Wednesday, May 29, 2013

All the King's Horses...

As of December 31, 2012 NYCERS had 263 open contracts with investment managers. For details see pages 103 and 119-124 of NYCERS FY-2012 CAFR .

In the table below I have listed 12 of these managers along with the assets they have under management and the fees NYCERS paid them in FY-2012. I picked these managers because not only are they sufficient to manage the total NYCERS portfolio, they are significantly more effective and efficient than the mob of plus 230 current managers. These twelve managers represent the index/core strategy I referred to in a previous posting.

It is always enlightening to see specific details about big picture issues. You can get clear sense of what is going on. Of course, limiting the investment activity to these twelve managers would have a profound effect on the broad investment community. What is good for NYCERS, is not necessarily what is good for "Wall Street".

These 12 managers handle approximately 28.5% of NYCERS assets but their fees represent only 3% ($3.88M) of the total $130.81M paid in investment fees in FY-2012. It is reasonable to estimate that if they handled all of NYCERS assets, the annual fees would run about $10M. Total returns would be higher and the internal management at the Comptroller's Office and NYCERS would be far simpler and transparent.

The Comptroller wouldn't have to worry about replacing his departing private equity specialist. It is highly unlikely any competent investment specialist would sign up for the last 7 months of Liu's term.

NYCERS - The Index/Core Strategy Managers

Manager Category Asssets: December 31, 2012 Fees: FY-2012
Blackrock R3000 Russell 3000 Index $3,710.66M $184,173
State Street R3000 Russell 3000 Index $1,803.35M $304,439
Sate Street Global Advisors EAFE (developed international) Index $1,119.15M not reported
Blackrock EM Emerging Markets Index $1,078.31M $99,331
Blackrock Government & Agency Bonds $425.68M $186,104
PIMCO Government & Agency Bonds $460.52M $186,881
Blackrock Mortgage Bonds $675.25M $305,410
Neuberger Bermann Mortgage Bonds $733.52M $511,144
PIMCO Mortgage Bonds $760.26M $350,840
Barrow Hanley Corporate Bonds $562.92M $642,933
Taplin, Canida Corporate Bonds $580.87M $349,386
T. Rowe Price Corporate Bonds $678.66M $648,665

Note: A "not reported" item is an accounting error on a financial report (accrual method).


Listed below is a sample of some of the investment managers under contract with NYCERS who are unnecessary for the effective performance of the NYCERS portfolio. I'll bet the trustees have no idea that there are some many mangers and how much they are being paid.

