Missing data from Comptroller's On-line Pension Library

Sometimes pointing out missing data is a story all by itself.

The Comptroller has developed a website to give more transparency to city and pension finances. I'm afraid he has found out that delivering on that transparency is a lot more awkward than he thought. Check the index for the NYC Comptroller's On-line Pension Library.

The following are missing items:

1. NYCERS Investment Agendas
   1. June, 2011
   2. October, 2011
   3. June 26, 2012
   4. November 20, 2012
   5. December 18, 2012
2. NYCERS Investment Meeting Minutes
   1. All of 2011
   2. All of 2012
3. NYCERS regular meeting Minutes
   1. November, 2011
   2. December, 2011
   3. All of 2012
4. NYCERS Monthly Performance Report
   1. October, 2011
   2. June, 2012
   3. November, 2012
   4. December, 2012
5. Quarterly Reports (Dropped once before by Thompson after March, 2005)
   1. Q3 & Q4, 2011
   2. Q1, Q2, & Q3, 2012

The Comptroller's Pension Checkbook Checkbook Integration web page is also a joke.

The Comptroller was able to get the Police Pension Fund to participate in 2011 but NYCERS and TRS has left the Comptroller whistling in the dark since then.

The Worker’s Compensation Nightmare Keeps on Coming.

On November 30, 2012 NYCERS sent an unsigned letter to a former subway conductor. NYCERS has been sending this disabled retiree $283.30 a month for the last 21 years.

The letter notified the retiree that 1) his benefit is subject to an offset of any Workers’ Compensation payment and 2) since he has been receiving $150 a week from the Workers’ Compensation Board that his pension will be suspended as of January, 2013. NYCERS provides no detail about how this Workers’ Compensation information came to light 21 years after the member retired. No statutory reference was given.

NYCERS will graciously continue to pay him a “nominal” amount so that he may retain his health insurance.

In addition NYCERS stated that since he has been receiving the $150/week Workers’ Compensation payment since 12/01/1991, his NYCERS disability benefit was and is equal to $0.00 per month.

While this can be argued to be legally correct, such a draconian result demands a close legal interpretation of the statute. This retiree contributed 3% of his salary to NYCERS for eight years before becoming disabled. This interpretation of the statute provides this member with nothing for the money he contributed. It is hard to conclude that this was the legislative intent.

The final thrust of the NYCERS letter is a claim by NYCERS against the retiree of a repayment of $99,355.18 for the monthly payment of $283.30 over the last 21 years. NYCERS states that it may take action to recoup the money. Of course, NYCERS offers the retiree the option of sending a check or money order payable to NYCERS for the full amount. It appears that the $99,355.18 includes all the cost of living adjustments (COLA) that the retiree received. I am almost certain that NYCERS does not have specific directions from the Law Department to deny COLA payments to such retirees. Of course NYCERS sent no calculations supporting the $99,355.18 amount.

Again, NYCERS graciously advises the retiree that if he has any questions he can call the pension payroll unit or visit customer service at Jay Street.

No one signed the letter.

I never cease to be amazed at how secretive, clumsy, insensitive and unprofessional NYCERS can be. This is especially true for an agency that has a budget that is free from the constraints that other city agencies have to work under.

Private Equity: Disclosure (lack of) and Cutting Losses

In September, 2011 the NYCERS trustees hired an new investment consultant for private equity investments. The new firm is StepStone Group LLC. They replaced Pacific Corporate Group who had been under contact since 1998 when Hevesi was Comptroller.

At the September 25, 2012 NYCERS Board of Trustees investment meeting, StepStone issued a 36 page report on the March 31, 2012 status of the NYCERS private equity investments. The private equity reports always lag the reporting of the more traditional investments.

The copy of the report included in the "revised" public agenda for the meeting was missing the last 10 pages of the report which comprised two exhibits labeled:

--- IA) Portfolio Investments by Status
--- IB) Performance by Vintage Year

The "revised" agenda is available on the Comptroller’s web site. I suspect that the revision was due to the fact that the staff at the Comptroller’s office forgot to redact the information showing how bad the situation is with respect to the NYCERS private equity investments.

From my previous experience of requesting investment information under New York State F.O.I. Law, NYCERS purposely hides specific performance information about the private equity managers. NYCERS also hides information about the real estate managers. NYCERS is required by the NYS Freedom of Information Law to provide this information to the public. You can read a detailed advisory opinion (OML-AO-3931) from the State of New York Department of State - Committee on Open Government addressing this specific issue.

