Tag: wall street fees

Pennsylvania Pension Director Defends Investment Management After Op-Ed By Lawmaker

Pennsylvania

Late last month, Pennsylvania state Rep. Tom Caltagirone and financial advisor Richard Shuker took the state’s pension systems to task over the management of pension assets and fees paid to Wall Street.

[Read their arguments here.]

Now, the executive director of the state’s Public School Employees’ Retirement System (PSERS) has fired back in his own op-ed, defending the system’s investments. An excerpt from the piece, published in the York Dispatch:

1. PSERS is a well-managed, professionally run pension system that is audited by an independent, private sector auditing firm every year and follows all accounting standards issued by the Governmental Accounting Standards Board and all reporting requirements as required by the Securities and Exchange Commission.

2. PSERS received 15 recommendations from the Department of Auditor General’s 2006 Special Performance Audit. PSERS has resolved 13 of those recommendations and the two remaining address governance issues that are long-term projects and are currently in process.

3. Under Section 8521 (a) of the Retirement Code, PSERS is subject to the Prudent Investor Standard, which is a higher level standard than the Prudent Person Standard mentioned in the editorial.

4. Rep. Caltagirone and Mr. Shuker appear to use simple math to subtract the plan’s net asset values at two periods of time and imply that $48 billion is missing. For the 10-year period noted, we paid out $48.7 billion in benefit payments which they fail to even recognize. Evidently they are not aware that PSERS is a defined-benefit pension plan that currently pays out over $6 billion in pension benefits each year to over 213,000 retired members, including over $184 million in pension benefit payments in Berks County, where Rep. Caltagirone’s legislative district is located.

Read the full piece here.

 

Photo credit: “Flag-map of Pennsylvania” by Niagara – Own work from File:Flag of Pennsylvania.svg and File:USA Pennsylvania location map.svgThis vector image was created with Inkscape. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Flag-map_of_Pennsylvania.svg#mediaviewer/File:Flag-map_of_Pennsylvania.svg

New York Pensions Paid More Fees To Wall Street In 2013-14, But Fee Growth Is Slowing

Manhattan

New York City released its annual financial report Friday, which gave observers a peek into a part of pension finances under growing scrutiny: investment fees paid by the city’s 5 major pension funds.

The fees paid by the city’s pension funds have grown since last year. But the rate at which they’re growing has slowed significantly.

From Bloomberg:

New York’s five pension funds paid Wall Street investment managers $530.2 million in the most recent fiscal year, an 8.5 percent increase, according to the city’s annual financial report released today.

The rate of growth in the year through June slowed compared with the previous period, when expenses paid to the city’s almost 250 managers rose 28 percent.

New York City Comptroller Scott Stringer, who serves as chief investment adviser to the pensions, has vowed to reduce fees and increase internal management. Fees erode returns crucial to funding benefits for New York’s more than 237,000 retirees and future payments to 344,000 employees.

Pension assets for police officers, firefighters, teachers, school administrators and civilian employees rose about 17 percent to $160.6 billion in the 12 months ended June 30, according to the report.

Eric Sumberg, a spokesman for Stringer, didn’t immediately respond to a request for comment.

The five pension funds included in the report are: the New York City Employees’ Retirement System (NYCERS), Teachers’ Retirement System of The City of New York (TRS), New York City Police Pension Fund, New York City Fire Pension Fund, and the New York City Board of Education Retirement System (BERS).

Collectively, the funds allocate 6 percent of assets to private equity, 2 percent to hedge funds, 29 percent to fixed income and 58 percent to equities.

New Jersey Is Still Waiting For Return on Hedge Fund Investments

New Jersey Pension Returns
CREDIT: International Business Times

New Jersey is one of the most active states in the country when it comes to investing pension fund assets in hedge funds. That strategy carries risks and boatloads of fees—but it also carries potentially big returns.

Journalist David Sirota investigated the state’s investment decisions and the corresponding return data. He found that New Jersey was certainly straddled with management fees.

But the promised returns have not yet materialized. From Sirota:

Between fiscal year 2011 and 2014, the state’s pension trailed the median returns for similarly sized public pension systems throughout the country, according to data from the financial analysis firm, Wilshire Associates. That below-median performance has cost New Jersey taxpayers billions in unrealized gains and has left the pension system on shaky ground.

