Friday, September 6, 2013

Politics and Investing in the NYC Mayor’s Race: Disclosing the Usual

Politics and Investing in the NYC Mayor’s Race: Disclosing the Usual

William C. Thompson, Jr., former New York City Comptroller, is running in the primary for Mayor.  Last week, The New York Times wrote about Mr. Thompson’s relationship with the money management community.[1]  The article pays particular attention to the mutually beneficial relationship between Mr. Thompson and Tracey V. Maitland, President of Advent Capital Management.  The story has all the usual ingredients.  Mr. Maitland was an early supporter when Mr. Thompson first ran for Comptroller.  He helped Mr. Thompson’s wife get an appointment to the board of the American Society for the Prevention of Cruelty to Animals.  Mr. Maitland’s money management firm received a large mandate to manage a convertible bond portfolio for the New York City pension plans.

Fearless Forecast (1997)

Mr. Thompson has used all the usual rationales to defend his relationship with Mr. Maitland.  He pointed out that Advent has performed well for the pension plans, and that as Comptroller he did not have the power to make money management appointments.  As to Mr. Thompson’s first defense, Advent’s performance, even if it were exemplary, doesn’t provide justification for the appointment.   Under this maxim, exemplary money managers would be allowed to buy influence.   However, this defense also assumes that the Comptroller knew in advance that Advent’s investment performance would be good.  Like all investors, Mr. Thompson was lucky that the Advent investment turned out okay.[2]

Mr. Thompson’s second defense, while technically true, doesn’t amount to much.  Each of the five pension plans that constitute the New York City Employees Retirement System (NYCERS) has its own board of trustees, but the City Comptroller is a member on all the boards.   More importantly, the Comptroller controls the investment staff.  In short, the boards heeded the Comptroller’s recommendations.

On at least one occasion, I took the 6 am commuter flight to LaGuardia because Comptroller Thompson asked my boss Treasurer Richard Moore to take a close look at one of NYCERS’ favorite managers.  After a few hours of due diligence, I’d seen enough.  Rather than tell the Comptroller that we didn’t think too highly of the manager, we told him it wasn’t “a good fit” for our program, and thankfully that ended the matter.  Mr. Thompson’s request wasn’t unusual.  During my tenure as CIO for North Carolina, we received numerous requests from politicians in North Carolina and across the country to invest with one or more of their well-connected managers.  I wrote about this part of the investment world in “Private Equity Democratic Style (November 21, 2012)”

Whether it’s money managers helping out political officials (and it doesn’t have to be campaign contributions, which are now circumscribed by the SEC) or officials in different jurisdictions making warm introductions, this is how the business works.  Rather than telling the public, as Mr. Thompson does, that all of this is completely legitimate, I wish politicians would just tell the truth. No matter the thickness of the policy or ethics manual, political influence drives many investment decisions.  Frankly, the rules and regulations provide a useful veneer to carefully cover over how much of the business is really conducted.

[2] I take Mr. Thompson at his word about Advent’s performance.  I haven’t tried to dig out their performance for NYCERS.

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