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.

Bad Year for the NYC Pension Funds - FY-2015 - Investment Fees and Performance

The Comptroller released the NYC FY-2015 Comprehensive Annual Financial Report (CAFR) on Friday, October 30, 2015. The following are some points from the press release:

The City pension systems earned $4.746 billion in net investment income in FY15 and paid benefits totaling $13.4 billion during FY15. Employer and employee contributions to the City pension systems were $10.0 billion and $1.8 billion, respectively;

The City pension systems paid investment expenses totaling $708.9 million in FY15, an increase over FY14 that primarily reflects increased assets under management and more comprehensive fee disclosure and reporting;

These numbers are accurate but they are presented in a deceptive way.

The five funds received $1.94B in interest payments and $2.66B in dividends during 2015. They also earned $73M in securities lending income. That adds up to $4.67B. It does not take much skill to collect interest and dividend payments. It definitely does not take $708.9M in fees, a $183.0M increase from last year.

Listed below are the fees (pension funds only) for the last 14 years. You can see from the numbers that the "increased assets under management" comment is not valid. Of course previous reported fees may be inaccurate but that's not what "more comprehensive" means. I have a strong feeling that the Comptroller's office is in shambles when it comes to accurate records of the payment of investment fees.

• Year: -- Fees ---- Assets
• 2015: $705.0M ($145.7B)
• 2014: $522.0M ($144.5B)
• 2013: $472.5M ($124.8B)
• 2012: $370.3M ($111.3B)
• 2011: $395.7M ($111.0B)
• 2010: $426.8M ($90.0B)
• 2009: $339.3M ($79.5B)
• 2008: $310.2M ($101.9B)
• 2007: $262.0M ($110.9B)
• 2006: $192.7M ($96.0B)
• 2005: $158.2M ($90.6B)
• 2004: $131.6M ($86.5B)
• 2003: $ 96.7M ($78.1B)
• 2002: $101.9M ($80.7B)

On July 30, 2015, P&I reported that the Comptroller estimated that the city pension funds had a 3.3% rate of return for FY-2015. Of that amount 3.1% is due to interest and dividends paid to the pension funds.

Based on the details in the CAFR, the total pension assets for the five funds increased only 0.198% in FY-2015. In addition, this miserable number is based on unreliable asset values for private equity, real estate, and hedge fund classes. Note that two of the funds have avoided getting sucked into the hedge fund swamp.

The opening balance for the city pension funds (no TDA and no VSF) was $144.5B. The closing balance was $145.7B. With a $0.9B positive cash flow you get a 0.198% increase in asset value.

The other bruising fact in the city's CAFR, along with the $183M increase in fees, is the $1.294B that was skimmed off from the TRS & BERS pension funds to the TRS & BERS TDA funds and the $672M that was skimmed off to the VSF funds.

In FY-2015, the S&P 500 index rose 5.2% (from 1960.23 to 2063.11). NYCERS reported a 1.88% net of fee return on its structured fixed income class (Treasures, Corporates, & Mortgage Backed Securities) with a benchmark of 2.08%. With the 70%/30% asset allocation that the funds are currently using, the projected increase in asset value for FY-2015 could easily have been 4.24%, not 0.198%. That would have been a $150.95B closing balance instead of $145.67B.

That is $5B in one year. This why investment decisions are so important. The state implements Tier 6 and the trustees blow it all on bad investments.

All five of the pension funds had a decease in their funding status in FY-2015. The levels weren't great to start with. Here is the bad news.

• NYCERS went from 75.32% to 73.13%.
• TRS went from 71.79% to 68.04%.
• BERS went from 78.60% to 75.33%.
• Police went from 74.44% to 73.85%.
• Fire went from 63.78% to 62.79%.

Here are the accounting numbers for the five city pension funds:

Money Coming In for FY-2015

(in millions)	Five Funds	NYCERS	TRS	BERS	Police	Fire
employee contributions	$1,015.0	$467.1	$158.6	$39.6	$241.1	$108.6
employer contributions	$9,986.8	$3,160.3	$3,270.0	$258.1	$2,309.6	$988.8
other contributions	$55.5		$55.5
interest	$1,939.5	$635.7	$758.5	$36.9	$392.8	$115.6
dividends	$2,661.8	$795.3	$889.2	$46.2	$703.7	$227.4
SL income	$72.5	$26.5	$20.3	$2.7	$18.0	$5.0
other	($64.9)	$4.1	$0.3	($115.1)	$4.6	$41.2
Cash-in	$15,666.2	$5,089.0	$5,152.4	$268.4	$3,669.8	$1,486.6

Money Going Out for FY-2015

(in millions)	Five Funds	NYCERS	TRS	BERS	Police	Fire
Benefits	$11,994.1	$4,235.6	$4,024.3	$223.2	$2,360.5	$1,150.5
Transfers from TRS & BERS to TDA	$1,294.0	$0.0	$1,249.0	$45.0	$0.0	$0.0
Payments to VSF *	$12.2	$11.9	$0.0	$0.0	$0.3	$0.0
Transfers (Pension to VSF) *	$660.0	$30.0	$0.0	$0.0	$590.0	$40.0
Investment expenses *	$705.0	$231.8	$203.0	$10.1	$192.1	$68.0
Admin expenses *	$141.9	$54.6	$58.4	$11.0	$17.9	$0.0
other	$7.1	$7.1	$0.0	$0.0	$0.0	$0.0
Cash-out *	$14,814.3	$4,571.5	$5,534.7	$289.3	$3,160.8	$1,258.5
*
Net Cash *	$851.9	$517.5	($382.3)	($20.9)	$509.0	$228.1

Closing Balances & Asset Increases for FY-2015

(in millions)	Five Funds	NYCERS	TRS	BERS	Police	Fire
Open Bal:	$144,538.0	$54,422.0	$44,490.0	$3,279.3	$31,750.9	$10,595.8
Close Bal	$145,674.8	$54,889.3	$44,254.7	$3,359.8	$32,356.0	$10,815.0
Net Change	$1,136.80	$467.30	($235.30)	$80.50	$605.10	$219.20
Cash Flow:	$851.9	$517.5	($382.3)	($20.9)	$509.0	$228.1
Open Bal Adj:	$144,538.0	$54,422.0	$44,107.7 $3	,258.4	$31,750.9	$10,595.8
Close Bal Adj:	$144,823.4	$54,371.8	$44,254.7	$3,359.8	$31,847.0	$10,586.9
Net Change Adj:	$285.4	($50.2)	$147.0	$101.4	$96.1	($8.9)
Rate of Asset Increase:	0.197%	-0.092%	0.333%	3.112%	0.303%	-0.084%

Again, DFS and the Pension Audits.