NYCERS - Some of the Unnecessary Investment Managers

Manager Category Asssets: December 31, 2012 Fees: FY-2012
Research Affiliates Domestic Equity Index $912.84 $1,293,845
Attucks Domestic Equity (Minority/Women) $216.49M $1,179,486
Capital Prospects Domestic Equity (Minority/Women) $51.44M $268,539
Progress Management Domestic Equity (Minority/Women) $281.14M $1,468,541
F.I.S. Managers Domestic Equity (Minority/Women) $166.85M $828,940
Walden Asset Mgnt Domestic Equity (Environmental) $253.86M $308,333
Breeden Capital Mgmt Domestic Equity (Environmental) not reported $1,118,833
Progress Management International Equity (Minority/Women) $42.79M $310,251
Ballie Gifford International Equity $432.79M $1.037,943
GE Asset Management International Equity $109.52M $1,162,633
Mondrain International Equity $239.08M $1,214,513
Sprucegrove International Equity $529.97M $1,047,245
Philadelphia International Equity $315.79M $1,373,394
Thornburg International Equity $570.97M $2,248,851
F&C SGE International Equity (Environmental) $55.60M $337,259
Generation GE International Equity (Environmental) $133.85M $1,772,148
Governance for Owners International Equity (Activist) $254.74M $841,776
Acadian Emerging International Equity $318.37M not reported
Ballie Gifford Emerging International Equity $334.09M $2,501,886
DFA Emerging International Equity $558.15M $1,519,145
Eaton Vance Emerging International Equity $569.31M $554,824
Permal Asset Management Hedge Fund $254.98M $1,452,171
Blue Trend Hedge Fund $115.19M not reported
Brevan Howard Hedge Fund $199.42M not reported
Brigade Lev Cap Str Hedge Fund $116.16M not reported
Caspian Select Cf Hedge Fund $88.31M not reported
D.E. Shaw Hedge Fund $227.95M not reported
Aisling Capital II Private Equity $4.28M $71,973
Aisling Capital III private Equity $6.27M $274,905
Allergra private Equity $0.06M not reported
American Sec Partners VI private Equity $24.83M $685,718
Ampersand 2006 private Equity $24.42M not reported
Ampersand 2009 private Equity $16.37M not reported
Apollo Investment Fund V private Equity $11.16M not reported
Apollo Investment Fund VI private Equity $92.17M not reported
Apollo Investment Fund VII private Equity $82.90M $1,205,026
Ares Corp Opp private Equity $18.29M $121,554
Ares Corp Opp II private Equity $26.48M $209,001
Ares Corp Opp III private Equity $70.96M $1,111,806
Ares Corp Opp IV private Equity $3.86M not reported
Axa Secondary Fund V private Equity $56.56M $1,368,478
BC European Capital Private Equity $47.70M $2,092,480
BDCM Opportunity Fund private Equity $7.95M $395,168
BDCM Opportunity Fund II private Equity $29.87M $399,327
BDCM Opportunity Fund III private Equity $14.66M $675,930
Blackstone Capital Ptnrs IV Private Equity $15.88M not reported
Blackstone Capital Ptnrs V Private Equity $9.38M $553,449
Blackstone Capital Ptnrs VI Private Equity $26.76M $1,136,958
Blackstone Mezzanine Ptnrs II Private Equity $11.62M $245,257
Blue Wolf Capital Fund II Private Equity $17.18M not reported
EQT VI Private Equity $25.24M $1,674,292
Fourth Cinven Fund Private Equity $68.06M $901,122
Green Eq Inv VI Private Equity $14.6M not reported
Landmark Equity XI Private Equity $10.78M not reported
Landmark Equity XIV Private Equity $59..39M not reported
Landmark Fund XIII Private Equity $25.40M not reported
New Mountain Ptnrs private Equity $1.86M -$231,107
New Mountain Ptnrs II private Equity $27.50M -$450,855
New Mountain Ptnrs III private Equity $54.50M $1,424,805
Onex Ptnrs III private Equity $7.95M $1,089,789
Quadrangle Cap Partners II Private Equity $42.57M $503,573
Ripplewood Partners II Private Equity $8.89M $21,583
Tailwind Capital Private Equity $1.88M $606,463
Vista Equity III Private Equity $31.82M $336,956
Vista Equity IV Private Equity $33.68M $1,483,426
Wellspring Cap Ptnrs V Private Equity $9.09M $908,561
Welsh Carson Anderson & Stone XI Private Equity $31.42M not reported
Yucaipa American Alliance FD Private Equity $65.58M $637,938
Yucaipa American Alliance FD II Private Equity $150.53M $423,574
Yucaipa Corp Initiative II Private Equity $22.40M $624,375
Amer Value Ptnrs I Real Estate $24.57M -$326,904
Apollo Europe III Real Estate $25.97M $523,333
Apollo RE Fund V Real Estate $10.76M $278,780
Blackrock Carbon III Real Estate $31.18M not reported
Blackstone RE Ptnrs EU III Real Estate $37.09M $750,000
Blackstone IV Real Estate $17.13M $317,794
Blackstone VI Real Estate $131.89M $1,466,194
Blackstone VII Real Estate $77.399M $1,784,556
Brookfield Strategic RE Ptnrs Real Estate $12.26M not reported
Canyon Johnson Urban Fund Real Estate $0.01M -$19,101
Canyon Johnson Urban Fund II Real Estate $19.99M -$133,311
Canyon Johnson Urban Fund III Real Estate $22.50M $300,000
Capri Urban Investors Real Estate $39.36M $744,550
Carlyle R.P. Fund V Real Estate $14.49M $636,344
Carlyle Realty VI Real Estate $22.12M $118,142
Colony Realty Ptnrs II Real Estate $8.75M not reported
H/2 Special Opportunity Fund II Real Estate $12.56M not reported
Heitman America Real Estate $138.63M $616,535
JPM Strategic Property Fund Real Estate $165.35M $1,464,228
JPM Special Situation Fund Real Estate $72.94M $1,117,013
Silverpeak RE Ptnrs III Real Estate $9.16M $300,510
The City Investment Fund Real Estate $92.15M not reported
Thor Urban Property Fund II Real Estate $26.59M $1,030,292
Tishman Speyer/Citigroup Real Estate $38.60M not reported
UBS Trumbull Property Fund Real Estate $186.05M $1,263,748
Urban America II Real Estate $13.49M not reported
Walton St RE Fund VI Real Estate $47.12M -$62,722
Westbrook RE Fund VII Real Estate $30.85M $498,359
Westbrook RE Fund VIII Real Estate $47.77M $751,032
Loomis Sayles Enhanced Yield Bonds (Junk) $547.40M $1,933,194
Shenkman Enhanced Yield Bonds (Junk) $249.91M $1,015,023
T. Rowe Price Enhanced Yield Bonds (Junk) $485.14M $1,400,339
Advent Convertible Bonds $275.87M $1,330,140
Lord Abbett Convertible Bonds $144.78M $326,330
Victory Convertible Bonds $146.32M $448,484
Comptroller's Payroll subsidy $0.00M $1,983,615
Unknown Private Equity Organizational Costs $0.00M $7,893,741
Unknown Real Estate Organizational Costs $0.00M $4,770,660
Aksia consultant $0.00M $540,867
PCG consultant (private equity) $0.00M $463,888
Stepstone consultant (private equity) $0.00M $916,667
Torreycove consultant $0.00M $456,654
Townsend Group consultant (real estate) $0.00M $384,790

Note: The following is a great NY Times article on how trustees can lose their way.

