Wednesday, April 22, 2015

Compounded Disappointment: NYC’s Comptroller

Compounded Disappointment:  NYC’s Comptroller

Two weeks ago the New York City Comptroller Scott M. Stringer, the sole fiduciary of the City’s public pensions, announced that “after fees, manager performance is $2.5 billion below benchmark over 10 years.”  The story was widely reported.  Almost immediately, Dan Primark, the author of Fortune’s Term Sheet, pointed out some basic flaws in the methodology.[1]  Nonetheless, I figured that a detailed study on investment performance might contain some useful insights.  I contacted the Comptroller’s office to get a copy of the report.  Several days later I received a four-page report that provides little insight into the way in which the comptroller’s CIO went about their analysis.  The report has now been posted on the comptroller’s website.[2]

Given the size of the pension plans (over $90 billion) and the returns, I don’t think the comptroller’s overall conclusion is completely off base.  I also think there’s some validity to his charge that alternative assets have been the major source of the pensions’ investment shortfall.  However, it’s disappointing that the analysis is so shallow.

My disappointment was compounded when David Sirota of the International Business Times reminded readers that comptroller was the chief proponent of state legislation to increase the city’s exposure to alternative investments.[3]  Only Governor Cuomo’s veto of the legislation prevented the comptroller from adding to the same investment strategies that he says have not added value.  I commend Mr. Sirota for making the connection.  I’d completely forgotten about the comptroller’s attempt to amend New York City’s investment statute.  I have written about the bill and the weak justification contained in the Comptroller’s supporting memorandum (see, “New York City Pension Seeks More Alternatives [June 6, 2014]”).

Has Mr. Stringer had a change of heart about alternative investments?  According the IBT, the comptroller is still seeking expanded investment authority.  Sadly, the comptroller appears to be another politician who wants to have it both ways.  On the one hand, he wants us to believe that he sees through Wall Street’s false promises.  On the other hand, he remains addicted to the economic and political power of investment bankers and money managers.


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