Mamdani: Where to Find the Money - Alternative Investments - Check with Lina Khan

Total City Expenses over the Last Ten Years

The City spent in total

1. $71.522 billion in 2015
2. $120.125 billion in 2025

That is a 68% increase over 10 years.

Investemt Expenses for the Five City Pension Systems

The City's five pension systems investment expenses were

1. $0.709 billion in FY-2015 with $178.389 billion in assets
2. $2.306 billion in FY-2025 with $325.419 billion in assets

That is a 225.7% increase in expenses with a 83% increase in assets over ten years.

Something is wrong.

I could run that portfolio with my eyes closed at 20 basis points per year and make more money.
FYI - 20 basis points on $325B is $650 million.

A real expert could do it for 10 basis points and make even more money.

Administrative Expenses for the Five City Pension Systems

Over the last ten years the administrative costs for the five systems increased from $170.7 million (2015) to $312.7 million (2025).

That is a 76.3% increase over 10 years. (The Fire Fund didn't start its budget until 2018 at $6.4 million)

Why is the pension systems better funded than the City?

$5 Billion Fire Sale for the New York City Pension Funds

On Tuesday, May 27, the Comptroller issued the followowing release:

New York, NY — New York City Comptroller Brad Lander and trustees of the five public pension systems announced the successful completion of a landmark $5 billion private equity secondary sale across the City’s systems today. This transaction, initiated in December 2024 and finalized this month, represents one of the nation’s largest ever pension-led secondary sales.

The following news clip provides a little more detail:

Blackstone’s Strategic Partners has acquired a $5bn private equity portfolio from the New York City Retirement Systems, marking one of the largest secondary transactions ever completed by a US public pension, according to Bloomberg. The transaction includes approximately 450 limited partnership interests across 125 funds managed by 75 general partners. According to a statement from the NYC Comptroller’s Office, the sale forms part of a strategic portfolio realignment rather than a liquidity-driven divestment.

The formal auction, which launched in December 2024, attracted over 80 secondary market participants. Evercore acted as financial advisor, with Morgan Lewis providing legal counsel. While financial terms were not disclosed, secondary transactions of this scale are typically completed at a discount to NAV, reflecting the complexity and illiquidity of mature fund stakes.

The deal comes amid a surge in secondary market activity as institutional investors seek to rebalance private equity allocations amid slower M&A and IPO exits, higher interest rates, and limited distributions. The NYC Retirement Systems’ private equity returns have underperformed national peers, with fiscal year 2024 gains of 4–5%, compared to 10.9% at CalPERS and 8.6% at CalSTRS.

With over $270bn in AUM across five pension funds serving teachers, civil employees, firefighters, police, and education workers, the NYC Retirement Systems’ sale signals a potential re-evaluation of long-term private market exposure.

Blackstone’s Strategic Partners, which has raised over $67bn across asset classes, continues to cement its position as one of the largest players in the secondaries market.

According to the June 30, 2024 NYC annual financial statement, the five city pension funds allegedly had $67.2 billion in alternative investments.

The big question is how much of loss did the pension funds absorb because of the sale. The Comptroller has not given any accounting details.

How the Rich Take from the Poor: Investment Costs from 2000 to 2024

Listed in the chart below are the investment expenses for asset classes in the NYCERS portfolio, in particular , U.S. equities and private equity funds.

The chart clearly lays out systematic lunacy in NYCERS investment strategy as highlighted by the differences in these two classes. One, U.S. equities is effective and inexpensive and the other, private equity, is ineffective and grossly expensive.

Private equity and other limited partnerships have exploded in the last 25 years. NYCERS is not alone in this insanity. Many other pension funds are infected with this disease including the other four city pension funds.

We all know the story of "The Emperor's New Clothes". This emperor is not only vain but deaf, dumb, and blind. On a more fundamental basis this is how the rich legally take from the poor.

Overview

As of June 30, 2024, NYCERS had a closing balance of $87.93 billion in assets up from $82.43 in FY-2023.

NYCERS paid $572.03 million in investment expenses in FY-2024 up from $489.90 million in FY-2023.

The total expenses for the five city pension funds were $1.95 billion for FY-2024.

The City is always pressed for revenue and yet it allows this bleeding to continue.

U.S. Stocks

Of the $87.93B amount, NYCERS reported $$22.10B in U.S. stocks for which NYCERS paid $16.76 million in management fees.

Of the $22.10B amount, $15.26 billion was in two index funds for which NYCERS paid only $307,483 in management fees.

The value of this asset class is based on the closing values of U.S. stock markets as of June 30, 2024. The open markets make this asset class totally liquid.

NYCERS reported that this class had a rate of return for the year of 22.98% for FY-2024. This figure is based on the closing market stock prices as of June 30th of the previous year and the current year, dividends paid during the year, and the purchase and sale of stocks during the year. Fees are netted out starting in 2015.

Private Equity

Of the $87.93B amount, NYCERS reported $9.20 billion in private equity funds for which NYCERS paid $229.09 million in fees and organization costs.
NYCERS provides no description of what organization costs are. Of the $229.09 million amount organization costs were $64.74 million.

The value of this asset class is based on a best guess (NAV) by the 81 general partners running all the private equity funds. This is because there are no public markets for private equity funds. You have to take this number with a big grain of salt. Some general partners manage more than one fund.

NYCERS reports that this class had a rate of return for the year of 5.09% for FY-2024.

NYCERS does not document how this number is arrived at. Actually, there is no rate of return for private equity funds as a class, only for individual funds and only at the point when the fund closes and makes its last distribution. Each fund should be reported out when it closes. Of course, this would create tremendous PR problems. While some funds may have respectable returns in spite of high fees, others would be horrific disasters.

I suspect, however, that the black box contracts that NYCERS signs with the general partners prohibit NYCERS from publishing the final results.

Also, because there are no public markets for private equity funds, this class is not liquid. NYCERS could possibly sell its position in a particular fund but only at a steep discount and only if there was a buyer.