Today the temporary head and the press officer of the NYS DFS suddenly resigned. This is after Lawsky left in June.

What happened to the audits of the seven state and city pension funds?

DFS is an agency in free fall.

My Wife Resigned from NYCERS in May of this Year

In May of this year my wife resigned from NYCERS about two years shy of the date she would have been able to retire. She started working at NYCERS in the fall of 1998. In December of 2003, she was promoted to Deputy Director of Administration by Milt Aron, the Deputy Executive Director.

Prior to that, starting in 1980, she worked at the Mayor’s Office, the Sheriff’s Office, and the Department of Homeless Services.

In June, 2005 she was demoted by Aron with the explicit approval of Martha Stark, Chair of the NYCERS Board of Trustees and the Finance Commissioner. She was demoted because of her relationship with me. She was forced back to her permanent civil service position and her salary was reduced by $14,000, the amount that she had been given when she was promoted.

From June of 2005 to May of 2015 my wife was given no work. She was told many times that there were strict orders from the executive staff that she was not to be given any work. Many times over the ten years she explicitly asked for work.

On a few rare occasions she was given some significant work but the minute the executive staff became aware of it, the work was stopped. Kin Mak could always be counted on to pass the word along to Karen Mazza about the work assignment.

In 2013 my wife was hospitalized for 12 days with acute ulcerative colitis.

In 2014, while driving to church on Palm Sunday, she had a major heart attack. She almost died on the side of the road. It was incredibly fortunate that she was at a stop sign and that her 16 year old daughter was with her in the car. The EMT’s were there in minutes and were able revive her with a defibrillator. She spent 18 days in the hospital. She was on reduced body temperature protocol for possible brain damage. She had double bypass surgery and another procedure for a defibrillator implant.

Both of these illnesses were directly caused by stress.

After both of these hospital events she returned to work. Both times she asked for work and both times NYCERS executive staff refused to assign her any work.

In the spring of 2015 the stress of being totally marginalized at NYCERS finally became too much of a threat to her health. She reluctantly resigned. At that point her salary was $104,000.

For many years now, I have been writing about the wretched way that NYCERS, and I mean D'Allesandro, Mazza, and Baksh/Ramsami, have treated members, retirees and NYCERS employees. I speak from personal experience.

You can understand why people lie, cheat, and steal for their own personal gain but to be just plain nasty for no good reason is despicable. The only thing I can come up with is that they are so incompetent they think they have to kick every one under them to hide their own failures. Maybe City Hall and the new NYCERS Chair will get tired of them like the previous mayor did with Martha Stark.

Parting Gift from the Old NYCERS Actuary

Last year I wrote short note on the history of the investment fees paid by the five pension fund sponsored by New York City.

On January 30, 2013 the Governor signed Chapter 3 of the Laws of 2013 changing the assumed interest rate for the five pension funds from 8% gross of fees to 7% net of fees. the legislation was drafted the NYCERS actuary, Robert North. It did a lot of other things but that was the big item. One of those minor things, however, deals with how city repays to the five pension funds the investment expenses incurred by the pension funds in the previous fiscal year (see below: S.13-705, NYC Admin Code). These expenses include the subsidy that the pension funds pay to the Comptroller for his regular operating budget that is part of the total city budget adopted by the City Council.

Beginning in FY-1999 the original legislation required the city to pay in FY-2000 with 8% interest all investment expenses incurred in FY- 199. This meant that these expenses were treated as operating expenses and not long term capital expenses. This is a very sound accounting practice. This legislation was also drafted by the NYCERS actuary.

You can further see that that starting with FY-2005 the law was changed to allow the city to repay expenses two years later rather than one year, so that FY-2005 was paid back in FY-2007 rather that in FY-2006. Again with 8% interest. This amending legislation was also drafted by the actuary.

You can also see that the law was again changed starting with FY-2010. And again it was drafted by the actuary. This change allows the city to treat the repayment of investment expenses as a long term capital expense rather than an operating expense. The new change also dropped the interest rate charge, in effect making this a interest free loan. Needless to say this is not a sound accounting practice. It gave the current city administration a payment holiday now and dropped the costs on a future city administration. This is how a pension crisis is born.

The new statute is listed below. It is the last item at the end of thirty two sections amending the NYC Admin Code. The new language is underlined as is standard.

§ 32. Subdivision d of section 13-705 of the administrative code of the city of New York, as amended by chapter 152 of the laws of 2006, is amended to read as follows:

d. In each city fiscal year, beginning with investment expenses paid during the nineteen hundred ninety-eight--nineteen hundred ninety-nine fiscal year, whenever the income, interest or dividends derived from deposits or investments of the funds of a retirement system are used pursuant to subdivision b of this section to pay the expenses incurred by such retirement system in acquiring, managing or protecting invest- ments of its funds, the monies so paid shall be made a charge to be paid by each participating employer otherwise required to make contributions to such retirement system no later than the end of the fiscal year next succeeding the fiscal year during which such monies were drawn upon, provided,

however, that where such charge is for such investment expenses paid during fiscal year two thousand four--two thousand five or during any subsequent fiscal year, such charge shall be paid by each such participating employer no later than the end of the second fiscal year succeeding the fiscal year during which such monies were drawn upon

, provided further that the provisions of this subdivision shall not apply to investment expenses paid during the two thousand nine--two thousand ten fiscal year or during any subsequent fiscal year.

In the event that such retirement system has more than one participating employer, the actuary shall calculate and allocate to each such partic- ipating employer its share of such charge.

All charges to be paid pursu- ant to this subdivision shall be paid at the regular rate of interest utilized by the actuary in determining employer contributions to the retirement system pursuant to the provisions of paragraph two of subdi- vision b of section 13-638.2 of this title.