Meanwhile, New Jersey is now paying a quarter-billion dollars in additional annual fees to Wall Street firms — many of whose employees have financially supported Republican groups backing Christie’s reelection campaign.

Neither Christie nor the state pension fund’s top investment official responded to Sirota’s requests for comment. But to a certain extent, the numbers speak for themselves. Here’s a chart of the state’s management fees since 2009:

New Jersey's pension investment expenses since 2009
CREDIT: International Business Times

More from Sirota:

In 2009, the year before Christie took office, New Jersey spent $125.1 million on financial management fees. In 2013, the most recent year for which data is available, the state reported spending $398.7 million on such fees. In all, New Jersey’s pension system has spent $939.8 million on financial fees between fiscal year 2010 and 2013.

That’s only a little less than the amount Christie cut from state education funding in 2010 — a cut that played a major role in shrinking the state’s teaching force by 4,500 teachers. That money might also have reduced the amount the state needs to pay into the pension system to keep it solvent.

That last part, bolded, is important. A major catalyst behind New Jersey’s incoming round of pension reforms was the state’s towering pension payments. Christie decided to divert money from those payments to plug holes in the general budget.

But that decision decreased the health of the state’s pension systems, and Christie now intends to introduce another series of reforms which will likely focus on cuts to benefits.

As you can see, there’s a lot of cause-and-effect reverberating throughout New Jersey’s pension system right now.

Sirota has much more on this situation in his article, which you can read here.

Consultant rips North Carolina for “over-the-top” pension fund fees

3867767246_a59b722717_z

The State Employees Association of North Carolina (SEANC) smelled something fishy going on at the North Carolina Treasurer’s office even before they hired a consultant to investigative the fees paid to the Wall Street money managers who handle the state’s pension funds.

The ensuing investigation found that North Carolina isn’t just paying sky-high fees—the state is hiding them, as well.

According to the hired consultant, North Carolina paid a whopping $416 million in fees to Wall Street last year alone; the fees went primarily to Franklin Street Advisors, the firm that manages much of North Carolina’s pension fund assets.

The consultant hired to investigate, Edward Siedle, provides more details at Forbes:

Indeed, it appears that the massive hidden fees she’s not disclosing dwarf the excessive fees she has. For example, the fee information provided to SEANC indicates that…the pension paid $1.8 million in asset-based fees and $800,000 in incentive fees, or a total of approximately $2.6 million for managing approximately $360 million. This amounts to an apparent 50 basis point asset-based fee and a 5 percent incentive fee. (To date the Treasurer has failed to provide the investment advisory contracts which recite, in part, the fees money managers charge the pension.)

Since Franklin Street is a fund of funds, the underlying hedge fund managers are generally paid a 2 percent asset-based fee and a 20 percent incentive fee. It appears that the Treasurer is not disclosing the significant fees paid to the underlying hedge fund managers actually managing the money—fees which are far greater than Franklin’s fees for simply overseeing them.

It appears that the undisclosed underlying fees related to the Franklin investment alone—just one of the hundreds of funds in which state pension has invested—amount to $7.2 million in asset-based fees and $3.2 million in incentive fees or $10.4 million in 2013.

Since it appears that Franklin has managed this account for approximately 12 years, the undisclosed asset management fees paid to this manager alone appear to exceed $120 million.

However, based upon a review of relevant SEC filings, it appears that there may be additional significant fees, amounting to an estimated $3 million annually, paid to Franklin that are not disclosed.

A spokesman for the state’s Treasurer’s office claimed the consultant, Siedle, drew his conclusions by making assumptions that are “not based on conventional industry standards.”

The spokesman also said the fees paid to its money managers are in line with what other states pay.

A recent study by the Maryland Public Policy Institute examined the relationship between the performance of public pension funds and the investment fees they pay. The study found that, over the last 5 years, the pension funds of the 10 states that paid the least amount of fees all outperformed the funds of the 10 states paying the highest fees.

 

Photo Credit: Manu-H via Flickr Creative Commons License