New York City comptroller

New York City Pension Hires Risk and Compliance Officers As Part of Ethics Reform

New York City’s pension system has made a series of hires recently as part of an ethics package proposed by City Comptroller Scott Stringer in 2014.

The system has hired an internal auditor, a chief risk officer and a chief compliance officer.

New York City Pensions Pulled $4.9 Billion From Pimco in 2014

New York City’s pension funds have pulled $4.9 billion from Pimco since Bill Gross left the firm in September.

A City spokesman confirmed that the pullout was due to “organizational change” within the firm.

From Reuters:

“The New York City Pension Funds recently transitioned out of $4.9 billion in Pimco accounts due to concerns over recent organizational changes,” Eric Sumberg, a spokesman for New York City Comptroller Scott Stringer, said in a statement.

Gross shocked bond markets in September by leaving Pimco, which he co-founded, for smaller rival Janus Capital, where he now manages the Janus Global Unconstrained Bond Fund (JUCAX.O).

The assets pulled from Pimco by the city pension funds were distributed to the city’s existing asset managers, Sumberg said.

Existing managers include BlackRock (BLK.N), Goldman Sachs (GS.N) and State Street (STT.N), among others.

According to Morningstar, the Pimco Total Return Fund, formerly managed by Gross, had record outflows of $103 billion in 2014. Investors pulled $150 billion from Pimco’s U.S. open-end mutual funds for 2014, Morningstar data also showed.

The New York pension funds still hold $2.4 billion in Treasury inflation-protected securities (TIPS) accounts with Pimco.

“At this time the Systems are in the midst of a search for TIPS mangers,” Sumberg said in the statement.

As noted above, New York’s pension funds haven’t exited Pimco entirely; they still have $2.4 billion invested with the firm.

The City’s pension funds collectively manage $158.7 billion in assets.

Photo by Tim (Timothy) Pearce via Flickr CC License

Cuomo Rejects Bill To Increase Alternative Investments By Pensions

New York Governor Andrew Cuomo on Thursday vetoed a bill that aimed to raise the percentage of assets New York City and state pension funds could allocate towards hedge funds and private equity.

From Bloomberg:

Governor Andrew Cuomo vetoed a bill that would have allowed New York state, city and teachers pension funds to allocate a larger percentage of their investments to hedge funds, private equity and international bonds.

The measure approved by lawmakers in June would have increased the cap on such investments to 30 percent from 25 percent for New York City’s five retirement plans, the fund for state and local workers outside the city, and the teachers pension. The funds have combined assets valued at $445 billion.

“The existing statutory limits on the investment of public pension funds are carefully designed to achieve the appropriate balance between promoting growth and limiting risk,” Cuomo said in a message attached to the veto. “This bill would undermine that balance by potentially exposing hard-earned pension savings to the increased risk and higher fees frequently associated with the class of investment assets permissible under this bill.”

[…]

A memo attached to the New York bill said raising the allotment for hedge funds and other investments is necessary for flexibility to meet targeted annual returns. A swing in the value of the funds’ publicly traded stocks can push the pensions “dangerously close” to the investment cap, the memo said. The change would also better enable the funds’ advisers and trustees to “tactically manage the investments to take advantage of market trends, react to market shocks and potentially costly rebalances or unwinds at inopportune times,” it said.

New York City Comptroller Scott Stringer supported the bill.

Photo by Tim (Timothy) Pearce via Flickr CC License

NYC Pensions Paid Record Fees in 2014; Former Pension Official Says Comptroller “Dragging His Feet” On Cutting Expenses

New York City Comptroller Scott Stringer serves as investment advisor to the boards of the city’s five pension funds, which together manage $144 billion in assets.

Last year, Stringer’s office said the city’s pension systems needed to “limit costs” and “negotiate lower fees”.

One year later, the pension systems have paid a record number of investment fees – $530 million – and a former director of the city’s largest pension fund is accusing Stringer of “dragging his feet” on bringing expenses down.

The city’s pension system paid more fees in 2014 than it had in any previous year. From the New York Post:

The city paid a record $530.2 million in fees to pension investment firms last fiscal year, despite Comptroller Scott Stringer’s vow to rein in the escalating costs.

The fat fees forked out to private advisers and consultants skyrocketed from $472.5 million in fiscal year 2013. The half-billion dollars in fiscal year 2014 is five times the $97.9 million paid in 2003.

In the last 15 years, the city has paid $4 billion to advisers.

A year ago, Stringer reacted sternly to reports that his predecessor, John Liu, had paid investment firms 28 percent more than the year before.

“We need to limit costs, ensure payments are commensurate with performance and . . . negotiate lower fees,” a Stringer spokesman said at the time.

Last week, Stringer’s office said he “has made lowering fees a top priority,” but did not give any examples of lowered fees or firms fired for lackluster performance.

One former pension official questioned Stringer’s commitment to lowering investment fees. The official said that Stringer has voted for fees in the past, and hasn’t done anything to bring them down. From the NY Post:

John Murphy, former executive director of NYCERS, the city’s largest pension fund, said Stringer sat on the NYCERS board of trustees as Manhattan borough president.

“He voted for these fees for eight years. Now he’s dragging his feet on doing something about it as a comptroller,” Murphy said.

Besides putting money into stocks and bonds, the comptroller pays dozens of outside advisers to manage investments in riskier private-equity, real-estate and hedge funds.

Murphy called on Stringer to make public his contracts with investment managers, especially private-equity firms, which take payments from the funds they oversee.

“There’s no way to know how much money they’re making” for the pension funds or taking in compensation, Murphy said.

[Stringer spokesman Eric] Sumberg said, “We are reviewing ways to provide transparency on the general terms of our contracts.”