The New NYCERS Actuary

I just came across the announcement of the new NYCERS actuary (see quote below). It is from the NYC web site dated back in May. I had been looking for it for awhile but I only found it when a friend sent me a link to the city web site. The reason I had not seen it before was that the announcement does not actually say that NYCERS had appointed a new actuary. The former NYCERS actuary, Bob North, resigned in the Fall of 2014.

May 29, 2015 NEW YORK—Mayor Bill de Blasio today announced Sherry Chan as the City’s new Chief Actuary. In this role, Chan will serve the City’s retirement funds and oversee actuarial calculations for post-employments benefits for City employees.

Legally the City does not have a Chief Actuary. NYCERS and TRS have actuaries (see quote below from NYC Admin Code). The two retirement funds usually appoint the same person as their actuary. That appears to be a very practical policy but in reality it is not financially sound. They are two very different pension funds with different liabilities. As background, by statute the NYCERS actuary is also the actuary for the Police and Fire pension funds and the TRS actuary is also the actuary for BERS (Board of Ed. Retirement System).

Ms. Chan is a ASA of the Society of Actuaries, not a FSA. I guess that is not a big deal unless it was because NYCERS could not attract a full Fellow of the Society of Actuaries. Once upon a time actuaries needed to be highly skilled mathematical technicians. Now they need to fearless messengers of painfully news.

The assumed interest rate is the key component of the annual pension costs that the city and the other participating employers must pay to the pension funds each year. It will be interesting to see where Ms. Chan stands on the 7% net of fees rate. She will be required to make a recommendation this winter for a new five year rate effective July, 1, 2016 and Albany will have to enact enabling legislation by June 30, 2016.

I suspect she will punt and ask for a one year extension of the old rate. North did this all the time. It is a bad fiscal policy and contributes to the under-funding of the pension funds.

Her most recent job was the actuary for the Ohio State PERS which began in January, 2014 and ran through May, 2015. It was interesting to watch the NYCERS chair introduce Ms. Chan to the Board of Trustees at the June Board of Trustees meeting. I guess they had never met her before that.

§ 13-121 Retirement system; adoption of tables and certification of rates.

The actuary appointed by the board shall be the technical advisor on all matters regarding the operation of the funds provided for by this chapter and shall perform such other duties as are required of him or her.

The actuary shall keep in convenient form such data as shall be necessary for the actuarial valuation of such funds.

Every five years, he or she shall make an actuarial investigation into the mortality, service and compensation experience of the members and beneficiaries as defined by this chapter and he or she shall make a valuation, as of June thirtieth of each year, of the assets and liabilities of the various funds provided for by this chapter.

Upon the basis of such investigation such board shall: 1. Adopt for the retirement system such mortality, service and other tables as shall be deemed necessary; and 2. Certify the rates of deduction from compensation computed to be necessary to pay the annuities authorized under the provisions of this chapter.

As part of the May 29th announcement, the mayor's office described Ms. Chan's work load as follows:

As Chief Actuary, Chan will work for the five major actuarially-funded New York City Retirement Systems, including the New York City Employees’ Retirement System (NYCERS), the Teachers’ Retirement System (TRS), the Board of Education Retirement System (BERS), the New York City Police Pension Fund, and the New York Fire Department Pension Fund.

The Chief Actuary also serves as the legally-designated technical advisor to the Board of Trustees of the New York City Retirement Systems (NYCRS).

The Office of the Actuary is responsible for determining employer contributions and funded status for NYCRS, preparing employer contributions for use in the development of budget and financial plans, certifying benefits for retiring employees, and preparing financial reports and accounting information on the New York City Health Benefits Program.

When You Buy a Ferrari and You Really Need a Pickup Truck

What happens when you buy a Ferrari, when you need a pickup truck?

You pay 10 times too much for what you need, you don't get what you need, and you pay a lot for mechanics. What you do get is a fast car.

It's too bad that the NYCERs doesn't even get a fast car when they make the wrong investment decisions.

Here's the the bill for the mechanics. And once again NYCERS is not even getting Ferrari mechanics.

As of August 2, 2015 the Comptroller increased the salaries of his investment staff. The story is that the five city pension funds were convinced to pay for the increases through their mindless subsidy to the Comptroller's budget. Of course, that is an illusion. It is the NYC taxpayers and the NYC employees who are paying for these increases. In fact, the employees pay twice, once as a taxpayer and a second time through their pension payroll deductions.

All the lucky people listed below are provisional employees. I wonder how permanent civil servants feel about that?

This is in addition to the five investment consultants that NYCERS paid $3.2M in FY-2014. Consultants are not the managers who do the actual investing but "experts" who advise the trustees on how oversee the managers.

Salary Increases at the Comptroller's Office

Count	Name	Civil Service Title	Assignment	% Increase	New Salary	Old salary	New Hire
1	Scott Evans	Pension Investment Advisor	CIO	56%	$350,000	$224,359
2	Michael Garland	Admin Staff Analyst	Corporate Governance	56%	$265,000	$169,872
3	John Merseburg	Admin Staff Analyst	Public Equities	93%	$250,000	$129,650	yes
4	Niel Messing	Admin Manager	Hedge Funds	67%	$250,000	$149,701
5	Alexis Done	Admin Staff Analyst	Private Equity	75%	$280,000	$160,000
6	Martin Gantz	Admin Staff Analyst	Fixed Income	62%	$280,000	$172,840
7	Yvonne Nelson	Admin Staff Analyst	Real Estate	69%	$265,000	$156,805
8	Petya Nikolova	Admin Staff Analyst	Infrastructure	59%	$250,000	$157,233
9	Miles Draycott	Admin Staff Analyst			$265,000
10	Evan Nahnsen	Admin Manager			$180,000
11	Noraina Pares	Admin Staff Analyst			$130,000
12	Tatiana Pohotsky	Admin Manager			$160,000
13	Wesley Pulisic	Admin Manager			$180,000
14	Steven Veloric	Admin Accountant			$160,000
15	Scott Zdrazil	Admin Manager			$170,000
16	Marc Gross	Admin Staff Analyst			$110,000	$70,833	yes
17	Vistoria Hui	Admin Staff Analyst			$120,000	$85,000	yes
18	Janet Londond-Valle	Admin Staff Analyst			$130,000
19	Karen Barclay	Admin Manager			$160,000
20	Shachi Bhatt	Admin Staff Analyst			$160,000
21	Yi Feng	Admin Manager			$180,000
22	Millicen Budhai-Robinson	Admin Staff Analyst			$110,000
23	Eneasz Kadziela	Admin Manager			$130,000
24	Lakhir Kaur	Admin Manager			$110,000	$70,000	yes
25	Louis Lent	Admin Accountant			$110,000
26	Barbara Nersten	Admin Accountant			$120,000	$70,789	yes
				Total =	$4,875,000

Private Equity Insanity at NYCERS – Another $500M Down the Rat Hole

On January 1, 2006 Scott Stringer took office as the Manhattan Borough President. As such he became a trustee (1/5th vote) of the NYCERS Board of Trustees. He continued in these two positions for the next eight years.

