NYCERS issues a Comprehensive Annual Financial Report (CAFR) every December. This report is suppose to be a accurate picture of the financial information for NYCERS during the previous fiscal year (July-June). The FY-2018 report stated that total investment expenses was $241.8M and as part of that amount the private market investments expenses were $130.0M as listed in the first chart below:
In contrast to the CAFR statement prepared by the outside accounting firm, the Comptroller in September, 2018 released a FY-2018 performance report prepared by State Street. On page 27 of that report State Street lists the expenses for private market investments. You can see in the second chart below that the total fund investment fees were $346.03M and as part of that amount private market fees were $272.45M.
The $346.03M does not included foreign taxes ($26.M), payments to the Comptroller ($4.2M), payments to consultants & law firms ($4.2M), and miscellaneous expenses ($2.1M) which are included in the CAFR's $241.8M expense amount.
For many years NYCERS has not defined the term "Organization Costs". The Comptroller, however, uses a different term for these costs, "Partnership Expense". I now suspect that the term means meals, travel expenses, and any other expense that the general partner can pass along to the limited partners.
But what is more disturbing is that there are incentive fees listed by the Comptroller. The total for these fees are $129.51M . These fees have never been listed in the NYCERS CAFR. This is the main reason that that the Comptroller is reporting $346M and NYCERS is only reporting $242M. There is obviously a serious flaw in NYCERS accounting. And by the way, what managers are being paid the incentive fees? Why are they being paid these fees?
As a closing comment on this obscene waste of money, lets simplify the problem:
NYCERS pays private market partnerships
- $272.45M in fees for handling assets with an "alleged" value of $9.95B,
- $73.58M in fees to public market managers for handling assets with open market value of $52.75B.
| Private Market Asset Class | End of Year Asset Value | Fees | Organization Costs | Total Expenses | Basis Points | Rate of Return |
| Private Equity | $4,470M | $50,117,502 | $13,064,536 | $63.18M | 141.2 | 17.8% |
| Opport.& Global FI | $1,851M | $15,534,877 | $1,820,851 | $17.35M | 93.5 | 7.0% |
| Real Estate & Infrastructure | $3,792M | $40,993,082 | $9,510,109 | $50.50M | 133.2 | 12.19% |
| Hedge Fund | $68.0M | $345,733 | $0.35M | 50.843 | 8.43% | |
| Totals - Private Markets | $10,181M | $131.48M | ||||
| Totals - All Classes | $65,206M | $241.8M |
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| Private Market Asset Class | Avg. Asset Value (billions) | Management Fees (millions) | Partnership Expenses (millions) | Fees&Expns-Basis Points | Incentive Fees (millions) | Incentive Basis Points | Total Fees (millions) | Total Basis Points |
| Hedge Fund | $0.075 | $0.550 | $0 | 72.0bp | $0 | 0.0bp | $550.03 | 72.0bp |
| Private Equity | $4.432 | $51.02 | $17.51 | 154.64bp | $88.03 | 198.63bp | $156.57 | 353.26bp |
| Real Estate | $3.349 | $33.10 | $8.497 | 124.21bp | $31.66 | 94.53bp | $73.26 | 218.74bp |
| Infrastructure | $0.328 | $8.433 | $3.098 | 128.69 | $0.863 | 28.31bp | $12.394 | 138.32bp |
| Opportunistic Fixed Income | $1.763 | $15.578 | $10.615 | 148.57bp | $3.482 | 19.75bp | $29.673 | 168.32bp |
| Private Market Assets Total | $9.947 | $108.99 | $39.72 | 149.19bp | $124.04 | 124.69bp | $272.45 | 273.88bp |
| All Assest Total | $62.699 | $176.80 | $39.22 | 34.43bp | $129.51 | 20.66bp | $346.03 | 55.19bpbp |
