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.