As of January 1, 2006 NYCERS had investment contracts with 38 private equity managers and 5 real estate limited partnerships.

By December 31, 2013, eight years later, the number of private equity contracts had risen to 136 and the number of real estate contracts had risen to 43.

Then on January 1, 2014 Stringer took office as the NYC Comptroller. As such he continued to be a trustee (full vote) of the NYCERS Board and for better or worse he became the designated investment manager for NYCERS.

As of March 31, 2015 the number of private equity contracts had continued to increase to 143 and real estate contracts to 48.

For over nine years Stringer has approved or actually signed the contracts with these managers.

On July 21, 2015 Stringer along with 12 other state treasurers sent a letter to Mary Jo White at the SEC complaining about the billing and reporting practices of private equity firms. See quote below.

Among the four types of private equity firm expenses—management fees, fund expenses, allocated incentive fees, and portfolio-company charges, a portion of which serve as offsets or contra-expenses to limited partners—only directly billed management fees are easily segregable and therefore regularly disclosed. Though private equity firms generally disclose information on all types of fees, it is often reported deep in annual financial statements and is not reported directly to limited partners on a quarterly basis. This lack of clear and frequent reporting has resulted in an uneven approach to fee disclosure from private equity general partners to limited partners.

One tangible example of inadequate expense reporting relates to portfolio company monitoring fees. Limited partners, such as state pension portfolios, are typically eligible for an allocation of fees that private equity managers collect from their portfolio companies. However, this limited partner share is usually not transferred to the limited partner, and instead it is maintained by the manager and used as an offset against payment of management fees. The calculation behind this offset is often opaque to the limited partner, making consistent disclosure of private equity expenses to the public extremely challenging.

. . .

We welcome the opportunity to continue dialogue on this very important issue, and stand ready and willing to assist the SEC in the consideration of this concept.

Nowhere in the letter does Stringer mention that over the last nine years he is partially responsible for putting place the secret and defective contracts that allow general partners to avoid publicly and properly reporting their billing costs to NYCERS. Don’t expect the SEC to do anything about this problem.

It is obviously not Stringer’s total fault that NYCERS is saddled with these secret and outrageous contracts. It is, however, crystal clear that NYCERS should be aggressively extracting its assets from all of these limited partnerships. Some small percentage of them may be valuable but the vast majority of them are losing propositions. Under no circumstances should NYCERS be entering into any new private equity contracts.

On top of these expense reporting problems there is currently no public accounting of the performance of these investments at NYCERS. No one knows what the loss or profit position is with respect to any of the NYCERS private equity and real estate partnerships, whether terminated or currently active.

So what does Stringer do next? On August 4, 2015 Stringer announces that the five city pension will be investing $500M additional funds in private equity deals. He wants to give minority and women owned firms the same chance to extract money from the five city pension funds as the old white guy firms have been doing for years. See quote below:

(New York, NY) — On Tuesday, New York City Comptroller Scott M. Stringer and New York City Pension Fund Trustees announced a $500 million expansion of the City Pension Funds’ Private Equity Emerging Manager program, which brings the total amount invested or committed with Emerging Managers to more than $14 billion — including over $11 billion invested or committed to Minority and Women-Owned Businesses Enterprises (M/WBEs). The expansion of the program also includes a formal graduation policy for private equity Emerging Managers to facilitate the City Pension Funds’ ability to continue to invest with the best-in-class private equity emerging managers after they have out-grown the Emerging Manager program.

I could write a whole series of postings about M/WBE investment programs for public pension plans. Bottom line, they are just like the “old white guy” programs, garbage except they cost more money and are supercharged with political influence.

Follow Up on the IT Budget Boondoggle at NYCERS

On March 12, 2015 the NYCERS Trustees approved a $2.25M budget allocation to be squandered on a mindless IT conversion project.

On May 10, 2015, two months later, I released a sharp criticism, of the project.

On May 12, 2015, two days later, the NYCERS executive director, Diane D'Alessandro, released an unsigned memo notifying the NYCERS staff of the fabulous five year IT conversion project.

So after two months D'Alessandro finally decides to let the troops know what she is doing, exactly two days after I point out the insanity of her project. She starts as follows:

As you may know, NYCERS is embarking on a major information technology (IT) and business system project to replace our now 35-year-old legacy pension administration system - PROD, the core of all NYCERS business functions. The project, known as the Legacy Replacement Project (LRP), will affect almost every aspect of our work at NYCERS, taking at least five years to complete.

She carefully describes the vote by the trustees as follows:

At its March 2015 meeting, the NYCERS Board of Trustees conceptually approved the LRP and adopted a budget that funds early project phases.

She also announces an internal PR campaign:

This is major NYCERS project. As a first step, we have begun a series of meetings to brief everyone on the project and to get your input regarding the initial phase of planning.

Without doubt D'Alessanro will be looking to drag in a ton of consultants for this project. She does, however, want to ensure the staff that she supports them totally:

I want you all to know that NYCERS is committed to providing our staff with the resources and support necessary to ensure success at all stages of this project. We will continue to keep you informed and seek your input as we progress.

You can't make this stuff up.

Just for Laughs

As part of the $2.25M, D'Alessandro got $500,000 for a sole source contract with Gartner. Of that amount, $310,000, is supposed to cover the cost of producing a RFP for the vague conversion project. There is nothing vague about its $132M price tag.

So what does Gartner do? They go looking for a recognized public pension expert who has substantial IT background. That probably is a good idea, since they don't particularly know much about public pension systems. Needless to say, neither does NYCERS.

