34 thoughts on “Today, in “Posted Without Comment”

  1. So the pension funds did better than expected by about two billion dollars but only gained forty million because the bulk of it went to pay fees and salaries for people on Wall Street? That is some pretty epic level thievery going on there.

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  2. 2 billion over 10 years is 200 million a year. 160 billion under management with a yearly fee of 200 million is management fee of 0.125 percent.

    You’re really not going to get a better deal than that to manage money. Social security overhead is 0.4% and that’s considered the gold standard for low management fees.

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    • GAAH! I hate it when I read millions instead of billions. Thanks for pointing that out.

      So the actual take-away is that the pension managers not only failed to treat the fees as relevant, but that they thought a return of slightly more than 0.125% was good?

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  3. Thievery and incompetence. The pension managers should have been keeping a close eye on the fees, instead of just pretending they weren’t relevant.

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  4. Comments on Journalism
    – Considering Wall Street has not caused the public workers way of life to be exterminated in the last 10 years, no, the Lenape did not get a better deal.

    – When you’re interviewing a subject, and something is not clear – like why after many years as a stakeholder when he was Manhattan Borough President, is Comptroller Stringer only getting to this issue now – you ask that person you’re interviewing. Instead, we got ¯\_(?)_/¯

    – Interviewing non-govermental allies of an elected political leader with an agenda is fine. Failure to seek comment from anyone ‘on the other side’ as it were, is something that should now be seen as lackadaisical, ‘my mind is already made up’ reporting. If it’s good enough for accused rapists, it’s good enough for banksters accused of, in the words of others on this thread ‘thievery’ and ‘epic thievery’. (at the very least, you can always get around this by a close to the deadline phone call or email so you can say ‘so and so was not available for comment’. )

    – the correction at the end gives me some indication that the article’s author did a bit of regurgitating, sorry, re-imagining, from this press release but fouled that up by mixing the headline grabbing multi-billion dollar loss in private asset classes with the multi-billion dollar over 10 year fees.

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  5. 160 billion under management with a yearly fee of 200 million is management fee of 0.125 percent.

    That’s one way of looking at it, sure, assuming the numbers add up. FTA, though:

    The analysis concluded that, over the past 10 years, the five pension funds have paid more than $2 billion in fees to money managers and have received virtually nothing in return, Comptroller Scott M. Stringer said in an interview on Wednesday.

    It’s not clear from this sentence what the analysis was actually analyzing, so probably the actual analysis is what we should be looking at.

    The actual question here is “if the pension fund was just invested in some other options (say, a no-fee S&P index fund if such an animal existed) would it have gained more than it did in this managed fund?”

    Absent the context for other options available it isn’t clear if this is effective money management or not.

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    • The actual analysis is alluded to in the press release and the bloomberg piece linked upthread, though I can’t find the full Comptroller report on that department’s website.

      As far as I can tell, they compared benchmark performance with the actual performance of the various asset classes. I am assuming (insert the usual caveat) that their stocks/bonds/government securities/foreign investments are benchmarked against the most common indexes for those asset classes, and the private investment stuff is benchmarked against the industry average. Or maybe just plucked out of thin air, because the whole point of private investment is stuff that avoids most SEC regs with details that are deliberately hidden from public view.

      The oolie was that the benchmarks for the ‘public’ asset classes didn’t include management fees, though the private investment did. At the end of the 10 year study period. the private investment underperformed the benchmark by 2.6 billion in aggregate (including fees), or a final asset balance of something around 19 billion when the benchmarks said it should have been north of 21 billion.

      The rest of the portfolio overperformed the indexes (in aggregate), but the study claims that for every dollar in overperformance, the banksters took 95 cents of it. Though which still leaves the cities pension fund better off than a dartboard, if by the slimmest of margins.

      It’s not at all clear, however, if they included every management fee in this ‘clawback’. If this near 2 billion dollar fee represents the entire fee structure of the ‘public’ asset class, it’s shown above that means it’s about 0.2%, which the Bloomberg piece indicates may be a bit high, but in the ballpark.

      Bottomline, one of the 4 largest pension funds in the nation *should* get a good deal on fees and should be close to the market leaders/market makers for fee structure. The fees are not ridiculous, but they are a bit higher than someone with the NYC pension funds market position should have to pay. The comptroller also has an excellent point that auditors and oversight officials shouldn’t have to look through a bunch of footnotes to get an idea of the fee structure and the actual fees paid. (nor, per bloomberg, do the fees seem to be from primarily trading activity).

      But a press release and a NYT lede reading “NYC Pension funds have slightly overpaid for managment fees, which around a tenth of a percentage point above what they could probably cut a deal for, and are, in any case, excesively opaque” would generate even less commentary than that in the original post.

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      • Also, just to tie a few threads together – because of the abolute dollars involved, it is indeed far better to try to negotiate an extra fraction of a percent of pension fund management fees than to try to muck around with the edge cases of welfare benefits.

