Friday, May 28, 2010

NYCERS -- Real Estate Investments

Starting in 2003 NYCERS started reporting investments in real estate limited partnerships. The table below shows the reported values for those investments. You can see that the bulk of the investments occurred in FY-2007, the height of the mortgage market. Great timing!

It would be helpful, if NYCERS displayed on its web site the details of the investment history of the fund. Of course, that would probably raise too many questions about the investment decisions by the trustees.

I have always been fascinated by the Comptroller’s decision in 2005 to stop posting the quarterly returns of the five city pension funds. The last posting was March 30, 2005, the month I was forced to leave NYCERS.

On a closing note, it would be nice not to have to pay a lot to lose money.

Year Value(in millions) Expenses(in millions)

Monday, May 24, 2010

Layoffs and the History of Investment Expenses for the Five City Pension Funds

At the beginning of May the mayor announced that as part of his FY-2011 budget he was planning to cut the city payroll by 8,270 positions. Assuming a savings of $70,000 per position per year this represents a $579M annual savings. The heaviest hit will be to teachers with a 5,200 reduction.

The following is a history of the growth in investment expenses for the five city pension funds. Fiscal years 2010-11 are based on budgeted figures and projections.

The city and the public authorities must pay back these costs plus 8% interest in the following year after the costs are incurred. For example in 2010 the city had to pay to the five pension funds $339M plus $27M in interest to cover the $339M expense incurred in 2009.

These investment expenses have gone up 336% from 2002 to 2009 and the investment performance has been terrible.

Besides their huge size and rapid growth there are two disturbing aspects about these investment expenses. One is the lack of oversight by the pension funds of these costs and the other is the fact that significant portions of the costs are not itemized and not attributable to specific vendors.

For example, NYCERS is on record in its FY-2009 financial statement as having paid $25.5M for a private equity organization cost and $1.6M to a real estate organizational cost and $1.6M for miscellaneous investment expenses. A person reading this report would have no idea who received this money. This is in sharp contrast, for example, to the clear indication that NYCERS paid $5,522 to PriceWaterhouse Coopers listed on the same page as the phantom $25M.

This vague description raises an auditing red flag. Unfortunately, the trustees have allowed the comptroller to make these payments without oversight. To make matters worse, the comptroller is the statutory auditor of these payments.

Year Investment Expenses For Five City Pension Funds NYCERS Investment Expenses
2007$262.0M$ 98.1M
2006$192.7M$ 69.3M
2005$158.2M$ 46.1M
2004$131.6M$ 42.9M
2003$ 96.6M$ 29.2M
2002$101.9M$ 37.6M
2001NA$ 33.9M
2000NA$ 37.2M
1999NA$ 24.6M
1998NA$ 25.5M
1997NA$ 25.1M

Monday, May 17, 2010

Alert: Possible Retirement Incentive for 2010

The governor has proposed a retirement incentive bill(Program Bill #249)for 2010. It has an opt-in provision for the city and public authorities. It is not clear how this will play out between now and September 1, 2010. It is safe to say that any NYCERS member who is planning to retire before September 1, 2010 should delay that retirement until this issue is resolved.