In turn, Gartner contracts with a IT staffing firm to find such an expert.

On May 14, 2015, this firm reaches out to such an expert with the idea of hiring him and assigning him to the the Gartner contract.

On May 18, 2015 the firm calls the expert and describes the assignment. It becomes quickly clear to the expert that this assignment is part of the NYCERS IT conversion fiasco.

I will let you all guess who the expert was.

The expert was kind enough to let the firm know that, in spite of his intense interest in the project, D'Alessandro would never allow him to work on the project.

Lawsky - What Happened to the Public Pension Audits?

Lawsky is leaving NYS - DFS.

What happened to the audits of the seven state and city pension funds?

Budget Insanity at NYCERS

On March 12, 2015 the NYCERS Trustees approved the NYCERS FY-2016 administrative budget. It was Diane D'Alessandro's tenth annual adiministrative budget proposal as executive director.

The key numbers are listed in the table below. For comparison purposes I added FY-2006, my last budget as executive director, and FY-1996, NYCERS's last budget under the city's budget structure. The 1996 budget was draconian to say the least. You can see from the table that the NYCERS's budget has increased by 43% over the last ten years or 4.1%/year.

NYCERS: Admin. Budget Over the Years

	FY-2016	FY-2006	FY-1996
FT Positions	401	342	155
PT Positions	35	13	0
PS	$30.2M	$20.0M	$6.2M
OTPS	$19.4M	$14.7M	$2.6M
Sub-total	$49.6M	$34.7M	$8.8M
Fringe	$8.2M	$4.1M	$0
Total	$57.8M	$38.8M	$8.8M

What is extraordinary about this budget is that it is the beginning of a delusional spending spree on IT upgrades. It is being called the "Legacy Replacement Project". It proposes to spend $132M over a five year period, staring with $500,000 to be paid to Gartner, Inc. and $1.75M to other consultants to be named later. At the meeting D'Alessandro indicated that she was going to pay $310,000 to an outside firm to write a RFP for this "grand" project. Listed below is the five year spending bonanza.

• 2016 - $ 2.25M
• 2017 - $ 9.91M
• 2018 - $27.86M
• 2019 - $46.00M
• 2020 - $46.24M

To OMB's credit they complained about the $310,000 RFP. The trustees, however, approved this budget in spite of making noise about the long term cost of the project.

You would think, considering how well funded that the NYCERS budget is, that the NYCERS staff would be able to write their own RFP. But D'Alessandro got that part right, her staff can't do the job.

Of course, without the results of the RFP where did the $132M amount come from.

In fact over the last ten years D'Alessandro should have been standardizing NYCERS applications on a current client/server platform using a relational database system. This process was underway in 2005 when she first appointed. But thankfully the old CICS/VSAM systems were so well made that they have survived long after the point when they should have been retired. Thank God for small favors.

D'Alessandro, unfortunately, was appointed to her current job in 2005 without any prior relevant experience by Martha Stark and a bunch of compromised trustees. D'Alessandro had never managed anyone. She is not a lawyer, nor an accountant, nor an actuary. She had never worked for a pension system and she had absolutely no IT experience. What she was and still is, is grossly incompetent.

To make the situation worse, the current IT director was working as the NYCERS call center manager when D'Alessandro moved her to the agency's IT division in 2007. At that point she had no IT experience either. Six months later D'Alessandro makes her the director of the IT division. It reminds of when Rudy put a key punch salesman in charge of DoITT. She is as incompetent as D'Alessandro.

D'Alessandro submitted a five page justifying her budget proposal. It is a classic example of using a lot of words to create a fog, lots of hand waving and saying nothing except give me $132M. I actually don't think D'Alessandro wrote the summary. Five pages is far too much work for D'Alessandro. It looks like a cut and paste job from some marketing crap.

This is the justification for $132M.

MAJOR PROJECTS

In a continued effort to provide greater operational efficiency, enhanced customer service and improved quality and production, NYCERS is proposing to undertake a major information technology (IT) and business system replacement project that will streamline and consolidate all applications and functions into a single data repository for common use throughout the agency.

The project which will be known as the Legacy Replacement Project (LRP) will be conducted in three stages over a minimum of five years. The LRP will require a commitment of resources to be phased in over that time.

In order to ensure the success of the LRP, NYCERS is proposing two associated projects including a communications project designed to accommodate expanded electronic interaction with clients and a change management project to address staff training, coaching, and leadership development needs.

You can always spot a IT disaster from the start. It has a long time frame and they don't tell you what they are going to do in the first week of the project, the second week of the project, third week of the project,... You get the picture. Oh yeah, it will also cost a lot of money. I will guarantee you that this project will fail.

When I left NYCERS in 2005, NYCERS had one of the best IT departments in the city. The agency had:

1. between 60 and 65 IT professionals on staff
2. an integrated mainframe (VSE) and a network system (Windows Server 2003)
3. all major work operations automated running under CICS using VSAM and DB2
4. an advanced web site which allowed members and retirees to view their own specific data.
5. an imaging/workflow system covering all paper based applications for all members and pensioners.
6. a dedicated document scanning division
7. a tested computer disaster recovery plan (we were researching a full business recovery plan and site)
8. a standardized accounting package running on the network supporting both pension and administrative operations
9. a nightly backup process of all files including the Exchange Server
10. a project to upgrade major applications to DB2.
11. an advanced Avaya based call center with its own backup PBX.
12. a modern customer service center with its own integrated queuing system
13. an on-site fully equipped training center.
14. a proximity card system for both time keeping and security.
15. a separate network system for the security and a full camera subsystem.

Returning to the executive summary, it is not only short on details about the project but it also has a great deal of deceptive information. The following are a few quotes out of D'Alessandro's write-up along with some clarifying comments.

RECENT HISTORY

Over the past nine years, NYCERS has made significant infrastructure improvements.

Document Management

NYCERS continues to ensure the preservation and security of all vital records and to promote an environmentally sound approach to document management. This effort includes the incorporation of all incoming documents into the NYCEWORK system in an electronic format and the ongoing digitization of historical paper documents.

