NYCERS dumps Hedge Funds

It appears that the NYCERS trustees have finally woken up. On April 14, 2016 the trustees voted to dump their hedge fund investments. What took them so long? Still there was one trustee who voted to stay with hedge funds, Teamster's Local 237. I find this position by a labor union very troubling

Now if they can only dump their private equity and real estate investments. But they can't do that, even if they want to. The idiots signed "no cut" contracts with no termination dates.

What is worse, is that they don't know what the contracts say. The Comptroller won't even let them see the contracts, contracts he signed. It gets even worse. The trustees authorize the Comptroller every year in June to continue this craziness for another 12 months.

I have written for a long time about this insanity. Don't let them tell you that they didn't know until now.

In a desperation move the investment community is attacking this action as being politically motivated. I'm sure there is a healthy dose of politics involved but the investment managers are terrified that if this movement gets going, they will all be taking orders behind the counter at McDonald's. That is if they get there first.

Stop the Bleeding - Public Pension Funds Under Attack - Report and NY Times article

I have been hammering the NYCERS trustees for several years about about their investment decisions, in particular, allocations to private equity, real estate partnerships, and hedge funds.

Now there is a growing record of how misplaced these investments are for public pension funds.

Read the October 20, 2013 NY Times article by Gretchen Morgenson, Ted Seidle's recap article in Forbes on the investigation to the assault on the Employee Retirement System of Rhode Island, and the broad sweeping expose in Rolling Stone magazine.

Here is the link to the full investigative report.

Maybe the new mayor could find the money for his pre-K program by stopping the bleeding of the pension funds by Wall Street.

Hedge Fund Schizophrenia

I just read a great article about the whiz kids over at the Comptroller's office "transitioning" the city's five pension funds into hedge funds. Don't you just love those glitzy words like transitioning. They make you feel so warm inside.

Of course, I also just read a more skeptical article offering sympathy to the beneficiaries of the funds for the folly of this move.

In the same vain I also read a March 7, 2013 Wall Street Journal article titled "Stop Hedging Around" which confirms the fact that when the city pension funds decide to go into a new investment, it is time to get out of that investment. The same author wrote a 2011 article titled "The Truth about Hedge Funds" for Smart Money. No wonder there is a public pension crisis in this country.

The mayor is now worth $27B up from $4B when he first became mayor in 2002. Where is that investment expertise when it comes to the city pension funds?

Hedge Funds and NYCERS -- 2010-2012

As of June 30, 2010, NYCERS had no money invested in hedge funds.

As per a August 2, 2010 Wall Street article , Bloomberg appoints Nagaswami as "chair" of the NYCERS board. She was not employed at the time. Concurrently, Bloomberg appoints her to a paid position at the Department of Finance with a salary of $175,000/yr.

I use quotes around the word chair because for some strange reason since 2010 NYCERS has avoided stating for the record who the chair actually is. That in of itself is a warning sign. When a large financial organization can not identify who the Chair of the Board of Trustees is, you know there is trouble.

For the record, the mayor is not a trustee. The person he appoints is the trustee, not the mayor. This is completely different from the other ten trustees who are ex-officio members of the board.

As of June 30, 2011 NYCERS reported having $77.50M invested in hedge funds.

As of June 30, 2012 NYCERS reported having $960.48M invested in hedge funds. In the Comptroller's quarterly report these investments were reported to have a 2.14% loss for the fiscal year ending on June 30, 2012.

In August, 2012 Nagaswami resigned her position as "chair" of the NYCERS Board of Trustees. She announced that she was taking a job with the hedge fund Bridgewater Associates LP, the world’s biggest hedge fund.

In September, 2012 the trustees adopted a resolution thanking Nagaswami for her service to NYCERS.

This sequence is obviously outrageous.

While 85% of the money going into NYCERS comes from employer contributions, in FY-2011 the employees paid $410M in pension payroll deductions. That is an an average of $2,300 from each employee. When the trustees screw up, it is both the employees and the taxpayers who get pounded. The trustees get to go home to Greenwich and work for a hedge fund.

Nagaswami and the Hedge Funds

2010 - Bloomberg appoints Nagaswami as his investment person on the city pension boards.

2011 - NYCERS starts investing in hedge funds

2012 - Nagaswami leaves the city pension funds and takes a job with a hedge fund.