Perdido 03

Perdido 03

Tuesday, December 1, 2015

Despite A Poor Performance As Comptroller, Scott Stringer Attempts Power Grab

The NY Post reports the following:

The budget for the office of the city’s financial watchdog grew at twice the rate of the rest of the government over the last two years, according to data examined by The Post.

Comptroller Scott String­er’s budget increased from $71 million in fiscal 2013, when John Liu was in charge, to $86 million in fiscal 2015, a 21 percent jump.

The city’s overall budget grew by 10 percent over the same time period, according to the Independent Budget Office — an increase city officials said was due largely to new labor contracts negotiated under Mayor de Blasio.

Stringer aides noted that $5.8 million in added charges came from having to find a new custodial bank for the pension system.

With Stringer's budget growing at twice the rate of the rest of the city government, New York City residents ought to be getting some bang for their buck out of Stringer.

Alas, they are not:

The New York City retirement fund posted a dismal 3.4% return for the fiscal year ended June 30. Comptroller Scott Stringer delayed release of the figure for months. The poor returns mean the city will have to spend billions of dollars more in pension contributions.

And with markets down so much this year, the city’s pension funds may soon be an increasingly severe budget problem.

The fiscal 2014 investment gain of 3.4% is less than half of the city’s target of 7%, which is the rate of return the city assumes in determining how much to put aside to pay benefits. The city is expected to contribute an average of $6 billion annually over the next few years to the five pension plans that comprise the city's retirement system.

Stringer attempted to hide the poor pension fund performance with a "bare-bones announcement" on the comptroller's website:

Stringer, who released news of a strong gain in fiscal 2014 in August of that year, waited until last week to deliver the bad news about 2015 and did so with a short, bare-bones announcement on his website. The strategy almost worked: Until now, only the trade publication the Bond Buyer has reported the news. The comptroller’s office says it waited for audited results rather than release an estimate as it did last year.

Perhaps Scott was hoping the big, strong arms of Governor Andy would save him from having to make the pension fund performance disclosure.

Speaking of disclosure, let's read (per Yves Smith) about pension fund fees and how Stringer continues to hide the management fees NYC funds pay while claiming he's all about disclosure:

Pensions & Investments reported yesterday that the New York City Retirement System reported that it paid $709 million in fees to investment managers in its last fiscal year, and was trying to give the impression that as a result of a big push for more disclosure, it was now reporting all the fees it is paying.

Yet if you read the article with a modicum of attentiveness, you can see that that is false. In reality, Stringer is trying to have it both ways: to appear to be on the right side of a controversy, while not doing anything to ruffle the pension systems’ fund managers, many of whom are very influential political donors.

Here are the key parts of the article:
The figure represented a 33.7% increase over the $530.2 million in fees reported for the fiscal year ended June 30, 2014. However, the most recent fiscal year’s accounting includes many incentive fees that hadn’t been identified in previous annual reports…
City officials said they believe the latest information covers most of the investment management fees, adding that the new rules for fee transparency will provide an even more accurate picture.
The big tell here is the use of the “believe” language. When CalPERS requested carry fee data from all the funds in the entire history of its program, it was able to tell the Financial Times a mere ten days into the exercise exactly how many funds had not yet coughed up the data: a mere six our of over 850 funds over the life of the program. The fact that New York City is so fuzzy on what it does and does not have 22 months into the effort is a strong tell that they are not going about the effort in a serious, rigorous manner. The end of the article confirms this impression:
In its October letter to private equity and hedge fund managers, city officials asked for fees based on asset class and type, such as commingled fund or separate account. The fee information will be posted on the comptroller’s website.
The letter also asked that each manager prepare a one-time analysis to each pension fund of base fees, performance fees and other fees charged by each investment option. The letter asked that this information be provided by year-end, adding that future information about fees must be provided quarterly.
By contrast, South Carolina, which has set the standard for fee information gathering, has a detailed template that it has managers fill out, and then staff follows up with funds that have not completed it or claim they have difficulty completing it, to get the missing items.

