City Comptroller John Liu’s costly pension-investment strategy resulted in nearly $2 billion in lost earnings last fiscal year, a former pension chief claims.
Liu touts a combined 12.1 percent return on investments in fiscal year 2013, when the city’s five pension funds grew from $111.3 billion to $124.8 billion.
But that rate is inflated by adding cash-flow unrelated to investments into the equation, said John Murphy, the former executive director of NYCERS, the city’s largest pension system.
The true rate of return is 10.5 percent, Murphy calculates. That’s less than the 12.2 percent the city could have earned — another $1.9 billion — if it invested the money in reliable, low-cost S&P 500 Index and Core Bond funds and avoided risky, expensive hedge funds, private equity and real-estate investments.
“They’ve put their money in the wrong places and are paying a lot for it, too,” Murphy told The Post. “They could have earned much more if they invested it more carefully.”
With nearly 12 percent of the city’s pension funds invested in riskier “alternative assets,” management fees ballooned to $472.5 million, Liu revealed last month. Those managers typically charge 2 percent of the funds invested plus 20 percent of profits.
In contrast, fees for traditional stocks and bonds are minimal. For instance, Blackrock managed $4.1 billion for NYCERS, the city’s largest pension fund, in the Russell 3000 Index, charging $184,000 in fees, or .004 percent. But in a shift to exotic funds, NYCERS has moved money out of stock indexes and core bonds, dropping from 71 percent in 2000 to 39 percent last year.
Taxpayers are on the hook for pension costs when investments fall short. Mayor Bloomberg’s FY 2014 operating budget plows $8.2 billion into the pension system, up from $1.5 billion in 2001.
City taxpayers, by law, must repay the 2013 management fees in 2015 — at 7 percent interest for two years.
A Liu spokesman did not respond to requests for comment.
Mayor-elect Bill de Blasio, as public advocate, sat on the board of trustees of NYCERS, which approved the investment strategy. His spokeswoman did not return a call for comment.
Liu’s successor, Scott Stringer, also served on the NYCERS board as Manhattan borough president. He has vowed to scrutinize outside investment managers “to ensure payments are commensurate with performance.”