New York City’s retirement funds for over 700,000 city employees represent the fourth largest pension system in the United States, totaling nearly $160 billion in assets… and they are being wiped out by the exorbitant fees charged by the Wall Street money managers.
An analysis of New York City’s pension funds revealed zero return on certain investments over the past decade.
Fortunately the city invested more than 80 percent in plain vanilla assets like domestic and foreign stocks and bonds that surpassed expectations by more than $2 billion, thus at least partially limiting the damage. Frustratingly, had New York simply “put the money in the market”, say in a low-cost index fund, the pension kitties of New Yorkers would have been in a position to actually benefit from the extra $2 billion. In reality, 97% of the benchmark-beating returns on “plain vanilla” assets were gobbled up by management fees over the last ten years.
For those following the active vs passive management debate, it comes as no surprise that the story gets worse and takes on an altogether surreal quality when non-vanilla investments are taken into account: the remaining 20% of these funds booked a negative return of over $2,5 billion dollars!
With funds paying out roughly $2 billion in fees to fund managers in return for nothing, the real value of Wall Street’s money managers is revealed. As Mr Stringer, the city's comptroller, points out: “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.”
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