06% | 0.00% | -12.07% | $32.80
|
| Expense Ratio 20202 | | 114.7%
|
| 2002 up Avg
| | | | 4.11% | | 5.48% |
|
| 2001 | $41.30 | | $37.30 | -12.85% | $37.30 | |
|
| 2000 | $37.43 | | $42.80 | 2.15% | -1.85% | |
|
| 1999 | $25.16 | | $41.90 | 1.92% | 0.50% | |
|
| 1998 | na | na | na | na | | |
|
| Total Expenses 2002-2023
| $3,921.48 | $1,293.52 | | | | |
|
| Diff in Expenses | | $2,627.96 | |
| | |
|