Stringer appears to be reacting to a set of articles in the New York Post last month that criticized his transparency head-fakery. The first Post article, dated October 8, pointed out an embarrassing omission: Stringer had tried showing how much the city’s pensions were paying to money managers. He reported a total of $399 million in fees for a total pension system of $169.2 billion in assets.
The wee problem was that Stringer completely left out the heftiest fees paid, those to private equity funds and hedge funds. The Post had previously reported that the total fees paid were actually $530.2 million. So Stringer made a flagrant misrepresentation a month ago. And in his report to Pensions & Investing yesterday, he confirmed that the Post’s figures of the costs the year before were correct.
The second Post article, on October 11, pointed out that the accounting that Stringer had just issued contained some howlers, and also, despite the braying about greater transparency, took a step back on disclosure in key areas:
For instance, the firefighters fund said it paid just 0.59 percent in fees as a percentage of hedge-fund assets — less than what it paid managers to invest in small-cap stocks. Hedge funds typically charge investors a management fee of 1 to 2 percent of assets and about 20 percent of any gains each year…
Problem is, the city’s percentage rate is just a guesstimate. By his own admission, Stinger doesn’t know all the fees the city is forking over to hedge funds, private-equity firms and other outside managers. Nowhere in his report, however, is there a footnote explaining this.
What’s more, Stringer has taken a step back in other areas. He didn’t provide names of outside money managers in his latest report — something the pensions had divulged in previous reports.
If you look at New York City’s Comprehensive Annual Financial Report, the pension fund performance disclosure is remarkably thin (see pages xxi to xxiv). As North Carolina’ former chief investment officer Andrew Silton said by e-mail, “If this is what transparency looks like when someone is trying to be transparent, NYC isn’t revealing much.”

So let's sum it all up - a skyrocketing budget for the comptroller's office, plummeting returns for the city's pension funds, a lack of transparency about the fees the city's pension funds are paying for management of those funds and Stringer bending over backward to not ruffle the feathers of the Wall Street guys because he's going to want to hit them up in the future when he runs for mayor.

Not exactly an effective performance as comptroller.

But wait - it gets worse.

Despite his poor stewardship of the city's pension funds, Stringer wanted to "reform" the system so he could consolidate power inside his office and have "carte blanche" over how the funds invest:

New York City Controller Scott Stringer will propose next week a sweeping change in how the city’s $160 billion pension system — the fourth largest in the nation — chooses the private companies that invest its money.
Stringer’s plan, according to several people briefed on it, will call for consolidating separate investment committees of the police, fire, teachers and other municipal union pension funds into a single combined umbrella group. That group would meet only four times a year, thus doing away with the current system, where the five major pension funds each hold their own separate monthly meetings to select investment managers.
The trustees of each fund, however, would still vote separately on whether to park their money with a particular firm.
He has told trustees of the funds that it will streamline an archaic and bureaucratic process that requires his staff to attend five separate investment meetings every month — 55 meetings a year — even though 95% of the investment decisions are the same for each fund. The change will give the controller’s staff more time to spend on monitoring funds and reducing fees, Stringer has claimed.

Gee, sounds great - except that this seems to be nothing but a power grab by Stringer:

Public Advocate Letitia James, also a NYCERS trustee, is a vocal holdout.
"I am deeply concerned about these proposed changes as they relate to transparency, accountability and public access,” James said. “Any proposal that does not take these issues into account is difficult to support."
James declined further comment, but a source in her office labeled the proposal a “power grab” by Stringer.
Switching from 55 to just four meetings annually, the source said, will result in less time for trustees of the individual funds to grill the private firms about their performance and their management fees, and will force the trustees to depend more on Stringer’s investment recommendations. An earlier version that called for Stringer to make all major investment decisions was rebuffed, two union presidents said.
“It would have given Scott carte blanche,” one of those presidents said. “But we knocked that down, so he came up with a compromise we can support.”

Say this for Stringer - he may not know what the hell he's doing as comptroller or exactly how much his Wall Street buddies are charging the city's pension funds, but he sure does know how to increase his office's budget, power and public relations reach along with his own aggrandizing relationship with potential Wall Street donors.

1 comment:

  1. I have very little sympathy for Scott Stringer, a hack who's failed-upward throughout his career.

    A lot of great stuff, RBE...gonna have to look at it all more closely.

    Three quick thoughts (full disclosure--I was Director, Risk Management for the NYC Retirement System from 1996-2002 though I was hired into and paid by the Comptroller's Office):

    First, I've been trying to ring the alarm for a couple years about the disastrously bad performance of the NY City Employees and Teachers Retirement Systems compared to the NY State Employee and Teachers Retirement Systems--even though they both operate under exactly the same state enabling and "allowable investments" legislation.

    Second, the City Comptroller is the "investment adviser" to each of the five City pension funds and does not by himself make any decisions about who the funds hire to invest the money or about the kinds of investments they make--those decisions are made, by law, by the board of trustees for each fund. The CC can make "recommendations" and does try to coordinate their decisions to achieve some economies of scale. The administration of the NYC Retirement System is a total and expensive mess. Stringer is trying to bring some small dose of efficiency to the System and not to "grab power" because the trustees will still make the big decisions. Also, don't take Letitia James' comments entirely at face value--the Public Advocate has the least amount of power-influence with regard to the Retirement System and would not be above wanting to say anything to maintain the small degree of influence she now has.

    Finally, every City Comptroller engages in systematic duplicity: even though the CC cannot take any credit for the investment returns of the Retirement System, the CC rushes to push out a press release when there's been a "good" year and dives under the nearest desk when there's been a "bad" year. Stringer is just the latest CC to engage in this idiotic charade.