Of course, if an agency is not sued in court for violating the NYS Freedom of Information Law, it can effectively violate the law with impunity.

On a more basic level, the report was paid for with the members’ and retirees’ money. The report belongs to them and not the trustees, some of whom are not even participants of the pension system. StepStone tries to claim that the report is confidential but that is not possible when functioning in the public sector as indicated in the advisory opinion referenced above.

Sale of eleven PE partnerships

Equally disturbing is the start of the sale of NYCERS private equity partnerships in the secondary market.

In the part of the report released to the public StepStone notified the trustees of the sale of eleven of the 141 partnerships in the secondary market. The sale was done in two parts. The first included five partnerships sold at a 6.6% discount. The second included the remaining 6 sold at a 5.4% discount.

Stepstone does not indicate why they were sold. It does not indicate why these eleven were chosen. It does not indicate whether these eleven were highly rated assets or of inferior quality. It does not provide a cash flow history of any of the eleven partnerships. Without the cash flow history it is impossible to determine the final performance of any of the eleven partnerships.

StepStone does not detail the financial impact of the quoted discount of the two sales. It focuses on the idea that the sales have released NYCERS from an unfunded liability of $129.5M. This sounds a lot like cutting your losses.

Disaster Recovery and Hurricane Sandy

With Hurricane Sandy’s knockout of major office buildings in lower Manhattan, metro area organizations will all be reviewing the effectiveness of their disaster recovery plans.

In 2004, I began the effort to establish an alternative disaster recovery office site for NYCERS. It is unclear, eight years later, whether the NYCERS Long Island City recovery site would actually have been able to function as an effective disaster recovery site, if Hurricane Sandy had flooded 335 Adams Street as it did 55 Water Street, the home of the NYC Teachers Retirement System.

Wilderness

As of June 30, 2012 the Comptroller reported to the NYCERS Trustees that the assets of the system were valued at $41.620B. The June 30, 2011 value was $41.623B. That is a small drop for FY-2012.

As a point of reference the value in 2000 was $42.997B.

For the last 12 years this has truly been the wilderness for NYCERS investments.

The whole picture is even worse.

The annual benefit payments have gone from $2.11B in 2000 to $3.568B in 2011. In addition the trustees have for some reason chosen to expand into asset classes that are not prudent for a large mature public pension fund. The trustees have also allowed investment fees rise from $32M in 2000 to $145M in 2011.

You can see from the table below the effects of the Kool-Aid. Just because everyone else is jumping off the cliff, that doesn't mean it is a good idea.

NYCERS Asset Class Expansion

Asset Class	2000	2011	2012
US Equity – Active Managers	$3.196B	$2.581B	$2.447B
US Equity – Emerging Managers	$0.247B	$0.666B	$0.667B
US Equity – Passive: Russell 3000	$20.733B	$6.809B	$5.962B
US Equity – Passive: S&P 500		$3.934B	$3.392B
US Equity – Passive: Small & Mid-Cap		$2.861B	$2.550B
US Equity – Environmental		$.064B	$.063B
US Equity – Activist		$.106B	$.006B
International Equity – Active	$4.460B	$3.646B	$2.293B
International Equity – Passive	$2.040B	$1.315B	$1.390B
International Equity – Environmental		$.180B	$.173B
International Equity – Activist		$.290B	$.214B
International Equity – Emerging Markets – Active		$1.478B	$1.572B
International Equity – Emerging Markets – Passive		$.558B	$0.960B
Hedge Funds		$0.078B	$0.929B
Private Equity Managers	$.008B	$3.169B	$3.655B
Real Estate Managers		$1.268B	$1.670B
US Fixed Income – Government/Mortgage/Corporate	$9.811B
US Fixed Income – Government		$1.070B	$1.058B
US Fixed Income – Mortgage		$2.845B	$3.003B
US Fixed Income – Corporate		$2.291B	$3.006B
International Fixed Income		$.053B	$.057B
US Fixed Income – Treasury: Inflation Protected/Active		$.762B	$.695B
US Fixed Income – Treasury: Inflation Protected/Passive		$.251B	$.228B
Fixed Income – Emerging Managers		$.095B	$.104B
Fixed Income – High Yield	$1.712B	$1.288B	$2.624B
Fixed Income – Convertible Bonds		$.560B	$.546B
Fixed Income – Opportunistic/Distressed		$.450B	$.435B
In-House - Short Term	$.596B
External – Short Term		$2.483B	$1.384B
In-House Targeted	$.118B	$.466B	$.500B
In-House Mortgage	$.010B
Securities Lending & Bank CD’s		$.007B	$.007B
Total	$42.997B	$41.623B	$41.620B

Administrative Expenses at NYCERS

I just read a October 12, 2012 NY Post article concerning administrative expenses at NYCERS. The Board refused the mayor's offer of $350,000 to pay for a consultant to come up with ways to cut the $120M/yr. administrative costs for the city's five pension funds.