Investment Expense Tables 2020-2024

Investment Costs for Different Classes

CLass/Year (in millions)	2024	2023	2022	2021	2020	*	2015	2010	2005	2000
Fixed Income	$26.63	$24.99	$26.95	$27.65	$23.92	*	$17.81	$14.80	$10.35	$10.22
US Equities	$16.75	$13.67	$16.88	$14.71	$8.85	*	$17.06	$14.68	$6.47	$8.74
Private Equity	$163.36	169.77	$77.61	$67.94	$66.09	*	$40.35	$58.77	$9.70	$2.83
Private Eq. Org. Costs	$64.73	$34.69	$19.82	$19.16	$21.73	*	$13.03	$28.84	*	*
Alternative Opport/Global FI	$34.17	31.22	$21.65	$21.70	$14.97	*	$12.65	*	*	*
Alternative Opport/Global FI Org. Costs	$2.40	3.88	$1.67	$1.76	$0.25	*	$4.51	$0.0	*	*
Private Real Estate	89.93	$75.18	$46.68	$43.20	$31.96	*	$17.78	$17.32	$1.66*	*
Real Estate/Infrastructure Org. Costs	$38.41	23.64	$20.21	$10.68	$8.17	*	$5.11	$3.15	*	*
Infrasructure	$39.98	$36.64	$20.80	$15.72	$13.32	*	*	*	*	*
International Equities	$45.44	41.11	$44.69	$41.38	32.22	*	$31.73	$28.15	$15.84	$14.82
Hedge Funds	*	*	*	*	*	*	$39.79	*	*	*
Mutual Fund - Domestic Equity	*	*	*	*	*	*	-$0.01*	$0.65*	*	*
Mutual Fund - Mortgages	$0.27	$0.27	$0.29	$0.32	$0.30	*	$1.62	$0.90	*	*
Teasury Infaltion Protect Secs.	*	*	*	*	*	*	$1.34	$0.88	$0.05	*
Mutual Fund - Bank Loan	$0.0	$0.0	$0.01	$0.71	$1.36	*	$3.34	*	*	*
Consultants	$2.50	$2.55	$2.45	$2.72	$2.82	*	$3.51	$4.44	$1.45	$0.71
Legal Fees	$0.75	$1.12	$0.70	$0.66	$0.67	*	$0.10	*	*	*
Foreign Taxes	$40.57	$25.59	$39.70	$37.90	$24.07	*	$15.48	$1.12	*	*
Subsidy to Comptroller	$3.92	$3.64	$3.94	$4.26	$4.02	*	2.11	*	*	*
Miscellaneous	$2.43	$1.89	$5.15	$2.81	$2.19	*	$4.51	$1.57	$0.60	$0.12
Total Expenses	$572.3	$489.90	$349.22	$313.23	$245.67	*	$231.76	$175.26	$46.11	$37.43
Total Assets (in billions)	$87.93	$82.43	$78.53	$87.08	$70.25	*	$55.03	$35.38	$35.53	$42.82

From Bad To Worse

On April 30, 2024, the NYC Comptroller announced new asset allocations for the five NYC pension funds. This announcement boils down to a statement that four of the five pension systems are going to reduce their % of stock holdings and increase their % of garbage assets, otherwise known as "alternative assets". Why would anyone invest in garbage? That is a key question.

The pension trustees, which included the Comptroller, would have you believe their current asset allocations are doing well and that they are going to make them better.

Of course, there is no analysis of the investment performance of the current asset allocations, whether it is better than a basic 60/40 stock and bond asset allocation and whether the new asset allocation will make things better.

That is because that the current asset allocation is doing worse than the basic asset allocation and that an expansion of the current asset allocation will only make the deficit worse.

I won't even get into issue of runaway investment fees for the garbage asset class.

In Plain Sight - Growing Risk Level in NYCERS Investments and Runaway Fees.

Runaway Investments fees

In FY-2000 NYCERS paid $37.4 million in investment fees for an asset base of $42.8 billion.

In FY-2023 NYCERS paid $489.9 million in investment fees for an asset base of $82.4 billion.

The numbers speak for themselves. There is no benefit to these radically increased fees. Clearly, twice the $37.4 million in fees from FY2000 could cover the $82.4 billion in assets for FY-2023. But the current trustees have no idea what was going on in 2000.

This is a big part of the income inequality in America. This story is not just about NYCERS but every public pension plan in America.

Increasing Investment Risk

In a prior post from January 2020, I outlined a new accounting reporting requirement for government pension plans (GASB 72) mandating that plans report a breakdown of the reliability of the reported value of the plan's investments. The assets are broken down into 3 levels as listed below:

• Level-1 assets - open market - very liquid
• Level-2 assets - open market - not as liquid
• Level- 3 and NAV assets - no open market - not liquid

In addition to these crazy fees noted above, the risky Level-3 assets at NYCERS have grown steadily since 2015. On top of this growth in risky assets, this year there was a law passed in Albany to raise the limit (from 25% to 35%) on the amount of Level 3 and NAV assets in a NYS public pension plan.

In the table below you will see the growth for Level-3 and NAV class assets at NYCERS.

Note: As of FY-2023 NYCERS is relabeling alternative investments as net asset value items rather than Level 3 as a "practical expedient". This is a PR sleight of hand. Nobody wants to be called Level-3. "NAV" is a lot more vague. $19.8 billion (25% of the portfolio) for Level-3 and NAV assets is an obvious red flag for the risk level of the portfolio. You can be sure that $19.8B is the upper bound for this class and that a 50% reduction is a real possibility.

Ranking of NYCERS Assets via GASB 72

Fiscal Year	Level-1 Assets (in thousands)	Level-2 Assets	Level-3 Assets	Assets at Net Asset Value	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
FY-2020	$33,647,567	$24,941,479	$11,856,921	$3,735	$70,449,703
FY-2021	$42,162,979	$30,981,818	$14,845,548	$1,240	$88,091,585
FY-2022	$32,892,068	$26,386,373	$18,726,172	$1,129	$78,005,742
FY-2023	$35,986,966	$25,235,457	$461,156	$19,845,541	$81,529.120

Investment Expenses for the Assets by Quality for FY-2023

In FY-2023 NYCERS paid the following investment management fees for the different levels:

1. $54.7M for Level 1 assets (FY-2019 fees = $39.7M).
2. $25.0M for Level 2 assets (FY-2019 fees = $18.4M)
3. $375.0M for Level 3 and NAV assets (FY-2019 fees = $140.5M)

Again, the numbers speak for themselves. The trustees are being rolled big time - everywhere.

