Runaway Investments fees
In FY-2000 NYCERS paid $37.4 million in investment fees for an asset base of $42.8 billion.
In FY-2023 NYCERS paid $489.9 million in investment fees for an asset base of $82.4 billion.
The numbers speak for themselves. There is no benefit to these radically increased fees. Clearly, twice the $37.4 million in fees from FY2000 could cover the $82.4 billion in assets for FY-2023. But the current trustees have no idea what was going on in 2000.
This is a big part of the income inequality in America. This story is not just about NYCERS but every public pension plan in America.
Increasing Investment Risk
In a prior post from January 2020, I outlined a new accounting reporting requirement for government pension plans (GASB 72) mandating that plans report a breakdown of the reliability of the reported value of the plan's investments. The assets are broken down into 3 levels as listed below:
- Level-1 assets - open market - very liquid
- Level-2 assets - open market - not as liquid
- Level- 3 and NAV assets - no open market - not liquid
In addition to these crazy fees noted above, the risky Level-3 assets at NYCERS have grown steadily since 2015. On top of this growth in risky assets, this year there was a law passed in Albany to raise the limit (from 25% to 35%) on the amount of Level 3 and NAV assets in a NYS public pension plan.
In the table below you will see the growth for Level-3 and NAV class assets at NYCERS.
Note: As of FY-2023 NYCERS is relabeling alternative investments as net asset value items rather than Level 3 as a "practical expedient". This is a PR sleight of hand. Nobody wants to be called Level-3. "NAV" is a lot more vague. $19.8 billion (25% of the portfolio) for Level-3 and NAV assets is an obvious red flag for the risk level of the portfolio. You can be sure that $19.8B is the upper bound for this class and that a 50% reduction is a real possibility.
| Fiscal Year | Level-1 Assets (in thousands) | Level-2 Assets | Level-3 Assets | Assets at Net Asset Value | Total |
| FY-2014 | $27,028,432 | $17,437,139 | $10,642,729 | $0 | $55,108,300 |
| FY-2015 | $27,707,076 | $17,175,757 | $10,796,968 | $0 | $55,679,801 |
| FY-2016 | $27,330,534 | $15,924,399 | $10,377,791 | $1,123,861 | $54,756,585 |
| FY-2017 | $32,312,375 | $17,461,428 | $10,914,801 | $95,987 | $60,784,591 |
| FY-2018 | $31,219,885 | $23,282,843 | $10,880,803 | $66,675 | $65,450,206 |
| FY-2019 | $34,128,310 | $22,782,825 | $11,534,369 | $6,979 | $68,452,483 |
| FY-2020 | $33,647,567 | $24,941,479 | $11,856,921 | $3,735 | $70,449,703 |
| FY-2021 | $42,162,979 | $30,981,818 | $14,845,548 | $1,240 | $88,091,585 |
| FY-2022 | $32,892,068 | $26,386,373 | $18,726,172 | $1,129 | $78,005,742 |
| FY-2023 | $35,986,966 | $25,235,457 | $461,156 | $19,845,541 | $81,529.120 |
Investment Expenses for the Assets by Quality for FY-2023
In FY-2023 NYCERS paid the following investment management fees for the different levels:
- $54.7M for Level 1 assets (FY-2019 fees = $39.7M).
- $25.0M for Level 2 assets (FY-2019 fees = $18.4M)
- $375.0M for Level 3 and NAV assets (FY-2019 fees = $140.5M)
Again, the numbers speak for themselves. The trustees are being rolled big time - everywhere.