This is a wild story. By statute NYCERS has to report all expenditures to OMB. (see S.13-103.g below) OMB is in the business of doing management audits of all city agencies. They don’t need to hire an outside consultant. The mayor just has to ask OMB to do the analysis.

The mayor can also instruct his representative on the Board to vote against the budget each year, if he is not happy with the way the executive director is running the agency (i.e. the LIC site ).

FYI: The Board had an extensive management audit done in 1996-1998. The trustees might try reading it.

In addition, by statute (S.13-103.g) the Comptroller is supposed to audit all NYCERS expenditures and is allowed to make recommendations, if he wishes to. Unfortunately, progress on the Comptroller’s heralded budget disclosure site has stalled.

NYCERS’s administrative budget (excluding loan operations:paid by members) has grown steadily in recent years.

1. FY-2013=$43.838M (plus $7.532M fringe) (staff:380 full time & 25 par time)
2. FY-2012=$44.538M (plus $6.603M fringe)
3. FY-2011=$44.539M (plus $6.006M fringe)
4. FY-2010=$43.825M (plus $5.362M fringe)
5. FY-2009=$43,398M (plus $4.879M fringe)
6. FY-2008=$41.908M (plus $4.799M fringe)
7. FY-2007=$37.033M (plus $4.375M fringe)
8. FY-2006=$34.939M (plus $4.076M fringe)
9. FY-2005=$34.589M (plus $3.887M fringe) (staff:342 full time & 13 part time)

I was quite amused by the closing text from the article:

“The vote goes against all logic and is a lost opportunity to improve operations,” said Finance Commissioner David Frankel.

Why is Frankel commenting on a NYCERS Board of Trustees vote. He has nothing to do with NYCERS. Considering the ongoing mess at Finance he should focus on his own responsibilities.

Section 13-103.g of the NYC Admin Code dealing with the NYCERS adminitrative budget. g. All expenditures of the retirement system shall be subject to audit by the comptroller, who may make recommendations, including but not limited to, procedures designed to improve accounting and expenditure control. All expenditures of the retirement system shall be reported to the mayor's office of management and budget and the budgetary office of all participating employers.

Hedge Funds and NYCERS -- 2010-2012

As of June 30, 2010, NYCERS had no money invested in hedge funds.

As per a August 2, 2010 Wall Street article , Bloomberg appoints Nagaswami as "chair" of the NYCERS board. She was not employed at the time. Concurrently, Bloomberg appoints her to a paid position at the Department of Finance with a salary of $175,000/yr.

I use quotes around the word chair because for some strange reason since 2010 NYCERS has avoided stating for the record who the chair actually is. That in of itself is a warning sign. When a large financial organization can not identify who the Chair of the Board of Trustees is, you know there is trouble.

For the record, the mayor is not a trustee. The person he appoints is the trustee, not the mayor. This is completely different from the other ten trustees who are ex-officio members of the board.

As of June 30, 2011 NYCERS reported having $77.50M invested in hedge funds.

As of June 30, 2012 NYCERS reported having $960.48M invested in hedge funds. In the Comptroller's quarterly report these investments were reported to have a 2.14% loss for the fiscal year ending on June 30, 2012.

In August, 2012 Nagaswami resigned her position as "chair" of the NYCERS Board of Trustees. She announced that she was taking a job with the hedge fund Bridgewater Associates LP, the world’s biggest hedge fund.

In September, 2012 the trustees adopted a resolution thanking Nagaswami for her service to NYCERS.

This sequence is obviously outrageous.

While 85% of the money going into NYCERS comes from employer contributions, in FY-2011 the employees paid $410M in pension payroll deductions. That is an an average of $2,300 from each employee. When the trustees screw up, it is both the employees and the taxpayers who get pounded. The trustees get to go home to Greenwich and work for a hedge fund.