Money managers take client for a $200m ride… annually

Money managers take client for a $200m ride… annually

Money managers take client for a $200m ride… annually New York City’s comptroller decided to take a closer look at the past performance of pension funds run by the city, and came to one inescapable conclusion: money managers were taking them for a ride.

Scott Stringer wondered how much value the city’s four pension funds were getting from the fees it was paying Wall Street to manage the $160 billion in pension assets held for 715,000 city employees so he undertook a 10-year performance analysis of the funds before and after fees.

The conclusions are enough to make any advisor sick to their stomach.

It seems the pension funds paid $2 billion in fees over the 10-year period getting almost no return from what works out to be a $200-million annual haul by investment managers. According to Stringer’s findings the fees paid reduced the pension funds’ performance expectations by $2.5 billion over the past decade.

“When you do the math on what we pay Wall Street to actively manage our funds, it’s shocking to realize that fees have not only wiped out any benefit to the funds, but have in fact cost taxpayers billions of dollars in lost returns,” Stringer said.

Although the public asset classes delivered more than $2 billion in gains above the benchmark expectations, 97 percent of those gains were eviscerated by fees leaving just $40 million for pension members.

Recently WP reported on some of the oversized returns of the large Canadian public pensions such as the Healthcare of Ontario Pension Plan which delivered a 17.7 per cent return in 2014 – a performance that’s truly world beating.

So, it’s hard to understand what went wrong in New York City.

“The fees are exorbitant and we’re not getting a good return on our money,” said Henry Garrido, executive director of District Council 37 and a trustee of the New York City Employees’ Retirement System. “That’s an insane process to keep doing the same thing over and over.”
  • Dave Macaulay 2015-04-10 3:39:49 PM
    Complaining about a .13% management fee is interesting. Having WP comparing a 1 yr return to a 10 yr return or even the suggestion thereof is ridiculous. Looking at the past ten yrs and considering what restrictions were likely placed on the managers of the funds there is no surprise that index returns are what they got.
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  • Will Ashworth 2015-04-13 8:47:53 AM

    While you've made a good point about the management fee paid by pension members being relatively small compared to what Canadian mutual fund investors pay, the fact remains that they paid more than $2 billion in fees for less than stellar returns.

    In addition, although the article discusses one-year returns of Ontario pensions (HOOP, etc.), while also discussing the 10-year returns of the NYC pensions, does not necessarily mean we were comparing the two, but merely wondering why these pension funds failed to achieve peer-like returns.

    Thanks for your comments.
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