Wednesday, May 22, 2013

Denial of Legal Benefits: Incompetence and Arrogance

It is difficult to see NYCERS treat disabled retirees with contempt when the agency has statutory backing for its heartless and sloppy actions. It is absolutely despicable when NYCERS does this without legal backing.

In 2009, I wrote about about errors in the newly issued NYCERS Tier 4 summary plan description (SPD), in particular filing for retirement under Tier 4. At the time the issue was hypothetical. I now have come across a real live person who NYCERS is denying his legitimate right to retire under Tier 4.

This person is currently disabled and receiving a Social Security disability benefit. After working for the city for 16 years he left the city in 2000. He is now 55.

NYCERS has refused to accept his Tier 4 retirement application and is forcing him to apply for retirement under Tier 3. The benefit for this person at age 55 under Tier 3 & 4 will be the same, however, under Tier 3 this person's benefit will be reduced at age 62 by 50% of his Social Security retirement benefit.

The Tier 4 & 3 benefit for this person is only 19.4% of his three year average earnings with a 27% reduction for early retirement at age 55. Assuming this person's three year average salary was $50,000, his annual benefit would be $9,700 at age 55. At age 62, however, the Social Security offset could easily be $8,000 per year. This drops the person's benefit and NYCERS liability to $1,700 a year when this person turns 62. It is also possible that the offset could obliterate the Tier 3 benefit and in turn, put the pensioner's health insurance coverage at risk.

The Tier 4 benefit is not what you would call a gold mine. In fact, it is typical of a NYCERS pension for average city worker. NYCERS, however, is flaunting the law and depriving this man of his legal benefit. Over the years I have seen NYCERS and the city try to save money by denying legal rights to both part-time and female workers but let a former police commissioner get pension service credit for double dip Section 211 service.

To obtain his rightful benefit, this member will have to sue NYCERS. Along with the resulting legal expense, it is not certain that he will win. At least, I would testify that as of 2005 this member was eligible for a Tier 4 early retirement benefit and that, in my opinion as the executive director at the time the law was passed, the current executive director is illegally denying this person his statutory Tier 4 retirement benefit.

Friday, May 10, 2013

When Will the City Wake Up?

About a month ago I wrote about NYCERS's miserable investment performance over the last 13 years in contrast to a simple index(stocks)/core(bonds) strategy. It was so bad that I wondered how the other city pension funds did. So I did a comparable analysis of the performance of TRS and the Police Pension Fund, the two other large systems. You can check the detailed spreadsheets for NYCERS , TRS , and Police with the highligthed links.

TRS and Police did almost as bad as NYCERS as seen in the first table below. The analysis, however, did surface an issue when looking at the three systems together. They had significantly different income flows over the 13 year period. NYCERS & TRS had negative income flows, while Police had a positive income flow.

This positive flow hides the poor investment performance for Police. In contrast, TRS's large negative flow makes its investment performance look worse than it really is.

The last column in the first table shows the new 7% pension liability amount computed by the NYCERS/TRS actuary.

If the investment strategy and the funding (see table 2) were better, NYCERS and TRS would be in great shape, even without the benefit of the new Tier 6 benefit limits. Police has a much deeper problem but upgrading the investment strategy would be a big step forward in getting the problem under control.

NYCERS - TRS - Police Pension Fund Investment Performance: 2000 - 2012

System Closing Balance Closing Balance Income Flow Closing Balance Actuarial Liability
**** Actual Index/Core 2000-2012 Zero Income Flow 2012
Index/Core (7%)
NYCERS $42.8B $55.5B -$4.4B $63.2B $62.9B
TRS $32.8B $41.0B -$8.8B $53.5B $55.1B
Police $25.5B $31.2B $4.5B $26.1B $38.1B

NYCERS - TRS - Police Pension Fund Benefits & Contributions: 2000 - 2012

System Benefits paid Employer Contributions
NYCERS $38.9B $15.6B
TRS $41.6B $18.6B
Police $20.2B $16.5B

NYCERS - TRS - Police Pension Fund Retiree & Members: 2011

System Retirees Vested Members Inactive Members Active Members
**** 2011 2011 2011 2011
NYCERS 135,468 8,914 18,969 182,021
TRS 74,064 8,932 10,938 109,636
Police 45,755 780 1,643 33,705

Note: Since July 1, 2009 Police and Fire pension benefits for new employees have been reduced to Tier 3 levels.

Note: Since April 1, 2012 all NYS pension benefits for new employees have been reduced by Chapter 18 of the Laws of 2012 (Tier 6).