The New York Times Reports on Problems with Alternative Investments for Public Pension Funds

On May 12, 2021, the New York Times printed an article critquing the alternative investment decisions of the Pennsylvania Public School Employees Retirement System (PSERS).

As background, read the following post about NYCERS's alternative investments.

Just For Fun - Who Got the $245M

NYCERS spent $245M in FY-2020 on investment expenses. All together the five city funds spent $879M.

There is a link below where you can view the detailed list of who NYCERS paid the money to. The link is nine pages long. The first page is a summary and the the next eight pages list all the managers, the assets under management, and the fees received for the year. NYCERS has about 350 investment managers.

NYCERS needs to disclose this information in its comprehnsive annual financial report (CAFR). The full CAFR report is almost 200 pages long. I suspect the NYCERS Trustees have never looked at this data.

So here are the details

Look at a page 2 of the link. There are four entries, all for Blackrock. There are three fixed income items (corporate, government, mortgage) and one domestic equity entry (Russell 1000 - Core). That is all you need to run a $67B portfolio. Just scale up the amounts under management. The fees would drop down to $16M and annual rate of return would go up 1 to 2%.

Sunshine and GASB 72

Updated: January 27. 2021

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 Level 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.

Investment fees for the Different Level

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. $39.7M for Level 1 assets plus $26.5M for foreign taxes.
2. $18.4M 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	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
FY-2020	$33,647,567	$24,941,479	$11,856,921	$3,735	$70,449,703

Private Markets: Legalized "Theft" - Unreported $129M in Incentive Fees

NYCERS issues a Comprehensive Annual Financial Report (CAFR) every December. This report is suppose to be a accurate picture of the financial information for NYCERS during the previous fiscal year (July-June). The FY-2018 report stated that total investment expenses was $241.8M and as part of that amount the private market investments expenses were $130.0M as listed in the first chart below:

In contrast to the CAFR statement prepared by the outside accounting firm, the Comptroller in September, 2018 released a FY-2018 performance report prepared by State Street. On page 27 of that report State Street lists the expenses for private market investments. You can see in the second chart below that the total fund investment fees were $346.03M and as part of that amount private market fees were $272.45M.

The $346.03M does not included foreign taxes ($26.M), payments to the Comptroller ($4.2M), payments to consultants & law firms ($4.2M), and miscellaneous expenses ($2.1M) which are included in the CAFR's $241.8M expense amount.

For many years NYCERS has not defined the term "Organization Costs". The Comptroller, however, uses a different term for these costs, "Partnership Expense". I now suspect that the term means meals, travel expenses, and any other expense that the general partner can pass along to the limited partners.

But what is more disturbing is that there are incentive fees listed by the Comptroller. The total for these fees are $129.51M . These fees have never been listed in the NYCERS CAFR. This is the main reason that that the Comptroller is reporting $346M and NYCERS is only reporting $242M. There is obviously a serious flaw in NYCERS accounting. And by the way, what managers are being paid the incentive fees? Why are they being paid these fees?

As a closing comment on this obscene waste of money, lets simplify the problem:

NYCERS pays private market partnerships

• $272.45M in fees for handling assets with an "alleged" value of $9.95B,

while it pays only

• $73.58M in fees to public market managers for handling assets with open market value of $52.75B.

NYCERS Asset Class & Fees from CAFR - FY-2018

Private Market Asset Class	End of Year Asset Value	Fees	Organization Costs	Total Expenses	Basis Points	Rate of Return
Private Equity	$4,470M	$50,117,502	$13,064,536	$63.18M	141.2	17.8%
Opport.& Global FI	$1,851M	$15,534,877	$1,820,851	$17.35M	93.5	7.0%
Real Estate & Infrastructure	$3,792M	$40,993,082	$9,510,109	$50.50M	133.2	12.19%
Hedge Fund	$68.0M	$345,733		$0.35M	50.843	8.43%
Totals - Private Markets	$10,181M			$131.48M
Totals - All Classes	$65,206M			$241.8M

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NYCERS Asset Class & Fees from Comptroller's September 30, 2018 Performance Report

Private Market Asset Class	Avg. Asset Value (billions)	Management Fees (millions)	Partnership Expenses (millions)	Fees&Expns-Basis Points	Incentive Fees (millions)	Incentive Basis Points	Total Fees (millions)	Total Basis Points
Hedge Fund	$0.075	$0.550	$0	72.0bp	$0	0.0bp	$550.03	72.0bp
Private Equity	$4.432	$51.02	$17.51	154.64bp	$88.03	198.63bp	$156.57	353.26bp
Real Estate	$3.349	$33.10	$8.497	124.21bp	$31.66	94.53bp	$73.26	218.74bp
Infrastructure	$0.328	$8.433	$3.098	128.69	$0.863	28.31bp	$12.394	138.32bp
Opportunistic Fixed Income	$1.763	$15.578	$10.615	148.57bp	$3.482	19.75bp	$29.673	168.32bp
Private Market Assets Total	$9.947	$108.99	$39.72	149.19bp	$124.04	124.69bp	$272.45	273.88bp
All Assest Total	$62.699	$176.80	$39.22	34.43bp	$129.51	20.66bp	$346.03	55.19bpbp

How to Piss Away $242M

Now that I have your attention, let me bore you with the numbers.

In FY-2018, the NYCERS portfolio opened at $61.3B and closed at $65.2B. With interest and dividends, NYCERS had a rate of return of 8.56%. For that return NYCERS spent $241.8B on investment expenses. That was almost a quarter of a billion dollars and represents 39.5 basis points based on the opening balance. At the same time Jane Doe earned 14.34% on her standard S&P 500 index fund for basically no cost.

NYCERS is well aware of the low cost/high return index strategy. During FY-2018, the system consolidated its five existing stock index funds (four large cap and one mid cap) into one fund.

The new fund, Blackrock Russell-1000 Core Index had a closing value of $14.828B on June 30, 2018. The fee for the last quarter of the year was $83,775. (NYCERS FY-2018 CAFR page 144). The Comptroller quoted a 3 month rate of return of 3.84%. The five retired funds cost $424,000 for the first nine months of FY-2018.

