According to a report released today by the (IDC) fees paid to Wall Street firms managing the State Pension Fund surged 163 percent during the last five years even though pension fund investments faltered. The report states the fee increases cost almost $758 million while the pension fund had a net negative investment return during that time.
"This report clearly indicates the need to reform the way we compensate financial firms so that merit pay and performance remain paramount in these tough economic times," said Senator David Carlucci (D-Rockland/ Orange), who is a member of the IDC. "Particularly when middle class families who pay into the system are struggling to make ends meet, they should have full confidence that their hard earned life savings are being invested wisely. I look forward to working with my colleagues to bring more transparency to this issue as we seek greater fairness and disclosure with the retirement security for New Yorkers."
Specifically in 2009 pension fund investments dropped 29 percent and management and performance fees rose more than 27 percent. They increased from $162 million to $272.5 million.
The names and amounts paid to the institutions are publicly disclosed in annual reports put out by the State Comptroller's Office but their individual performance records, and the terms of their fee structures are not included. According to the report, the “investment manager fees” to outside money managing firms increased 162.7 percent from $161.8 million in 2007 to $425 million in 2011. It further stated during that time, the state pension fund experienced an average annualized rate of return of 2.62 percent, and an overall investment return of -4.84 percent.
If these fees had stayed at 2007 levels, the pension fund would have saved $757,831,721.
Senator Carlucci and his IDC colleagues are seeking to bring more clarity and disclosure to the process, specifically:
1. drafting legislation requiring public, online disclosure of all management and performance fee agreements between the Pension System and outside investment managers.
2. calling on the Department of Financial Services to conduct a review of the pension system’s investment management practices.
3. requesting the bi-partisan Senate Task Force on Government Efficiency to hold hearings on the terms of all current and future fee agreements and seek testimony from independent experts, beneficiary representatives, and members of the Comptroller’s office.
4. asking the Comptroller’s office to ensure that all future management and performance agreements align the long-term interests of pension beneficiaries with the strategies of outside investment managers.