Chicago Treasurer: Investment Firms Overcharging Chicago Pensions By $50 Million


Chicago’s new Treasurer, Kurt Summers, said last week that he believes investment firms are overcharging the city’s pension funds to the tune of $50 million annually.

Summers says firms are levying higher fees on the city’s smaller pension funds than on the larger funds, for the same work.

From DNA Info:

Since taking office in December, Summers claims he’s discovered that investment managers are wringing upwards of $50 million a year in extra fees out of the city and Cook County’s 10 employee pension funds by charging substantially higher fees to the smaller pension funds for the exact same investments.

“I don’t begrudge any firm from making as much money as it can, that’s what they’re in the business to do,” Summers said in an interview last week. “It’s our fault for operating in silos and not looking at this sooner.”

Summers said when he came into office he found that just 23 firms are raking in half of the $142 million in fees the pension funds pay out to manage $35 billion in funds.

“Let’s go have 23 conversations,” Summers said. “Let’s start with the firms who have gotten plenty of their fair share.”


Summers plan is to aggregate pricing, similar to New York City’s system, and convince investment managers to offer the lowest fee to all the pension funds, not just the largest ones.

He said he’s already spoken with four firms and gotten a commitment from one to lower fees by a third.

Summers has previously advocated using pension money to make direct investments within Chicago.


Photo by bitsorf via Flickr CC License

Chicago Treasurer Considers Using Pension Money To Make Direct Investments in Local Black Communities


Newly appointed Chicago Treasurer Kurt Summers last month announced his plans to invest portions of the city’s pension money locally.

Last week, he met with some local business owners and residents and talked further about his ideas, which include making direct investments in Chicago’s predominately black neighborhoods.

Heard by Progress Illinois:

Summers told the crowd that his office manages a combined $50 billion in investments as well as employee pension funds and retirement plans. He said he would like to see some of that money invested in neighborhoods like Bronzeville.

“I don’t view a neighborhood investment strategy as a risky strategy,” said Summers, a product of Bronzeville. “I don’t view that as any more risky than investing in Korea’s debt, which we do, or investing in a cement company in Mexico. I don’t believe investing in Bronzeville is any riskier than that.”

In fact, investing in neighborhoods makes good business sense, he said. It would boost the local economy, create jobs and a stronger tax base from new businesses and the entrepreneurs those investments would generate, Summers pointed out.

To invest in neighborhoods, changes need to be made to the city’s investment policies. Currently, Summers said, there is no mandate to invest pension fund money back into the city, even though cities in other states like New York, California and Florida already do so.

“City Council gives me an investment policy and parameters that I can invest with,” he said. “I likely will be proposing a new one to allow me to do some of the other things I want to do like invest in this community, which it doesn’t have a mandate for today.”

The plan doesn’t come without controversy. As a pension trustee, Summers has a fiduciary duty to make the city’s pension funds as healthy as possible. That means maximizing investment returns – a concept that may or may not square with local economic development.

New Chicago Treasurer Aims to Invest Pension Money Locally


Chicago treasurer Kurt Summers was sworn into office this week and quickly unveiled plans to increase the amount of pension money that goes toward Chicago-based investments.

His plans, from the Sun-Times:

[Summers] wants to hold an annual investor conference for the 200 fund managers who already get Chicago’s money and for hundreds more who desperately want a piece of the $50 billion pie.

At that conference, local entrepreneurs, many of whom have trouble getting access to capital to fund their innovative ideas, will get a chance to present their ideas to make the case for investment.

If Summers has his way, the city’s investment decisions will be based, in large part, on how much of the money is being invested in Chicago neighborhoods.

“We’re gonna bring them to Chicago. We’re gonna show them Chicago entrepreneurs and businesses and neighborhoods. And we’re gonna use our own capital. We’re gonna walk the talk, basically, and look to invest in Chicago,” said Summers, who is running unopposed in the Feb. 24 election.

“Today, we’re basically investing anywhere else but Chicago. And we’re telling the rest of the world that we don’t think Chicago is a worthy investment for our portfolios. That’s not the message we want to send. We’re also telling people in Chicago that we’d rather put our money anywhere else in the world but here. And that’s also not the message we want to send. We’re gonna change that.”

When Chicago starts making local investments a priority, Summers said he’s convinced that “the market will follow,” bringing tens of millions of dollars in capital to Chicago neighborhoods.

“We begin by asking the question of every manager that invests with us what their process is for evaluating Chicago investments,” he said.

“In every RFP and every investment management discussion … every board vote, they’re gonna be asked that question. And they’d better have a good answer. If they don’t, they won’t have my support.”

As treasurer, Summers will sit on the boards of five of the city’s pension funds.

New Chicago Treasurer Makes Pension Funding His Priority


Chicago Treasurer Stephanie Neely is stepping down at the end of November.

Her replacement, Kurt Summers, said his priority will be fixing the city’s pension systems. From the Chicago Sun-Times:

The full City Council is expected to ratify the appointment of Kurt Summers at Wednesday’s meeting, but the incoming treasurer is not waiting for the vote before rolling up his sleeves and getting to work.

He’s already meeting with actuaries and pouring over the books of the four city employee pension funds.

They include the Municipal Employees and Laborers funds that have already been reformed and police and fire pension funds still waiting for similar action.

In 2016, the city is required by law to make a $550 million contribution to shore up police and fire pension funds with assets to cover just 29.6 and 24 percent of their respective liabilities.

Much of that money will have to come from Chicago taxpayers.

That’s because, unlike Municipal Employees and Laborers, police officers and firefighters do not get compounded cost of living increases.

The process of making the city’s pension funds healthy, he said, includes decreasing investment fees and increasing investment returns. In other words, “investing more efficiently and less expensively.” From the Sun-Times:

As a member of the board overseeing all four city employee pension funds, Summers said he can “make a dent” in the taxpayer burden by reducing investment fees and bolstering returns.

Summers noted that the firefighters and laborers pension funds are paying dramatically higher fees to their investment managers than the Municipal Employees and police pension funds.

“One fund is paying 80 percent more in fees. Another is paying 50 percent more. Yet, there’s one client: The city of Chicago. That’s real money. For fire, the value of that is about $2.5 million-a-year on $1 billion in assets,” he said.

“These kinds of things aren’t going to solve the kinds of holes we have. But any benefit we can find to invest more efficiently and less expensively is a benefit to taxpayers and retirees.”

Summers noted that the bill that saved the Municipal and Laborers Pension funds — by increasing employee contributions by 29 percent and reducing employee benefits — assumes an “actuarial rate of return” on investments of 7.5 percent-a-year.

That makes it imperative that the funds invest in the “right type of assets,” he said.

“If there’s market shock during that time that looks anything like what happened in 2008 — or even what we saw in July — then you end that period of fixed, graduated contributions with less funding than was modeled out in the legislation and there’ll have to be greater catch-up to get to 90 percent funding,” Summers said.

“We’ll have to have portfolio and asset allocation changes to protect our rate of return because ultimately, the taxpayers and retirees are relying on us to hit that number and, if we don’t, they have a bigger bill on the other side of the graduated payments structure.”

That doesn’t necessarily mean being conservative, he said.

“It’s a common misconception to say, `If I invest in the markets or fixed-income [instruments], we’re gonna be protected, but real estate, private equity or hedge funds are risky.’ That’s plain wrong,” Summers said.

“The reality is, you have just as much, if not more exposure to risk and volatility in the market with investments in basic public securities than you do with alternative products meant to mitigate risk and limit volatility. That’s the business I was in — trying to do that for clients around the world.”

As Treasurer, Summers would be a trustee of the city’s pension funds.