Thursday, November 5, 2015

A Number without Context is Meaningless: NYC Pension Fees

A Number without Context is Meaningless:  NYC Pension Fees

While lauding his own effort to bring more transparency to pension beneficiaries,[1] Scott Stringer, NYC Comptroller, released the city’s Comprehensive Annual Financial Report (CAFR).  In invoking the overused adage that “sunshine is the best disinfectant,” Mr. Stringer announced that total fees for FY 2015 were $709 million, including an unspecified amount of performance fees.  Apparently the city failed to account for incentive fees or carried interest in prior years.  The city’s CAFR slices and dices the city’s expenditures and revenues in a myriad of ways over nearly four hundred pages of tiny print and dozens of tables.  And indeed, you’ll find the $709 million figure buried inside the report.[2]  However, the comptroller has failed miserably at providing NYC taxpayers or pension beneficiaries with meaningful transparency.

New York’s CAFR does not break down the fees by asset class.  The report doesn’t list the fees by manager, fund or mandate.  The financial statements don’t separate base fees from the incentive fees.  All we know is that the $163 billion NYC public pension system incurred about 0.43% in fees. There’s no context.

The weakness of the city’s CAFR isn’t confined to fees.   While the official document reveals the pensions’ overall asset allocation (about 15% of the portfolio is devoted to alternatives, including $10 billion of private equity), the discussion of the portfolio’s performance leaves a lot to be desired.  For example, the comptroller only reveals the one-year performance for each asset class, except for private equity, where he adds a 10-year return.  However, he doesn’t provide a benchmark for PE, so we have no idea whether this asset class is meeting the pensions’ objectives.  In short, Comptroller Stringer doesn’t give the public a meaningful measure of how the investments of the city’s pensions are performing.

About a month ago, the comptroller announced that he would demand that PE and hedge fund managers reveal all fees.   It’s a laudable effort.  However, you have to be skeptical when the comptroller fails to disclose basic information about conventional asset classes such as stocks and bonds, and issues a CAFR that is about opaque as any I’ve ever examined.   

Mr. Stringer isn’t the first public official to embrace the concept of transparency.  In fact, most public pension plans aspire to be transparent.  Unfortunately, most of them fall short of providing meaningful disclosure and context.  From what I’ve seen thus far from NYC, I’m not optimistic.



1 comment:

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