New York State Comptroller

New York Comptroller Candidates Spar Over Private Equity Pension Investments

In the race for New York State Comptroller, incumbent Thomas DiNapoli is guarding a comfortable 20-point lead in the polls.

But his challenger, political unknown Bob Antonacci, isn’t holstering his guns quite yet.

Both candidates over the weekend sparred about the place of private equity in New York’s pension portfolio.

Under DiNapoli, New York’s Common Retirement Fund (CRF) allocates 8 percent of assets to private equity. Antonacci thinks that’s far too much.

From the New York Post:

DiNapoli’s challenger in the state comptroller’s race warned that private-equity investments look good now, but can turn bad very quickly.

“Private-equity investments can be very risky,” says Republican Bob Antonacci.

He agrees that it is a good idea to diversify state retirement portfolios beyond stocks and bonds. But 8 percent in private equity is excessive, he says.

“I think the problem is that he (DiNapoli) is putting too much emphasis on risky investments,” Antonacci said.

He added that the comptroller is seeking out chancier investments because his goal is to obtain a 7.5 percent return a year. That, Antonacci adds, is an unrealistic expectation.

“We are taking chances on getting returns that aren’t going to be there in the long run,” Antonacci says.

DiNapoli’s office responded:

“The comptroller sees private equity as diversifying the investment portfolio and getting better investment returns,” says DiNapoli spokesman Matthew Sweeney.

[…]

The recent numbers show that using private equity reduces risk through portfolio diversification, DiNapoli’s spokesman said. That, he adds, reduces risk.

New York State and Local Retirement Systems earned 14.9 percent over the past decade on the private equity part of the investments, according to a new report from the Private Equity Growth Capital Council (PEGCC).

The State Comptroller oversees $181 billion in pension assets. Recent polls have DiNapoli leading Antonacci, 58 percent to 31 percent.

Photo by Awhill34 via Wikimedia Commons

NY Comptroller DiNapoli: Six Reasons the State Shouldn’t Switch to a 401(k) System

State Comptroller Thomas DiNapoli is the sole trustee of New York’s $180 billion Common Retirement Fund (CRF).

His challenger, Robert Antonacci, has said he would shift New York’s pensioners into a 401(k)-type plan if elected.

But during an editorial board meeting Monday, DiNapoli laid out six reasons why he’d keep New York’s defined-benefit system in place. From Syracuse.com:

1. It benefits 1 million New York employees and their families, a significant portion of the state’s population, he said. The average pension paid retirees, other than firefighters and police, is $21,000 a year.

2. The money paid out to retirees stays in New York, benefiting the state’s economy. About 80 percent of the people who receive a pension remain in the state, DiNapoli said.

3. The state’s pension plan is 92 percent funded and that’s a good asset to have when New York goes out to borrow money, he said. The health of the state’s pension plan is one of the things financial agencies look at when they issue bond ratings. Those ratings in turn affect the ability of the state and local municipalities to borrow.

4. New York has responded to current economic conditions by curtailing pension benefits for newly hired state employees. Local governments that have had a turnover in employees saw a savings as a result, DiNapoli said.

5. Twice in the past two years the state has cut the rate local governments pay into the system, he said.

6. Switching to a defined contribution plan won’t change the state’s obligation to provide a pension to the 1 million people already in the system, DiNapoli said. Plus, it would create retirement insecurity for even more New Yorkers. “A 401(k) was never meant to be the substitute for a pension,” DiNapoli said.

DiNapoli is leading Antonacci in the polls by double digits.

[iframe src=”http://video-embed.syracuse.com/services/player/bcpid1949044326001?bctid=3849163701001&bckey=AQ~~,AAAAPLpuTok~,Mq6Bf5KTh4CNk04xgb0fhNsE4sqxZ6vz”]

Few Details On New York Pension’s Partnership With Goldman Sachs As Comptroller Remains Quiet

New York State Comptroller Thomas DiNapoli, the sole trustee of the states $181 billion Common Retirement Fund (CRF), announced last month a partnership between the pension fund and Goldman Sachs.

CRF will give Goldman $2 billion to invest in global equities. But few other details have emerged about the partnership. That led one think tank, the Pioneer Institute, to push for more clarity. But the Comptroller’s office has remained mum on specifics. From Public Sector Inc:

The lack of transparency in portfolio management and the conspicuous absence of a board of trustees overseeing the investment process is troubling, if not perilous.

