NYC Pension Chief Wants to Cut Out Wall Street Fees

City sees opportunities for better returns and lower costs by managing some investments in-house.

New York City’s $140 billion retirement system pays Wall Street money managers about $360 million a year, the only one of the 11 biggest U.S. public-worker pensions that refuses to manage any assets internally. Larry Schloss, the city’s chief investment officer, says the practice must end.

Schloss, 58, points to Ontario’s C$130 billion (US$126 billion) teachers’ pension fund, which has returned an average 9.6 percent annually on its investments since 2003—1.6 percentage points better than New York’s funds. The Canadian system reaped those gains mostly without paying outside asset managers. Schloss says the same in-house approach could work in New York.

California’s Woes

Managing money internally and paying staff higher salaries and bonuses isn’t always a formula for success. The California Public Employees’ Retirement System, the largest U.S. pension, manages almost two-thirds of its assets, including 83 percent of stocks and 91 percent of bonds. Chief Investment Officer Joseph Dear received $522,540 in compensation in 2011.

Managing Managers

In New York, there’s plenty of talent, and it’s “ridiculous” that the city won’t pay enough to hire it, Schloss said. A plan to manage a portion of assets internally—with compensation levels benchmarked to New York City insurance companies, endowments, and pensions—hasn’t gained traction with fund trustees, he said.

Accounting Background

The five boards were to be pared down to a single 12-member body that would set investment policy. Asset management would have been separated from the comptroller’s office to insulate it from politics.

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