Wall Street Fees Soaking New York City Pension Funds!

Dear Commons Community,

New York City Comptroller Scott Stringer in a news conference yesterday stated that over the past 10 years, New York City’s five major pension funds have paid more than $2 billion in fees to money managers and have received virtually nothing in return.  As reported in the New York Times:

“We asked a simple question: Are we getting value for the fees we’re paying to Wall Street?” Mr. Stringer said. “The answer, based on this 10-year analysis, is no.”

Until now, Mr. Stringer said, the pension funds have reported the performance of many of their investments before taking the fees paid to money managers into account. After factoring in those fees, his staff found that they had dragged the overall returns $2.5 billion below expectations over the last 10 years.

“When you do the math on what we pay Wall Street to actively manage our funds, it’s shocking to realize that fees have not only wiped out any benefit to the funds, but have in fact cost taxpayers billions of dollars in lost returns,” Mr. Stringer said.

Why the trustees of the funds — Mr. Stringer included — would not have performed those calculations in the past is not clear.

Mr. Stringer, who was a trustee of one of the funds when he was Manhattan borough president before being elected comptroller, said the returns on investments in privately traded assets, such as real estate, have traditionally been reported without taking fees into account. The fees have been disclosed only in footnotes to the funds’ quarterly statements, he said.

The stakes in this arena are huge. 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.

Most of the funds’ money — more than 80 percent — is invested in plain vanilla assets like domestic and foreign stocks and bonds. The returns on those investments are generally reported after the fees, which are usually paid as a percent of the assets each firm manages.

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.”

Thank you Mr. Stringer for taking on this issue.  For the dollar value of these funds, New York deserves a good return on its investments.  We do not need Wall Street messing around with them.



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