NY City aims to replace Wall Street pension managers

Reuters News
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Posted: Oct 27, 2011 6:28 PM
NY City aims to replace Wall Street pension managers

By Joan Gralla

NEW YORK (Reuters) - New York City plans to overhaul its $120 billion pension funds by putting a chief investment officer in charge in a move to both depoliticize the system and improve returns, city officials said on Thursday.

Investment decisions are currently made by five separate boards and outside fund managers.

Mayor Michael Bloomberg, Comptroller John Liu and the city's main unions reported the proposed changes on a webcast news conference.

"We're overhauling an antiquated pension management system that has needed restructuring for generations -- depoliticizing the process, further professionalizing the staff and implementing industry best practices," Bloomberg said.

The chief investment officer would report to a new board made up of representatives from the mayor's office, the comptroller's office and the unions.

Liu, a Democrat, would relinquish much of his traditional authority over the five pension funds the said. The agreement in principle is subject to approval by the city council, the state Legislature and the governor.

Outside investment managers, who now earn hundreds of millions of dollars a year, would be replaced by in-house staff.

The proposal marked a rare moment of peace between Bloomberg and Liu, who have had a combative relationship, and between Bloomberg and the unions, who are fighting his calls for another tier of lower pension benefits and new healthcare contributions.

Still, the unions had a strong incentive to sign on: the higher the investment returns, the less likely it is that they will have to swallow harsh benefit cuts.

The mayor, a political independent, and financial analysts have warned that the city -- whose budget totals $66 billion -- cannot afford the current pension benefits, whose costs this year will be at least $8.4 billion.

"The proposal aims to increase investment returns, lower the city's pension costs, protect and strengthen pensions for current and future retirees, enhance accountability and guard against the possibility of fraud and corruption," the officials said in a statement.

New York City's pension funds now have 58 trustees, appointed by the unions, the mayor and the comptroller. With three sets of trustees, union officials have said the system safeguarded the pensions from fraud.

The new system should increase flexibility in making investment decisions because of the streamlined structure.

"Right now, if we want to make a change it's like turning the Queen Mary around in the Hudson River," said Stephen Cassidy, who leads the firefighters union, referring to the current system's multiple boards.

The term of the new chief investment officer would not expire at the same time as that of the mayor in order to insulate the position from politics.

The influence of politics on pension fund investments has been in focus in New York state over the past couple of years amid a broad probe into influence peddling related to the awarding of lucrative pension investments. The probe also brushed New York City's pension funds, with one consultant in December 2010 agreeing to repay thousands of dollars in fees received for helping a fund manager win business from the city.

Liu said it will take a few months to turn the accord into legislation and determine who will serve on the new board.

Larry Schloss, the deputy comptroller for pensions, will continue in his current role during the transition.

For more details on the plan, please see: http://www.comptroller.nyc.gov/pirnyc/

(Reporting by Joan Gralla; Editing by Leslie Adler)