Projected for a whole year, NYCERS would have earned 15.36% on $14B for a cost of only $347,100.

Costs for the Five City Funds

On a larger scale what is even more shocking is that the five NYC pension funds spent $999.4M on investment expenses. That's right, just shy of one billion dollars in one year. The opening balance for the five funds was $201.0B and closed with $217.0B. That is 50 basis points based on the opening balance.

There is never any quantitative justification for this level of cost.

It is my opinion, however, that large pension systems as a general rule should be able expense their investment operations for 10 basis points or less. To support this opinion consider the following disussion.

NYCERS Details

The following table is a listing of NYCERS fees by asset class and style as reported by the FY-2018 NYCERS CAFR starting on page 144. It is an eye opening read.

In the table three items are highlighted. They represent limited partnership contracts (approx. 200) that the Comptroller has signed and the trustees have never seen. Their EOY asset values and rates of return are highly questionable in so far as the numbers are provided by the general partner and can not be publicly confirmed. I would use a 20% discount rate on these three asset classes. They are the highest cost asset classes and i would also be skeptical of their expense numbers.

On an ethical basis the limited partnerships very often and in a hidden manner engage in actions designed to extract the greatest amount of money with greatest damage to society.

In addition, these contracts can not be terminated. The general partner is in total control of the term of the contract and the demand for new funds from the limited partners during the life of the contract.

One bright spot is that NYCERS has reduced its exposure to the hedge fund class.

See the last column in the table for what I think is the proper diversification of the NYCERS portfolio after discarding the risky high cost asset classes. It looks like you would be able to get away with a $30M cost for the year.

What would the return for this portfolio? The current NYCERS asset allocation is 67% stocks and 33% bonds. Bonds did terrible in FY-2018. Structured and high yield returned -.03% but the R-1000 core index fund returned 15.36%. So you wind up with a total 10.27% total return for the year. Not bad for a $30.0M cost

By the way what did NYCERS get for the $2.1M under miscellaneous expenses? I've given up trying to find out what organization ("Org") costs are.

NYCERS Asset Class & Fees

Asset Class	Fees	EOY Asset Value	Basis Points	Rate of Return	Proper Allocation
Fixed Income
Structured	$5,318,152	$14,057M	3.3	-0.34%	$22.0B
High Yield	$7,391,750	$2,602M	28.4	1.65%	4.0B
All Other	$6,096,651	$1,257M	48.5		$0.0B
US Equity
Passive	$476,096	$14,359M	0.3	15.3%	$37.0B
Active	$7,053,690	$3,102M	22.7	13.34%	$0.0B
US SC Equity Passive fees:	$15,649	$334M	0.5	20.83%	$0.5B
Private Equity	$50,117,502	$4,470M	141.2	17.8%	$0.0B
(plus Org costs)	$13,064,536
PE-Opport.& Global FI	$15,534,877	$1,851M	93.5	7.0%	$0.0B
(plus Org costs)	$1,820,851)
Real Estate & Infrastructure	$40,993,082	$3,792M	133.2	12.19%	$0.0B
(plus Org costs)	$9,510,109
Foreign Equity	$41,508,658	$8,226M	82.7	11.4%	$0.0B
(plus Taxes =)	$26,456,516
Hedge Fund	$345,733	$68.0M	50.843	8.43%	$0.0B
Target-Mortgage	$1,515,348	$819M	18.5	-0.69%	$1.0B
TIPS	$496,907	$2,585M	2.0	2.18%	$2.0B
Bank Loan	$3,661,246	$1,139M	32.2	4.73%	$0.0B
Consultant Fees:	$3,769,671
Legal Fees:	$405,499
Subsidy to Comptroller:	$4,203,498
Misc. Expenses:	$2,061,778
Total	$241.8M

NYCERS Income Flow during FY-2018

Note: During FY-2018 NYCERS received:

1. $ 523.5M - contributions from members
2. $ 3,377.0M - contributions from employers
3. $ 878.6M - interest income
4. $ 897.9M - dividend income
5. $ 27.1M - securities lending income
6. $ 3.4M - other income

During FY-2018 NYCERS paid out:

1. $ 4,882.6M - benefits and withdrawals
2. $ 9.1M - transfers to other retirement systems
3. $ 10.9M - payments to VSF (Transit&Housing Police)
4. $ 205.0M - payments to VSF - Correction Force
5. $ 241.8M - investment expenses
6. $ 59.7M - NYCERS operating expenses

New York City - CAFR - FY-2018 - NYCERS Financials

Every Halloween New York City releases its Comprehensive Annual Financial Report (CAFR). This year was no exception. The report is a very dry document but full real information. You need to be a little skeptical but generally it is accurate within the guidelines of accounting practice.

The report in particular includes financial reports for the five city retirement systems. That is why I am always interested in the release. Around the the New Year each individual system releases its own CAFR but the City CAFR is the first look at how the five funds performed for the year.

NYCERS opened the year (7/1/2017) with assets worth $61.3B and closed the year with a balance of $65.2B. That is a $3.9B (6.36%) increase.

For FY-2018 the S&P 500 index opened at 2423.4 and closed at 2718.37, a 12.17% increase.

During FY-2018 NYCERS received:

1. $ 523.5M - contributions from members
2. $ 3,377.0M - contributions from employers
3. $ 878.6M - interest income
4. $ 897.9M - dividend income
5. $ 27.1M - securities lending income
6. $ 3.4M - other income

During FY-2018 NYCERS paid out:

1. $ 4,882.6M - benefits and withdrawals
2. $ 9.1M - transfers to other retirement systems
3. $ 10.9M - payments to VSF (Transit&Housing Police)
4. $ 205.0M - payments to VSF - Correction Force
5. $ 241.8M - investment expenses
6. $ 59.7M - NYCERS operating expenses

The end result is that NYCERS had a positive income flow of $289.4M and an asset increase of $3,889.97M for the year. The $289.4 inflow reduced the rate of return for the year from 6.36% to 5.85%.

The NYCERS actuary reported in her FY-2018 GASB report (Appendix A page 4) that NYCERS has 33% of its assets in fixed income (bonds) and 67% in equities (stocks&real estate).