In 2014, NYCERS prepared, scanned and indexed over 200,000 incoming documents and converted over 1 million historical records into digital images. Since the inception of the document management project, over 38 million paper records have been imaged, saving approximately $600,000 in document storage fees.

From this quote you would think that document management was introduced during the last few years. In fact, it was there when D'Alessandro walked in the door. The system in place at that time used a software package called Staffware. It was working well but it was being stressed by the volume of documents that NYCERS was dealing with. It actually continued to function up until 2014 when a new software package, Filenet/NYCEWORK, was finally put into production. I wonder where the $600,000 in saved storage fees came from?

Unfortunately, while Staffware needed to be either upgraded or replaced, Filenet runs significantly slower than Staffware did. That in turn has created incremental delays at every step of every process in the agency. It has created havoc with the production levels for all major functions in the agency.

This is an example of a mismanaged project being put into production so that management doesn't have to say it made a mistake. We saw this problem with the CityTime project.

While we are talking about mistakes, there have been two major IT disasters at NYCERS in the last nine years costing millions of dollars. One was the DB2 project and the other is the infamous Long Island City disaster recovery site. At least when the DB2 project was cancelled, the bleeding stopped. The LIC-DR project is a never ending cancer.

When I left NYCERS in 2005, the IT department with the help of two consultants was slowly converting over our major VSAM files to a DB2 relational database platform. We had already had two significant systems running under DB2 but there was a long term need to shift all major files over to the relational model. Two months after I left the project was cancelled. Subsequently NYCERS entered into a contract with IBM/Blue-Phoenix to do the DB2 conversion. That project dragged on for years, cost millions, and eventually failed. NYCERS even tried to sue IBM but with very little relief.

Business Continuity

The Long Island City business recovery site enables NYCERS to restore business operations and critical applications in the event of a disaster. This ensures the sustainability of operations and reduces the potential for data loss. Business recovery time is within four hours and the data recovery point is within 30 minutes.

From this quote you would conclude LIC-DR is a success. That is not true in any sense.

The lease on the LIC-DR project was signed in 2006 and NYCERS still does not have a Certificate of Occupancy for the site. I have previously written about this mess. It is not clear what is the legal status of having employees on that site.

For the record, the rent at LIC-DR is $530,000 for FY-2016 plus another $400,000 for other ancillary lease charges. The site has serious water leakage, asbestos, and plumbing problem. The lease comes up for renewal in the spring of 2016. Let's see what the decision will be then.

And in this season of delusion, NYCERS is planning a tertiary disaster recovery site. They even started buying hardware ($250,000 in FY-2015) for this mythical site. Some people just don't get it.

Business Process Automation

NYCERS continues to streamline business processes and leverage infrastructure investments to improve service delivery. As a result, NYCERS has achieved efficiencies in areas including loans and survivor benefits. On-line loan processing time has been reduced from 10 business days to five business days.

In this quote D'Alessandro appears to claim to have automated loans and survivor benefits in the last nine years and that the turnaround time on loans has been dropped from 10 to 5 days. Actually in 2005 both loans and survivor benefits were fully automated. The loans were the first applications automated in the early 1980's and also the first application to be integrated into the imaging/workflow system in 2002. In 2005, if you filed a loan application by Tuesday, NYCERS mailed a loan check to you that Friday. You would wonder why D'Alessandro would have made the above statement.

While all this craziness was going on with the great IT upgrade, D'Alessandro also threw in a request for 12 new employees with salaries of $720,000. No explanation was given. This was on top of 6 new employees in FY-2015, again with no explanation. Since 2013 the full time staff has gone from 372 to 401 and part time staff from 12 to 35. Why are there back logs with production work? Can you imagine what A.C.S. could do with that kind personnel increase.

A Message to the New NYCERS Chairperson

You have a huge problem. Your designated investment manager, the NYC Comptroller, is doing a terrible job with investing NYCERS assets, this Comptroller and the last three. NYCERS has an average annual rate of return over the last 15 years of 2.89%.

The Comptroller, however, has the backing of DC-37 which is the largest city union and also a NYCERS trustee. Between the three city unions on the NYCERS Board and the Comptroller these trustees control four votes, a majority of the total seven votes on the Board.

These votes control investment decisions, disability decisions, the NYCERS administrative budget and the budget subsidies from NYCERS to the Comptroller. The three unions are bound together because of disability votes at the Board. They need to back each other up to be able to get closely contested disability cases resolved in their favor.

Without the annual investment delegation from NYCERS Board of Trustees, the Comptroller has very little political influence. With the change in the City Charter in 1990 the mayor essentially controls the Comptroller’s administrative budget. This totally compromises his operating capabilities and his political influence.

If the Chair wishes to provide some relief to the mayor from the city’s huge pension burden, he will have to take away the Comptroller’s power over investment decisions.

This is a complicated task. Since 2005, DC-37 has run NYCERS as patronage mill for its flunkies. That starts with the executive director and spreads throughout the agency. This also includes regular employees who have criminal liabilities and are more than happy to do as they are told.

As the mayor’s appointee to the Board of Trustees, the Chair will need to take on both of these political entities. This will clearly be a hard fight. The investment issue cannot be resolved without addressing the investment delegation and the internal rot at NYCERS. The Chair will have to convince DC-37 that it is in its long term interest to reduce investment costs and raise returns. He will also have to commit to totally honest and sympathetic votes on disabilities that come before the Board of Trustees.

In return DC-37 and the other unions will have to not vote for the annual investment delegation to the Comptroller in June. It will also mean, however, that DC-37 will have to accept reform within NYCERS because the Comptroller will no longer have any incentive to allow NYCERS executive staff to run wild with the agency.

In eliminating the Comptroller from investment management operations the Board will have to hire a truly independent investment consultant and hire internal NYCERS staff to track investment activity. You can see why NYCERS also needs to be reformed. Current investment consultants under contract to NYCERS have structural conflict of interest issues involving the investment community. A large part of their revenue comes from the investment community.

While the Comptroller is the statutory custodian, he has contracted out almost all of its functions. The Comptroller has even turned over the the pension payroll operations to FISA, another city agency. There really isn't much left of the old Comptroller's Office. Ed Koch really did out maneuver Jay Golden.