Matthew Sweeney, a spokesman for the comptroller’s office, answered some of a dozen questions about the GSAM deal. Here are a few of those he did not comment on, completely unedited:

– Which other investment management firms applied to the competitive bidding for the $2 billion allocation?

– What were the specific criteria on the basis of which GSAM was selected?

– Can you share the investment policy sheet that was publicized as part of the RfP for this portfolio segment? This would include targets like concentration risk and counterparty risk limits as well as a number of other parameters related to the asset classes included, long/short ratios, other risk metrics, geographies and other relevant characteristics of the desired portfolio.

– What are the performance targets in terms of risk and return for the performance-based compensation, if any?

– What are the benchmarks selected to evaluate the performance of this portfolio sleeve in the coming years?

Mr Sweeney did answer a question regarding the compensation structure in the contract – with the laconic: “Fees are disclosed on an annual basis.”

[…]

With so much pension money at stake, why didn’t Mr DiNapoli’s office publicize the selection process, a clear rationale for the investment and the performance objectives he has (or so one hopes) for Goldman? What value are Goldman’s undoubtedly well-compensated analysts and investment bankers supposed to add?

The so-called partnership “will initially focus on dynamic manager selection opportunities in global equities to enhance returns” and then provide “improved analytics and reporting on its portfolio and enhanced evaluation and due diligence on current and potential active managers.” In other words, the CRF added a potentially expensive actively managed distraction for its global investment team days before CalPERS announced ditching its $4 billion hedge-fund allocation precisely because it was too small to make a dent in overall return and too expensive in terms of time and money to manage.

The bottom line is that, because of their sheer size, most pension funds can do little but focus on efficient cost and risk management. An open and competitive bidding process is essential to keeping costs down. And a critical part of risk management is having a robust, transparent and accountable investment process, which the CRF appears to be patently lacking. One need not look far afield to see where this sort of conduct ultimately leads.

The Common Retirement Fund paid $575 million in management fees in fiscal year 2013-14. The fund manages $181 million in assets.

You can read more coverage of the Goldman Sachs deal here and here.

New York Comptroller DiNapoli Touts Pension Reforms in Letter

New York State Comptroller Thomas P. DiNapoli is likely to win re-election to his post without much trouble, according to recent polls.

But amidst questions about conflicts of interest in the New Jersey pension system, DiNapoli seized an opportunity to tout his own pension reform measures in a letter to the editor of the Times-Union:

A recent commentary rightfully condemned the culture of “pay to play” in which politically connected financial executives gain access to public pension money in exchange for political campaign contributions (“Public pensions, politics don’t mix,” Oct. 3).

After I was appointed state comptroller, my top priority was to restore the office’s reputation after it was badly tarnished by a scandal based on this corrupt practice. We took immediate steps to set new standards and controls to codify ethics, transparency and accountability.

In time, we have returned the office’s focus to where it should be – on the investments and performance of the New York State Common Retirement Fund. This was accomplished by: Banning the involvement of placement agents, paid intermediaries and registered lobbyists in investments; issuing an executive order and pressing the U.S. Securities and Exchange Commission to prohibit “pay-to-play” practices; and expanding vetting and approval of all investment decisions.

I’m proud to say the latest independent review of the pension fund by Funston Advisory Services found it operates with an industry-leading level of transparency and that our investment team acts within ethical and professional standards.

This review is a validation that we are on the right path and should reassure the people of New York that the pension fund is being managed properly and ethically.

DiNapoli (D) is running against political newcomer Robert Antonacci (R).

Photo by Awhill34 via Wikimedia Commons

New York Comptroller Candidates Square Off on Pensions

The New York State Comptroller serves as the sole trustee of New York’s $176.8 billion retirement system. So it’s not surprising that pensions were among the first issues broached during Wednesday night’s televised debate between the two candidates for Comptroller, incumbent Thomas DiNapoli (D) and newcomer Robert Antonacci (R).

Antonacci voiced several of his gripes with the state’s pension system; he claimed the assumed rate of return was too high and that the system should take on more characteristics of a 401(k)-style plan. From the Democrat and Chronicle:

Antonacci, who since 2007 has served as Onondaga County comptroller, took several opportunities to criticize DiNapoli’s oversight of the system. The pension fund’s assumed rate of return of 7.5 percent, Antonacci said, was too high.