The key question when analyzing NYCERS's annual rate of return is whether it is above or below market expectations. NYCERS never answers this question. It just reports the numbers as if they are acceptable

Structure of the CO-VSF

The CO-VSF Board has five trustees, the NYCERS chair(one vote), the Comptroller (one vote), the Finance Commissioner (one vote), the head of COBA (one & half votes) and the head of the Correction Captains union (half vote). By statute the NYCERS actuary is the actuary for the Co-VSF. I am not sure when the CO-VSF Board last met. This board along with the actuary should be publicly informing the CO-VSF retirees what is happening with the 2016 payments and providing them with supporting documentation. With modern technology this is an easy lift.

CO-VSF is required to publish a financial statement every year in the City Record - NYC Admin Code - § 13-194.7

7. The variable supplements board shall publish annually in the City Record a report for the preceding year showing the assets of the correction officers' variable supplements fund and a statement as to the accumulated cash and securities of such fund as certified by the comptroller, and shall set forth in such report such other facts, recommendations and data as the board may deem pertinent.

NYS DFS has issued only one audit of the CO-VSF system.

The following text is from that audit:

A. History

Chapter 657 of the Laws of 1999 established the Correction Officers Variable Supplements Fund (“COVSF” or the “Fund”) and the Correction Captains’ and Above Variable Supplements Fund (“CCAVSF”). Chapter 255 of the Laws of 2000 (“Chapter 255/00”) combined the COVSF and the CCAVSF into one amended fund (Correction Officers Variable Supplements Fund) effective December 29, 1999.

The Fund operates pursuant to the provisions of Title 13, Chapter 1 of the Administrative Code of the City of New York (“ACNY”). It provides supplemental benefits to members of the Uniformed Correction Force (“UCF”) that retire on or after July 1, 1999, with 20/25 or more years of service from the New York City Employees’ Retirement System (“NYCERS”).

Under current law, the Fund is not to be construed as constituting a pension or retirement system. Instead, it provides supplemental payments, other than pension or retirement system allowances, in accordance with applicable statutory provisions. The New York State Legislature has reserved to itself and the State of New York the right and power to amend, modify, or repeal the Fund and the payment it provides.

Correction Officer VSF (COVSF) Payment for 2016

The NYCERS Board had their November Regular Meeting last Thursday. In the last 5 minutes of a two hour long meeting the actuary's representative dropped a bomb on the retired Correction Officers. They were not going to get their VSF payment this year.

Last Saturday my blog got inundated with hits, almost a thousand inquiries on my most recent posting on NYCERS's poor investment performance in FY-2016. Guess who gets hammered when NYCERS trustees screw up? Not the trustees but the retired Correction Officers.

Also something funny happened in FY-2016. NYCERS clawed back $52.724M from the COVSF. You can see in my previous posting the regular "skim" to the COVSF for the last six years.

COVSF History 2013-2016

Year	Open Balance	Interest Earned	"Skim"	Payments	Close Balance
FY-2013:	$35.925M	$0.038M	$0.000M	$0.000M	$35.963M
FY-2014:	$35.963M	$0.020M	$190.000M	$38.014M	$187.969M
FY-2015:	$187.969M	$0.010M	$30.012M	$78.285M	$139.706M
FY-2016	$139.706M	$0.184M	-$52.7240M	$82.149M	$5.017M
FY-2017

How Do You Lose $174M in a Rising Market?

On October 31, 2016 the Comptroller's Office released the city's Comprehensive Annual Financial Report (CAFR) for FY-2016. This report, in particular, contains the basic financial information for the city's five pension funds.

Based on this report, NYCERS lost $174.2M in asset value during FY-2016 and had a closing balance of $55.59B. Even worse,during the same period the five city pension funds plus the TDA & VSF funds, in total, lost $1.323B in assets.

At a September NYCERS investment board meeting the Comptroller's representative, Scott Evans, presented a performance report to trustees that stated that the fund had earned a return of 1.76% for the year.

What he did not say was that NYCERS had lost $174.2M of assets during the year and obviously he did not explain how that had happened. In a year that the index/core rate of return was 3.9%, NYCERS assets fell by -0.32%.

This is absolutely unacceptable. In three of the last six years NYCERS lost assets. All six years were up markets. See the table below.

The Index/Core Performance for FY-2016

During FY-2016 the S&P500 Index increased in value from 2063.11 to 2098.86, a 1.7% increase for the year. Not good but above water.

The NYCERS bond core target was 7.16% for FY-2016. According to the September performance report NYCERS managed a 6.64% return in this asset class. That was C+ grade but not a loss of capital.

With a 60/40 stock asset allocation the fund should have produced a 3.904% increase in assets with a closing balance of $57.85B.

So how did NYCERS lose $174.2M in capital, a -0.32% loss?

Over the last 17 years NYCERS has managed to leave over $25B on the table because of investment decisions made by Comptrollers and trustees. There is no personal penalty for trustees if they fail to do their job. Hell, they don't even get fired. They just go to work for investment mangers.

NYCERS Investment Fees for FY-2016

NYCERS paid $212.9M in investment fees during FY-2016. That is 38 basis points on the closing balance of $55.59B. NYCERS should never pay more than 10 basis points in fees, even for beating the index/core strategy. 10 basis points is $55.6M, a savings of $157M.

Of course beating the index/core strategy is not possible for a pension fund over a long period of time. Investment returns over a long period of time always reverts to the mean, if you are lucky. Trying to beat the mean will cause a pension fund to fall short of average market returns over extended periods of time.

Six Year Review

Look at the last two rows in the table below. In only one year did NYCERS outperform the Index/Core rate of return. Just adding up the shortages for the six years listed below adds up to $4.2B. If you compounded the shortages for the six years, the loss is over $10B. When you compound the shortages over the last 17 years, the calculation produces a $25B loss.

Why do the trustees always make these bad decisions? Follow the money. Who is getting the extra $157M in fees. Who is making and receiving campaign contributions?

