The New York Times had a big story yesterday on how Wall Street investment fees wiped out $2.5 billion in investment gains for New York City pension funds. The fees ate up nearly 97 percent of the investment gains over the last 10 years, leaving just $40 million in gains for the retirement fund for teachers, police officers, and firefighters. The story gained widespread attention in the financial world and even from the American Federation of Teachers' Randi Weingarten.
The whole thing started with a bizarre presse release from New York City Comptroller Scott Stringer. Bloomberg's Matt Levine takes a further look and tries to do some back-of-the-envelope math to calculate the percentages the funds paid.
But if you read all this, what's startling is just how little anyone knows about how the pension plan investment decisions are made, what sort of fees they pay on those investments, and how their investments perform over time. The city's comptroller had to run an internal study to find out, and even he could barely make heads or tails of it!
The same is true if you try looking at individual pension plans. I pulled up the latest investment portfolio update from the Teachers' Retirement System of the City of New York and found a long list of investment managers with Wall-Street-y names. All told, NYC teacher pensions are invested with 270 (!) different "Pension Fund Investment Managers" with names that run from "Acadian" to "Yucaipa Corporate Initiatives Fund II, LP." They list another 25 "Diversified Equity Fund Investment Managers." Why do they need all these plans? What do these plans charge in fees? The answers to those questions aren't readily apparent.
If you're a teacher in New York City, you might want to know these things. You might even want your union representatives to watch over them and ensure that your retirement system was getting the best investment value for the lowest fees. But instead, teacher union representatives are busy playing politics with the pension fund investments, seeking to trade one set of unfriendly hedge funds for another set of friendlier hedge funds. The AFT's official position on pensions touts its political oppostion but doesn't mention anything about pension plans' fiduciary responsibility to its members, let alone ensuring that retirement systems work well for teachers.
The real scandal is the lack of transparency on pension fund investments and the fact that no one, not the comptroller, and not the unions, are looking out for pension plan members.