NYC’s five pension systems control $144 billion in assets. They assume a 7 percent return on investment annually.

NYC Comptroller Explains Boardroom Accountability Project in Open Letter

New York City Comptroller Scott Stringer is pushing corporations to give their biggest investors – often pension funds – more power over corporate boardrooms.

Stringer says pension funds can use their leverage as large shareholders to rein in excessive executive compensation and make corporate boards more diverse.

From a piece written by Stringer in Wednesday’s Daily News:

In partnership with the city’s pension funds, recently launched the Boardroom Accountability Project, a national initiative designed to improve the long-term performance of American companies by giving shareowners the right to nominate directors using the corporate ballot — also known as proxy access.

Proxy access promises to transform corporate elections from rubber-stamp affairs, where one slate of candidates is listed on an official ballot determined entirely by current officeholders, to true tests of merit and independence.

Bringing accountability to the boardroom will have real benefits for the retirement security of millions of Americans, including the 700,000 municipal workers , retirees and their beneficiaries who rely on city pension funds.

A recent report by the CFA Institute, the world’s largest association of investment professionals, concluded that on a marketwide basis, bringing more democracy to the boardroom could increase U.S. market capitalization by up to $140 billion.

We have focused our initial list of 75 companies being targeted around three core issues: those with excessive CEO pay, those with little or no gender or racial diversity on their board, and many of our most carbon-intensive energy companies. They include Urban Outfitters, ExxonMobil, Abercrombie & Fitch and Netflix.

Excessive CEO pay is a problem in itself and can create perverse incentives for management to focus on short-term profits at the expense of long-term value creation. It is also often a sign of a captive board that puts the interests of management ahead of the interests of shareholders.

And while most agree that more diverse boards make better decisions, the pace of change is glacial. In 2006, women made up 11% of S&P 1500 board seats. By last year, that number had barely budged (to 15%), and also as of last year, 56% of S&P 100 companies had no women or minority-group members in their highest-paid senior executive positions.

That’s bad for business, investors and our economy, and we will use our leverage to change it.

Lastly, we know that transitioning the world’s energy production to low-carbon sources is essential if we are to stem the most extreme effects of climate change. But the CEOs of the world’s major energy companies have little incentive to make investments that may reduce earnings today to protect their companies’ long-term prosperity.

In corporate America, the buck stops with the board. As a result, the right of shareowners to nominate and elect truly independent directors that reflect a diversity of viewpoints is critical to ensuring that the interests of long-term shareowners triumph over the pressure for short-term gains that all too often drives decisions at our largest corporations.

Read the whole piece here.

Video: New York City Comptroller Talks About Push By Pension Funds For More Control of Corporate Boardrooms and City’s Hedge Fund Allocation

Here’s an interview with New York City Comptroller Scott Stringer. Stringer is trustee of the City’s five pension funds.

During the course of the interview, Stringer talks about his push for pension funds to have more control over corporate boardrooms. He also defends the city pension system’s hedge fund allocations.

CalPERS, New York Pensions Lead Push To Give Largest Shareholders More Control Over Corporate Boardrooms

Pension funds are often among a corporation’s largest shareholders, a position that gives them unique ability to influence corporate decision-making and governance.

But a handful of the nation’s largest public pension funds are leading a push for more oversight over corporate governance – namely, the ability to hire and fire a company’s director.

From the New York Times:

Weary of what they see as a dysfunctional dynamic, a band of institutional shareholders is mounting the first push ever at 75 United States companies to allow investors to hire and fire directors directly. The plan is intended to bring greater accountability to corporate boardrooms and eliminate some of the “clubby” aspects for which they have been criticized.

Leading the drive is Scott M. Stringer, the New York City comptroller and a Democrat, who oversees five municipal public pension funds with $160 billion in assets — much of it invested in the kinds of companies his effort will target. His office will submit a proposal at each of the 75 companies, asking the company to adopt a bylaw allowing shareholders who have owned at least 3 percent of its stock for three years or more to nominate directors for election to the board.

Among the 75 companies targeted by Mr. Stringer are eBay, Exxon Mobil, Monster Beverage and Priceline. None of the companies commented on the comptroller’s shareholder proposal.

[…]

“The bottom line is, friends still put friends on boards,” Mr. Stringer said in an interview Wednesday. “My job as a long-term investor is to make sure that these companies truly represent the interest of share owners.”

The effort by the New York City pension funds will focus on companies that have been unwilling to change practices in three areas: board diversity, climate change and executive compensation. Companies with no women as directors or those with little or no ethnic diversity were identified, along with companies whose shareholders had recently expressed dissatisfaction with executive pay practices but had done nothing to address them. On climate change, more than a third of the companies identified by the shareholder group are in the energy industry.

The proposals will be put to shareholder votes at the companies’ annual meetings in the coming months. While the companies would not be required to adopt the bylaw even if a majority of shareholders voted for it, advocates say the boards would be more likely to go along with the idea if it won strong support from shareholders.

Scott Stringer is leading the charge, but he has other powerful pension funds on board, including CalPERS. From the NY Times:

Working with Mr. Stringer’s office to drum up support are officials at the California Public Employees’ Retirement System, the nation’s largest public pension fund. Calpers said it would hire a proxy solicitor to discuss the proposal with other institutional shareholders. “We view this as a five-year project and will be back again and again as needed,” said Anne Simpson, senior portfolio manager and governance director at Calpers. “But making the commitment and getting an alliance formed on this issue is so important.”

Public pension overseers in other states, including Connecticut, Illinois and North Carolina, are also supporting the effort.

Pension360 covered last week how CalSTRS, CalPERS and New York’s largest pension systems were upset over governance changes at Bank of America.