The following table is a recap of NYCERS income statements from FY-2011 to FY-2016:

Income Statement History

Year	FY-2016	FY-2015	FY-2014	FY-2013	FY-2012	FY-2011
Employee contributions	$485.5M	$467.1M	$447.7M	$437.8M	$403.6M	$413.7M
Employer contributions	$3.366B	$3.160B	$3.114B	$3.047B	$3.017B	$2.387B
Interest income(bonds)	$692.8M	$635.8M	$658.7M	$624.7M	$528.0M	$492.2M
Dividends(stocks)	$836.5M	$795.3M	$739.7M	$696.7M	$637.1M	$619.9M
Securities Lending	$29.7M	$26.5M	$8.8M	$27.8M	$25.0M	$23.4M
Income-In	$5.413B	$5.089B	$4.974B	$4.884B	$3.941B	$4.616B
Benefits/refunds	$4.403B	$4.236B	$3.990B	$3.851B	$3.689B	$3.569B
Transfers to the other pension funds	$7.4M	$7.1M	$7.2M	$5.3M	$5.0M	$4.4M
Skim to VSF's	-$41.2M	$41.9M	$202.1M	$12.3M	$12.4M	$12.4M
Investment Expenses	$213.0M	$231.8M	$184.6M	$183.3M	$129.5M	$145.1M
Administrative expenses	$56.7M	$54.6M	$50.4M	$48.7M	$51.4M	$46.4M
Income-Out	$4.638B	$4.571B	$4.283B	$4.101B	$3.888B	$3.770B
Net Income	$774.4M	$518.1M	$691.0M	$783.0M	$728.0M	$164.1M
Actual Cl. Bal.	$55.489B	$54.889B	$54.442B	$47.195B	$42.655B	$42.409B
Index/Core Cl.Bal.	$57.806B	$57.107B	$55.171B	$47.863B	$45.523B	$42.107B
Shortage	$2.317B	$2.217B	$0.749B	$0.668B	$2.868B	-$0.302B
Actual RR	-0.317%	-0.093%	13.850%	8.806%	-1.136%	19.391%
Index/Core RR	3.904%	3.981%	15.437%	10.373%	5.626%	18.537%

Rejection of Index Investing at the Common Investment Meeting - This is Fraud.

So, the Comptroller has convinced the five city pension boards to attend a combined investment meeting, “Common Investment Meeting - CIM”, every month. Interestingly, the Teachers Retirement System continues to hold additional separate investment meetings every month.

The CIM is similar to a lecture hall class with 200 students as opposed to an ordinary class with 15 students. There is a certain circus quality to the meeting. You can judge for yourself. The videos are on this link.

I recently watched the September 26, 2016 meeting run by Scott Evans. He is the head of the Comptroller’s Bureau of Asset Management (BAM) and is paid $350,000 per year. The five pension funds actually pay his salary through a non-governmental grant scheme to the Comptroller’s revenue budget but the pension funds have no control over his hiring.

Comments on Index Investing

At about one hour into the show Mr. Evans started to comment on a possible simple index stock/bond investment strategy for the city's pension funds as opposed to the “sophisticated” strategy that the funds have adopted and he supports.

While he was not clear about what he precisely meant by the index stock/bond strategy, I am assuming that he was referring to the index stock-R-3000/core+5 bond strategy that NYCERS was using to a large extent circa 2000.

As of June 30, 2000, NYCERS had assets worth $43B of which $21B was in a Russell-3000 stock index and $10B was in a core+5 (Treasuries, investment grade corporate bonds and agency/mortgage backed bonds bond strategy, all with terms 5 years or greater) strategy. Together the two components were 75% of the total portfolio.

Specifically Mr. Evans stated that the index strategy would produce acceptable results, simplify the investment process for the pension funds, allow the pension funds to shrink the staff at BAM and have shorter investment meetings. He, however, claimed that it would be more risky than the “sophisticated” strategy and he made some vague reference to possible draw downs problems but nothing else.

That is basically the end of his discussion on this topic. He provided no quantitative support for his position. He felt his comment was sufficient to dismiss the index concept. No trustee asked any questions in spite of the importance and value of index investing.

What he failed to mention, however, was the actual historical rates of return for the two strategies. He did not list the radical differences in external fees, internal costs and taxes between the two strategies. He made no mention of the liquidity, volatility, currency, political, and credit risks inherent in the “sophisticated” strategy. He also failed to mention the potential of the “sophisticated” strategy for improper political influence and corruption which has occurred in the state pension fund in Albany and other public pension funds around the country.

Some Actual Numbers

In an effort to provide some specifics let me give you some historical numbers. Over the last 20 years (1996-2016) NYCERS assets have increased at annual rate of 3.4% per year, from $27.98B to $54.55B. See below.

From 1996 to 2000, as I mentioned above, NYCERS followed an investment strategy that was roughly 75% in a index/core+5 strategy with the other 25% in more dubious assets. The annual rate of increase in the assets for those four years was 11.3%. As of June 30, 2000 there were almost no private equity investments (non-publicly traded assets) in the NYCERS portfolio.

Since 2000, the annual rate of increase in NYCERS assets, using the quarterly numbers, has been 1.51%. Since 2007, that rate has been 2.88%. Needless to say, 2000 was the advent of the “sophisticated” investment strategy. By 2008 NYCERS was hip deep in shit with only 56% in the index/core+5 strategy. You can see that the trustees are not totally crazy.

Since 2009, NYCERS assets have increased at a 9.5% annual rate but the S&P 500 stock index has increased at an even higher 12.5% annual rate. As of June 30, 2106 NYCERS had assets of $54.6B. That number, however, includes a $3.2B positive cash inflow from 2009 to 2015 and $9.9B in non-publicly traded assets. The quoted values of non-publicly traded assets are basically guesses of what they are worth and you know the real number is less than $9.9B.

Based on the NYCERS official financial statements, which are different from the Comptroller's quarterly reports, the opening balance on July 1, 1999 was $41.9B and the closing balance on June 30, 2016 was $55.49B. That is an average annual increase of 2.53% for the seventeen years. The rate of increase for the S&P500 index/core+5 bond strategy with a 60/40 stock/bond allocation over the same 16 years is 4.648%. That translates into a $81.0B closing balance for June 30, 2016. That is a $25.5B higher than what NYCERS actually had. The sum of each year's difference individually is over $16.2B but compounded over the 16 years it is $25.5B. This is a big step towards full funding for NYCERS but we should be very aware that even indexing does not hit the 7% assumed interest rate that actuaries dream about.

