Key Takeaways
- • New York City Comptroller Scott M. Stringer's office found that Wall Street managers left the City's pension funds about $2.5 billion poorer over the past 10 years after fees, according to an analysis released April 9, 2015.
- • Managers of private asset classes such as private equity, hedge funds and real estate fell $2.6 billion short of target benchmarks after fees.
- • Managers of public asset classes beat their benchmarks slightly, but captured more than 95 percent of the value added, over $2 billion, leaving almost no extra return for the funds.
- • The City's $160 billion pension system, the fourth largest in the nation, covers 715,000 workers, retirees and beneficiaries across five funds.
- • Stringer plans to overhaul how the City engages external managers, re-examine the full fee structure with trustees, and require more fee disclosure, including uniform accounting of net and gross fees.
Summary
New York City Comptroller Scott M. Stringer released an analysis by his office showing that external money managers on Wall Street failed to deliver value to the City's pension funds over the last decade, even as they collected billions of dollars in fees. According to the analysis, high fees and missed performance objectives have cost the pension system roughly $2.5 billion in lost value over the past ten years.
The City's $160 billion pension system is the fourth largest in the nation. Its five funds, the New York City Police Pension Fund, the New York City Fire Department Pension Fund, the Teachers Retirement System of the City of New York, the New York City Employees' Retirement System and the Board of Education Retirement System, use a mix of active and passive investments, each measured against a benchmark. The analysis, performed by Chief Investment Officer Scott Evans and the Bureau of Asset Management using detailed historical performance data across all asset classes, found that private-asset managers, covering private equity, hedge funds and real estate, trailed target benchmarks by $2.6 billion after fees. Public-asset managers exceeded their benchmarks slightly, but their fees absorbed more than 95 percent of the more than $2 billion in value added, leaving almost no net benefit to the funds. Together, the shortfall in private markets and the marginal gain in public markets produced the nearly $2.5 billion loss.
Stringer said the City will overhaul how it engages external managers to align fees with value created for beneficiaries. Working with other fund trustees, he plans to re-examine the entire fee structure, and he said managers who do not create value will not continue to invest City funds. He also pledged greater transparency, including enhanced disclosure of fee structures and uniform accounting of net and gross fees across asset classes. The Comptroller's office has published the full report.
The City's $160 billion pension system is the fourth largest in the nation. Its five funds, the New York City Police Pension Fund, the New York City Fire Department Pension Fund, the Teachers Retirement System of the City of New York, the New York City Employees' Retirement System and the Board of Education Retirement System, use a mix of active and passive investments, each measured against a benchmark. The analysis, performed by Chief Investment Officer Scott Evans and the Bureau of Asset Management using detailed historical performance data across all asset classes, found that private-asset managers, covering private equity, hedge funds and real estate, trailed target benchmarks by $2.6 billion after fees. Public-asset managers exceeded their benchmarks slightly, but their fees absorbed more than 95 percent of the more than $2 billion in value added, leaving almost no net benefit to the funds. Together, the shortfall in private markets and the marginal gain in public markets produced the nearly $2.5 billion loss.
Stringer said the City will overhaul how it engages external managers to align fees with value created for beneficiaries. Working with other fund trustees, he plans to re-examine the entire fee structure, and he said managers who do not create value will not continue to invest City funds. He also pledged greater transparency, including enhanced disclosure of fee structures and uniform accounting of net and gross fees across asset classes. The Comptroller's office has published the full report.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.