A certified public accountant, Antonacci also said he believes the state should move toward offering defined-contribution retirement plans — what many would think of as a 401k-style plan. State and local-government employees currently receive defined-benefit plans, in which the payout at the time of retirement is determined by a formula and not subject to the whims of the stock market.

“We have to make some fundamental changes to the pension fund, including talking about a defined-contribution plan,” Antonacci said.

DiNapoli disagreed, saying a move to a 401k-style system would hurt working New Yorkers. He touted the performance of the pension fund — which is consistently ranked as one of the best-funded public plans in the country — while acknowledging his office may decide to lower the assumed rate of return in the future.

“Moving to defined contribution would put more and more New Yorkers at risk of not having adequate income in their golden years,” DiNapoli said. “That would be a bad choice for New Yorkers.”

DiNapoli is leading in the polls by 28 percent.

Photo by Awhill34 via Wikimedia Commons

Would An Elected Comptroller Ease New Jersey’s Pension Pain?

Fixing New Jersey’s pension system has been the talk of the state lately, and as far as ideas go, all the usual suspects have been proposed: cutting benefits, making full actuarial contributions, transferring new hires into a 401(k)-style plan, etc.

One idea that is rarely discussed is the creation of a model similar to New York: the appointment of a comptroller to oversee and have authority over the pension system.

Under this model, the comptroller would take significant authority out of the governor’s hands regarding pension matters.

This hypothetical comptroller, if he wished, could have overridden Chris Christie’s decision to cut the state’s pension payments. More analysis from NJ Spotlight:

While New Jersey governors and legislatures have been cutting, skipping, or underfunding pension payments for the past 20 years, New York does not have a similar pension crisis because its elected state comptroller has the power not only to set the actuarially required pension payment each year, but also to require Albany’s governor and Legislature to fully fund it, according to a senior Moody’s Investors Service analyst.

New York State Comptroller Thomas DiNapoli is required to calculate the state’s pension payment by October 15 to give the governor’s office and legislative branch sufficient time to include his calculation in the budget for the fiscal year that begins the following June 30. That amount is then required to be paid into the state’s pension systems on or before March 1 — three months before the end of the fiscal year.

“In New York, the state comptroller is responsible for the entire pension system,” Robert Kurtter, Moody’s Managing Director for U.S. Public Finance, explained at a forum on pension funding at Kean University last week. “The comptroller’s power to require full pension funding has been litigated and upheld by New York’s highest Court of Appeals.

“The New York Legislature tried to underfund the actuarially required contribution, but couldn’t,” Kurtter said. “It’s a two-edged sword for New York. Their unfunded liability is low, but they don’t have a choice, even when revenues are down.”

The soundness of New York’s pension system is one of the principal reasons that the state enjoys a AA1 bond rating from Moody’s — one of 30 states in the top two rating categories — while Illinois and New Jersey are the nation’s fiscal basket cases, the only two states with lower-tier single-A bond ratings. While New York was upgraded this year, New Jersey’s bond rating has been downgraded a record eight times under Gov. Chris Christie.

But creating a comptroller position and giving it authority is a politically tricky process – because it involves not only amending the constitution, but also taking away significant power from the state’s governor. From NJ Spotlight:

New Jersey’s governor has more power over state spending than any other governor. New Jersey’s governor has unilateral authority to determine the revenue projections that determine the size of the budget — which Christie has consistently overestimated, as previous governors have when it met their political needs.

New Jersey’s governor also has the ability to make midyear budget cuts without seeking legislative approval — as Christie did when he retroactively changed the pension formula in March and cut $900 million in Fiscal Year 2014 pension payments in May.

Adding an elected state comptroller or state treasurer or establishing an ironclad requirement that the state make its actuarially required contributions to the pension system annually would require a constitutional amendment. The Democratic-controlled Legislature would need the governor’s signature to pass a new law, but not to put a constitutional amendment on the ballot — a strategy it used to bypass Christie on the minimum wage last year and on guaranteed funding for open space this fall.

Last spring, Christie cut $2.4 billion in payments to the pension system and diverted it to help balance the state’s general budget.