Bottom line, NYCERS almost certainly would be in far better shape over any span of time with the “unsophisticated” index/core investment strategy. Of course, Scott Evans would be working somewhere else.

Listed below are the June 30 NYCERS asset values since 1985 as reported by the Comptroller in the quarterly performance reports along with closing balances from the CAFR's and estimates of index returns from FY-2000 forward.

• Year - Quartely - CAFR CB - Indexing CB
• 1985 - $10.178B
• 1986 - $12.534B
• 1987 - $13.866B
• 1988 - $14.349B
• 1989 - $16.499B
• 1990 - $17.904B
• 1991 - $18.852B
• 1992 - $20.670B
• 1993 - $22.939B
• 1994 - $22.432B
• 1995 - $25.455B
• 1996 - $27.983B
• 1997 - $32.439B
• 1998 - $37.711B
• 1999 - $41.024B
• 2000 - $42.997B - $42.824B - $43.746B
• 2001 - $37.519B - $37.251B - $40.222B
• 2002 - $32.212B - $32.842B - $34.106B
• 2003 - $30.841B - $31.524B - $32.477B
• 2004 - $33,526B - $34.178B - $33.480B
• 2005 - $34.703B - $35.526B - $35.406B
• 2006 - $36.650B - $37.288B - $36.008B
• 2007 - $42.237B - $42.514B - $42.707B
• 2008 - $38.862B - $39.716B - $40.342B
• 2009 - $30.929B - $31.903B - $34.490B
• 2010 - $34.618B - $35.383B - $35.633B
• 2011 - $41.623B - $42.409B - $42.107B
• 2012 - $41,620B - $42.655B - $45.523B
• 2013 - $46.623B - $47.194B - $47.862B
• 2014 - $53.549B - $54.422B - $55.171B
• 2015 - $54.289B - $54.889B - $57.106B
• 2016 - $54.553B - $55.490B - $57.806B

Questions about the Comptroller's Investment Expenses

On September 8, 2016 the NYCERS Board of Trustee held their regular board meeting for September. The second item on the agenda was three resolutions authorizing NYCERS to reimburse the City for “investment” expenses incurred by the Comptroller’s Bureau of Asset Management from July 1, 2016 to March 31, 2016. The amount for the first quarter of FY-2016 was $552,461. We never got hear what the amounts were for the two quarters from October 1, 2015 to March 31, 2016 because the resolutions were tabled for the next meeting in October. I have written about these reimbursements in the past.

The reason they were tabled was because the Chair of the Board, John Adler, asked that they be tabled.

Why?

Because as the Chair stated the documentation supporting the expenses provided by the Comptroller’s Office was “difficult to decipher”. He stated he had questions and he wanted all three resolutions held up until he was satisfied that the expense were properly documented and appropriate for reimbursement from the corpus of the fund.

The Comptroller’s representative asked whether the Chair had communicated his issues to the Comptroller’s Office.

The Chair said that he had not yet done so. He further said that the documentation was very unclear, hard to decipher and was not in any standard format. This made it a laborious process to analyze. He also stated that this analysis had not been done before.

John Adler is a low key person who became the Chair of NYCERS in March, 2015. This is the first time since he became settled into his current position that he has had to deal with this budgetary flimflam. It, unfortunately, also occurs at the other four city pension systems and runs about $5M per year.

The Comptroller’s representative agreed that this type of analysis on the expenses had never been done before and asked for specifics on what the reporting format should be.

The Chair responded that the City had uniform directives about documenting expenses. He also stated that it appeared to him that the Comptroller, as the City auditor, was not abiding by those actual directives. Specifically he said that the Comptroller was sometimes using city expense rules and sometimes federal rules.

The Comptroller’s rep said that she did not think that different rules were being use and that she would be surprised if they were.

“I think you will be surprised” the Chair said in response.

To the casual observer this might not seem to be a big deal. Trust me, this is a big deal.

NYCERS dumps Hedge Funds

It appears that the NYCERS trustees have finally woken up. On April 14, 2016 the trustees voted to dump their hedge fund investments. What took them so long? Still there was one trustee who voted to stay with hedge funds, Teamster's Local 237. I find this position by a labor union very troubling

Now if they can only dump their private equity and real estate investments. But they can't do that, even if they want to. The idiots signed "no cut" contracts with no termination dates.

What is worse, is that they don't know what the contracts say. The Comptroller won't even let them see the contracts, contracts he signed. It gets even worse. The trustees authorize the Comptroller every year in June to continue this craziness for another 12 months.

I have written for a long time about this insanity. Don't let them tell you that they didn't know until now.

In a desperation move the investment community is attacking this action as being politically motivated. I'm sure there is a healthy dose of politics involved but the investment managers are terrified that if this movement gets going, they will all be taking orders behind the counter at McDonald's. That is if they get there first.

NY Times: NYC Pension Funds and "Operational Failure"

On Tuesday, January 26, 2016, the NY Times reported the public release of a study analyzing the investment capabilities of the NYC Comptroller's Office. The NY Times article focused on the expression "danger of operational failure" to summarize the opinion of the report. The city paid Funston Advisory Services $1.4M for the 406 page report.

According to the following exert below from the report, the Comptroller's Office is currently not up to the job and needs lots of money to get the office into shape.

Our overall conclusion is that additional resources are required or the current investment strategy presents a very high level of operational risk. This is a problem that has been growing over the course of multiple administrations. It requires a long-term solution, long-term leadership, the support of the Systems, and long-term resourcing, but it also demands immediate action.

Continuous improvement (doing what BAM already does, but better) is necessary but not sufficient. Discontinuous improvement (doing new things in new ways) is also required. Unfortunately, given its existing resources and demands, BAM’s management currently has little or no capacity to implement many of the recommendations of this report.

To me it appears that the study was designed to help the Comptroller hold onto his annual designation as investment manager and his control over the investment process at the five city pension funds. I also suspect that the Mayor's Office is pushing to outsource the management functions of the pension fund so as to remove the heavy political influence that emanates from the Comptroller's Office.

