“The Lenape tribe got a better deal on the sale of Manhattan island than New York City’s pension funds have been getting from Wall Street, according to a new analysis by the city comptroller’s office.”
That start to a recent piece in The New York Times references the legendary (and outrageous) fleecing of Native Americans in a high-end real estate deal, and while the “paper of record’ employs a bit of hyperbole, it might not be that far off.
The target of the paper’s ire is analysis that concluded that, “over the past 10 years, the five pension funds have paid more than $2 billion in fees to money managers and have received virtually nothing in return, Comptroller Scott M. Stringer said in an interview.”
That’s right; the five pension funds paid over $2 billion in fees for just $40 million in return.
Part of the problem, the Times notes, is that performance was reported before, rather than net, of fees for the past 10 years. It was only when the office of comptroller Scott M. Stringer decided to look at performance once fees were factored in that the new returns came to light.
“We asked a simple question: Are we getting value for the fees we’re paying to Wall Street?” Stringer told the paper. “The answer, based on this 10-year analysis, is no.”
The city’s pension system is the fourth largest in the country, with total assets of nearly $160 billion. It holds retirement funds for about 715,000 city employees, including teachers, police officers and firefighters.
The paper goes on to explain that most of the funds’ money—more than 80 percent—is invested in plain vanilla assets like domestic and foreign stocks and bonds. The managers of those “public asset classes” are usually paid based on the amount of money they manage, not the returns they achieve.
“Over the last 10 years, the return on those ‘public asset classes’ has surpassed expectations by more than $2 billion, according to the comptroller’s analysis. But nearly all of that extra gain—about 97 percent—has been eaten up by management fees, leaving just $40 million for the retirees, it found.”
How much was paid in fees wasn’t easy to figure. The comptroller’s chief investment officer had to work backwards in a bit of forensic sleuthing and relied heavily on footnotes contained in performance and trustee reports.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