The Trustees should set the target for total fee expenses at 10 basis points. That would have saved $130M in FY-2014 ($184M-$54M). The Trustees could then focus on a basic Russell-3000 US stock index fund & core investment grade bond Portfolio. Maybe the bonds could be indexed also. This will make running the portfolio and hiring staff much simpler.

Note: As of June 30, 2014 NYCERS had $11.8B in US equity index funds with annual fees of $500,000 for FY-2014 with an annual rate of return of approximately 24.5% gross of fees. But at 0.4 basis points the fees don't really effect returns. Yes, that is correct. NYCERS only paid a 0.4 basis point, not even half a basis point for that return. You can see why investment managers get nervous when you talk indexing.

The Trustees can then drop all the garbage asset classes listed below. This won’t be easy because of the crazy contracts the Comptroller’s office has signed in the past. I consider these contracts illegal because of the secrecy clauses.

Asset Classes to be Dropped:

NYCERS: Unproducive Investment Classes: Values and Fees for FY-2014

Asset Class	Fees Paid	Value as of June 30, 2014	Basis Points
Convertible bonds	$2.1M	$.5B	42
Bank loans	$3.1M	$1.0B	31
Emerging manager- US stocks	$4.4M	$1.0B	44
Emerging managers – Foreign stocks	$.3M	$.05B	60
Emerging managers – US bonds	not reported	$.1B	***
Private equity	$58.0M	$4.0B (guess)	145
Real estate	$20.87M	$2.3B (guess)	90
Infrastructure	not reported	$.02B	***
Hedge funds	$15.5M	$1.9B (guess)	82
Emerging market/active	$9.1M	$2.3B	39
Developed Market equity	$11.8M	$5.4B	22
Junk bonds	$6.9M	$2.1B	33
Opportunistic Fixed	$16.3M	$1.1B	148
Foreign bonds	$.4M	$.3B	13
Active US equity	$14.2M	$5.3B	26
TIP bonds	$1M	$1.5B	7
Subsidy to the Comptroller	$2.3M
Foreign taxes	$8.8M

They Never Get Anything Right

The Comptroller made a big splash yesterday. He finally discovered after nine and half years that the city pension funds are paying high investment fees and getting nothing for it. Hell, it is worse than that. They are losing money.

One thing he hasn't yet discovered is that he can't add. The fees are $3.5B over the last ten years, not $2.B.

For this princely fee, the combined five city funds had an average annual rate of return of 5.68% for the ten years. A simple stock index/core bond return for the ten years was 6.59%. That difference translates into a loss of $18.8B ($163.3B - $144.5B)

So what is the Comptroller going to do about it? Not a damn thing. Of course, he could go public with all the secret investment contracts and and the cash flow histories of all the terminated alternative investments. The newspapers would have field day with that.

Where are all the brilliant trustees?

One of the absolute laws of nature is: Never trust anyone, especially with your money.

For the record, here are the fees for the last ten years:

• 2014: $522M
• 2013: $473M
• 2012: $370M
• 2011: $396M
• 2010: $427M
• 2009: $339M
• 2008: $310M
• 2007: $262M
• 2006: $193M
• 2005: $158M

Another point of confusion is the total value of the five city pension funds. As of June 30, 2014 is was $144.5B, not $175.4B. You don't include the $32.9B that is in the teacher's TDA fund and the police & fire VSF funds. This money does not cover any pension liabilities.

The Comptroller's Office and Simple Arithmetic

NYCERS released its FY-2014 Comprehensive Annual Financial Report (CAFR) on Jan. 1, 2105. This report is submitted to the GFOA every year and is supposed to be a standardized financial report for all state and local government entities in the US. In addition, it is supposed to provide information to the general public, especially to actual and potential lenders, about the entity’s financial health and the level of risk involved with lending to the entity.

There is a significant section in the NYCERS CAFR dealing with investment details that are prepared by the NYC Comptroller’s Office. This is the first report produced by the current Comptroller. In this section on page 114 is a chart of the rates of return for the total portfolio and the major assets classes within the portfolio covering the three years 2012, 2013, 2014. There are also 3 year, 5 year, and 10 year averages. The chart alleges that the rate of return for the NYCERS portfolio for FY-2014 was 17.04% compared to a benchmark of 16.81%. There is no supporting documentation for this number but a reasonable person would conclude that it is accurate.

The audited income statement in the CAFR (page 82), however, tells another story. Based on numbers in the income statement which were signed off by the outside CPA firm, the opening balance for the NYCERS portfolio on 7/1/2013 was $47,194.6M and the closing balance as of 6/30/2014 was $54,422.0M. The income statement also indicates that NYCERS had a positive cash flow of $691.0M in FY-2014. Based on these numbers NYCERS had a total rate of return of 13.85% in FY-2014, (($54,422.0 - $691)/ $47,194)-1).

This same pattern has been occurring, at least, as far back as 2010 as you can see from the figures below drawn from prior CAFR’s:

• - Year: Reported vs Actual
• - 2014: 17.04% vs 13.85%
• - 2013: 12.24% vs 8.81%
• - 2012: 1.32% vs -1.14%
• - 2011: 23.12% vs 19.39%
• - 2010: 14.09% vs 10.68%

The other figures quoted in this schedule on page 114 are much more difficult to compute and I have no confidence that the Comptroller was any more successful with the math for these numbers. In particular, he quoted 15.2% rate of return for NYCERS’s private equity contracts. I suppose he is referring to the eight contracts that terminated in FY-2014. Of course, you might easily be misled and think that he was referring to the entire class. That would wrong and he is very carefully never to report rates of return for open contracts.

But let’s get back to 15.2%. Of the eight contracts that closed in FY-2014, either by exiting or sale on the secondary market, the Comptroller is not providing any cash flow histories for these contracts. Not only do I think the 15.2% is incorrect but I think the rate of return on these closed contracts showed a loss like the Allegra contract. If I am wrong, all we need is the cash flow histories on the eight contracts to compute their correct rates of return. If I am right, you will never see their cash flow histories.

What makes this more outrageous is that over the last 15 years, members of NYCERS have contributed $5.4B out of their own paychecks into NYCERS along with $21.8B of taxpayers’ money that has also been contributed. Oh, I forgot. Members are taxpayers too.

If the Comptroller’s Office cannot perform simple arithmetic, then the NYCERS Board of Trustees has a serious problem with renewing its annual delegation of investment authority to the Comptroller.