As a example of this political influence, one of the people listed by Funston Advisory as a member of their team is a man named Jon Lukomnik. Jon worked for The NYC Comptroller Alan Hevesi from 1994 to 1998 as his representative on the NYCERS Board of Trustees. In FY-1997 Jon lead the move to allow Hevesi complete control of all of the NYCERS investment contracts and the payment of the fees outlined in those contracts. This is exactly one of the primary sources of the current chaos in the Comptroller's Office. As NYCERS executive director I specifically opposed this move in 1997 but for some reason the mayor's Law Department went along with this take over.

As long ago as 2011, I pointed out the improper activities by the Comptroller's Officewhen it came to investment contracts and fees for the pension funds. As recently as November of 2015, I again pointed out the mess at the Comptroller's Office. This report, however, documents in details how bad the internal operational problems are at the Office of the Comptroller.

The real reason the Comptroller's Office has become overwhelmed with the investment process is that trustees of the five city pension funds have made terrible investment decisions over the last 15 years.

The solution to the trouble at the Comptroller's Office is not more staff, higher salaries, and more spending. The real change needed is much more simple than what the report recommends but just as radical.

Instead of spending more money and hiring more people, all five funds should radically simplify their investment strategies. Invest only in 1) direct US stock index funds (S&P 500 or Russell 3000) and 2) Treasury, high rated corporate, and agency bonds.

They should reduce the number of investment managers and have a target of ten managers for each fund. They should also set a target for investment fees of 10 basis per year.

When the dust settles, the Comptroller's Office will be able to do its job with mere mortals. The five pension funds will earn more returns on their assets, pay far less in fees and the city will save on pension costs.

Of course, the Comptroller would be totally irrelevant politically and lots of of people on Wall Street would be out of a job.

While the trustees are reforming things, they should consider the following suggestion. Since the pension funds are already paying the Comptroller to do such a tenuous job managing their investment activities, they should put out a RFP for the work to see if they could get the job done better at lower cost. That is what the Comptroller did with his pension custodial and cash management work.

And another thought. Don't you think that when a new Comptroller comes into office, that he/she will want to replace all those highly paid provisionals in the Bureau of Asset Management with his/her own "experts".

The following is another quote from the report that is indicative of the quality of the report:

The reduction in the number of investment committee meetings will go a long way toward alleviating BAM’s workload. This reduction will free up executive time to address much needed strategic and operational improvements, but BAM still requires additional resources for both staffing and modernized systems. In combination with our recommendations, BAM can make significant progress toward becoming a world-class investment operation.

If the proposed reduction of investment committee meetings had failed to be accepted, we believe BAM and the Systems would have had a basic choice to consider: 1) increase the level of BAM resources to fully implement the recommendations (people, processes and systems) contained in this report; or 2) reduce the complexity of the asset allocation to a level which can be supported by the current level of resourcing.

This is utter garbage. The jamming of the monthly investment board meetings for the five city pension funds into one meeting accomplishes only one thing. That is the staff at the Comptroller's Office only has to put on its dog and pony show once a month instead of five times. The cock and bull story about the five board meetings per month being such a burden is just a smoke screen for the total chaos that is happening in the Comptroller's Office.

It is interesting that up to 70% of any investment meeting is held in hidden executive session. How does the Comptroller's staff handle access to info for specific pension fund that it deems to be covered by executive session when five different groups of trustees are sitting in the meeting? I hope everyone realizes that the five funds do make different investment decisions. TRS has actually been able to avoid investing in hedge funds.

Of course, we all know that there is very little that honestly qualifies for executive session.

If there wasn't so much garbage in the investment portfolios, it would take the Comptroller's staff one day to prepare for a regular investment board meeting. Of course you might start to wonder what they were doing for the rest of the month.

The Board of Trustees for each of the five systems are responsible for the prudent investment of the each of the funds, not the Comptroller. His/her annual delegation is at the discretion of the trustees of each of the five funds.

NYCERS Investment Performance and Fees for FY-2015

As of June 30, 2014 NYCERS had a closing balance of $54,422.0M.

As of June 30, 2015, one year later, NYCERS had a closing balance of $54,889.3M

During FY-2015 NYCERS had revenue of $5,089.1M and expenses of $4,571.0M. That is a net inflow of $518.1M.

After the net inflow is subtracted from the June 30, 2015 closing balance, the adjusted FY-2015 closing balance is $54,371.2M. That is a decrease in assets for the year of $50.8M. This is essentially a no change in the value of the assets for the year.

During FY-2015, the S&P 500 index increased from 1960.23 to 2063.11 and the Barcaly's US Aggregate Bond Index increased by 1.86%. With a 70% stock/ 30% bond allocation, you should have had a target of 4.12% increase in assets for FY-2015.

At no point have the NYCERS Trustees made a public statement explaining why the fund performed so poorly or what they are going to do about it.

In conjunction with this poor performance NYCERS "reported" paying $231.8M in investment expenses for FY-2015. In FY-2014 NYCERS "reported" paying $184.6M. Listed below are the specifics of the $231.8M:

1. $28.4M : general stock & bond managers
2. $ 2.9M : Emerging managers - US equity
3. $ 0.4M : Emerging managers - US Fixed inc.
4. $ 7.0M : Junk bond managers
5. $ 2.3M : Convertible Bond managers
6. $40.4M : PE managers
7. $12.7M : PE Opportunity & Global FI
8. $31.7M : International Equity managers
9. $17.8M : RE managers
10. $39.8M : Hedge fund managers
11. $ 3.5M : investment consultants
12. $ 0.1M : legal fees (investment)
13. $13.0M : PE organizational fees
14. $ 5.1M : RE organizational fees
15. $ 4.5M : PE Opp/Global organizational fees
16. $15.5M : Foreign taxes
17. $ 2.1M : Comprtroller's subsidy
18. $ 4.5M : Miscellaneous

No one knows who the organization fees are paid to. That is $22.6M off into the great beyond.

Don't you wonder what the miscellaneous stuff was that the $4.5M bought?

What will the Comptroller's subsidy be in FY-2016 what with all the huge pay increase that the "investment" staff got in August?

This is all such obvious insanity. None are so blind as those who will not see.

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.