The fact that the rates of return are consistently inflated raises the suspicion that it was done on purpose. The investment figures are not audited. NYCERS actual average annual rate of return over the last 15 years is 2.89%, a little scary.

By the Numbers – Private Equity at NYCERS – 2011 to 2015

Since 2011 NYCERS has dropped the following number of private equity contracts:

• 2010 – 3
• 2011 – 4
• 2012 – 7
• 2013 – 0
• 2014 – 8

It is not clear how many of these contracts were standard exits and how many were sold at a loss. NYCERS has provided no cash flow history for these dropped contracts except one. That was Allegra in 2012. That is because I requested the information. You can read about the Allegra disaster in one of my previous postings.

It is reasonable to assume that most of these dropped contracts were equally bad.

Everyone knows that the private equity industry is feeding off of the US public pension fund structure. It is a malignant cancer but no one wants to publicly admit it because that admission would make the public pension funds look like fools and would put most private equity firms out of business.

Now, for the bad news. NYCERS has continued to enter into new private equity contracts since 2010 as you can see from the numbers below:

• 2010 – 8
• 2011 – 5
• 2012 – 7
• 2013 – 7
• 2014 – 14
• 2015 – 3 (as of Sept. 30, 2014)

You would have thought that NYCERS would be quietly trying to get out from under these flawed investment deals but no. There is no end to this stupidity.

NYCERS’s private equity fees for FY-2014 were $44.1M for 142 contracts allegedly worth $4.0B. Don’t bet the ranch on that figure. There is an added charge for private equity organizational costs of $13.9M (page 120). No one knows who this money was paid to except that it has a private equity label.

The sum of the two costs is $58.0M. That is 145 basis points or a 1.45% annual charge. Another serious problem is that NYCERS is not reporting 33 of the 142 contracts in its fee schedule on page 135. Enough said.

Sheldon Silver, Martha Stark and Glenwood Management

2011 DOI report on Stark

On January 21, 2015 Sheldon Silver was arrested for fraud and conspiracy. In a description of the charges the name of the Glenwood Management Company surfaces in connection with a kickback scheme that Silver dreamed up to funnel fees from a legal firm to him.

NY Times

In one scheme described in court papers, he asked a pair of real estate developers to hire a small law firm, Goldberg & Iryami, which seeks reductions in New York City property taxes on behalf of its clients.

The firm was started by Jay Arthur Goldberg, who decades ago worked as a lawyer for the Assembly, according to state payroll records. Prosecutors said he was Mr. Silver’s counsel.

Mr. Silver received a slice of the legal fees paid to the firm, even though he did no work for the developers; prosecutors said he was paid about $700,000. He did not report the income on his annual financial disclosure forms submitted to the state.

One of the developers was Glenwood Management, according to people familiar with the matter. Glenwood develops luxury apartment buildings in Manhattan, has been an enormous contributor to state politicians and has a significant interest in matters before the Legislature, such as measures dealing with real estate taxation. While receiving fees from the real-estate law firm, Mr. Silver took actions that benefited the developers, prosecutors said.

Strangely enough, the Glenwood Management firm also surfaces on pages 10 to 33 of a June, 2011 NYC-DOI investigative report on allegations about Martha Stark that were pending at the time she was forced to resign in April, 2009.

Beginning in March, 2005 Stark was involved in lowering the tax assesments for Glenwood. Subsequently in January, 2007 she asked Glenwood for a apartment for her domestic partner (DOI never states which one) along with a break in the rent for the apartment. Read in light of Silver's recent arrest connected to Glenwood, the report has a much more powerful impact. Below is a quote from this section of the report.

The juxtaposition of Stark's request for assistance with an apartment for her domestic partner in a Glenwood owned building and the notice of reduction in assessed value of a Glenwood building for that tax year, and the erroneous further reduction that occurred in the following tax year raises, at a minimum, an appearance issue, and gives rise to the question of whether the reductions were some form of assistance related to the assistance given in the provision of an apartment at a modest reduction for the Finance Commissioner's domestic partner.

Attempts to answer that question were made difficult by Stark's repeated refusal to be interviewed by DOl in connection with this investigation. In addition, the explanations for the assessments were hindered by DOF's lack of oversight and recordkeeping related to the assessment process, as the investigation revealed.

Even after the arrest in 2002 of 18 tax assessors, the work of the DOI/DOF Joint Task Force and the representations by DOF that changes were made and that others would be made in the Joint Task Force Preliminary and Final Reports, there remains a lack of internal controls over assessments.

The costs to the City from this lack of oversight is unknown since no reviews were undertaken to determine if properties were undervalued, and no random audits performed and no regular reports even distributed of significant changes in assessed valuation during the period DOl examined. Finance Commissioner David Frankel reports that he has undertaken measures for reviews/audits of assessments, including assigning/hiring personnel to conduct such audits.

The spring of 2005 was also the time of the $1.74B purchase and alleged tax assessment issues in connection with with Met-Life building, NYCERS, TRS, and the Department of Finance.

It is interesting that in October, 2005 Stark, as the NYCERS Chairperson, was instrumental in hiring of Diane D'Alessandro as executive director of NYCERS. At the time D'Alessandro was a special assitant to Sheldon Silver. Prior to that D'Alessandro worked for DC-37 during the Charlie Hughes and Al Diop years.

Paper Tiger - the N.Y.S. Department of Financial Services - Pension Fund Audits

In July of 2013 the N.Y.S. Department of Financial Services (DFS) with a lot of fanfare announced the start of an audit of the seven state & city pension funds.

It's now January 20, 2015 and DFS has not yet produced any of the pension audits. Just a reminder, DFS has not produced an audit of NYCERS since 2002 in spite of the agency's statutory obligation to produce an audit every five years.

Of course, DFS collected $611,536 from NYCERS during FY-2014 for audit work that DFS supposedly did during that year.

When I saw the charges for 2014, I thought I'd do a little research. Here are the DFS audit charges to NYCERS since 2004:

• 2004: $ 55,007
• 2005: $ 64,612
• 2006: $361,681
• 2009: $179,542
• 2010: $ 32,009
• 2011: $ 29,713
• 2014: $611,536

This is an agency adrift. They are lost.