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        • But, as with so much else, “we managed to get the fee percentage from .125 down to .123” is a lot less exciting than “welfare queens buying king crab with food stamps versus dying grandmothers who can’t even afford Meow Mix”.

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      • Or maybe just plucked out of thin air, because the whole point of private investment is stuff that avoids most SEC regs with details that are deliberately hidden from public view.

        The rest of the portfolio overperformed the indexes (in aggregate), but the study claims that for every dollar in overperformance, the banksters took 95 cents of it. Though which still leaves the cities pension fund better off than a dartboard, if by the slimmest of margins.

        These two facts are probably not coincidences. It’s easy to claim performance over the average if the average is hard to locate.

        I’ve often wondered if managed funds work at all. I mean, if they result in more money on average. I’m not sure we actually have any evidence of this.

        Every single piece of the entire banking and investment structure exists for the people who own that to make money. There is absolutely no logical reason they should share this money with anyone else, unless doing so makes them more money.

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        • As far as I’ve heard, managed funds don’t beat the theoretically perfect investor.

          However, you don’t have to *be* a theoretically perfect investor for your managed fund to make more money than just leaving cash in the bank.

          So you pay the cost of less-than-theoretically-perfect-returns to secure the benefit of not having to spend nine hours a day managing your money.

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          • However, you don’t have to *be* a theoretically perfect investor for your managed fund to make more money than just leaving cash in the bank.

            Cash in the bank isn’t the comparison. The comparison is a UIT. Or just buying an S&P 500 index fund.

            Or, hell, with that much money, actually *hiring someone full-time*. Especially as management fees are apparently a *percentage* of the total, which is completely insane on that much money.

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            • Or, hell, with that much money, actually *hiring someone full-time*. Especially as management fees are apparently a *percentage* of the total, which is completely insane on that much money.

              % of assets under management is the standard in this market.

              Why do you think it’s insane? Break down the total into an annual number, say $200 a million a year. Now, let’s assume that there are 20 different managers that the pension fund has hired as outside advisers (not unreasonable). Personally, I think this number is too low, but work with me for the sake of argument.

              Now you’re $200 million per year turns into $10 million per year per money manager. By manager, I don’t mean “individual”. I mean an organization whether it’s Goldman Sachs Asset Management, Prudential Real Estate Investors, Bain Capital, BlackRock, Blackstone or anything in between.

              That money represents revenues. Those revenues have to cover the expenses including all the salary and overhead attributed to everyone from the mailroom, administrative staff, entry-level analysts, asset managers, portfolio managers, legal compliance, relationship managers, people that oversee acquisitions and disposition, some general corporate overhead (senior management) and any expenses related to occupancy (i.e. rent, taxes, etc.).

              Yes, these firms will profit, as they should, but the impression that the investment managers are screwing over clients by earning excessive fees not only flies in the fact of the Bloomberg article, but also the nature of the investment management itself, a business that is far more aligned with the institutional mindset of the pension fund than the more free-wheeling side of Wall Street. Most of the ones I deal with on the real estate side aren’t even technically “Wall Street” firms.

              These firms are subject to a number of regulations and have a fiduciary responsibility to their clients, and what’s most stunning to me about Stringer is how badly he has forgotten this. He’s foisting his own ignorance upon an invisible enemy that is hardly the problem.

              Could the pension funds push harder on fees? Yes, but looking at aggregate numbers don’t help determine where they can push. I know that the alternative investment vehicles are more expensive wrt fees, but this makes sense because the investment managers are moving farther out on the risk spectrum in order to achieve returns higher than typical index returns.

              As a last point, the analysis for private equity and real estate is going to reflect the HORRIBLE returns in the 2008 and 2009 period, returns that had less to do with poor management and everything to do with capital markets conditions that took a nosedive (although one can argue the wisdom of the acquisitions that attributed to the losses).

              While this isn’t a New York example: the two major California pension funds, CalPERS and CalSTRS, had a combined equity exposure of $700 million in the Stuyvesant Town deal when Tishman Speyer bought it at the height of the market in 2006 for $5.4 billion. The entire equity position was wiped out.

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              • I am aware the investment firms like to involve as many people as humanly possible.

                Now back to my question: Do these companies, after all is said and done, actually accomplish anything on the returns vs. just hiring some guy to generally invest the pension in safe market positions, or just buying an indexed fund?

                For some reason people tend to compare this to ‘throwing darts at stocks’ or ‘money in the bank’, instead of comparing to actual unmanaged investments that exist. Investments that give reasonable returns but do not require paying entire staffs of multiple corporations to manage.

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                • Now back to my question: Do these companies, after all is said and done, actually accomplish anything on the returns vs. just hiring some guy to generally invest the pension in safe market positions, or just buying an indexed fund?

                  Yes. If I want to invest in the REIT sector, do I try to do all the research myself to pick out a diversified portfolio of REITs based on the underlying real estate asset classes or do I hire a manager with the expertise to select the right securities?

                  For some reason people tend to compare this to ‘throwing darts at stocks’ or ‘money in the bank’, instead of comparing to actual unmanaged investments that exist.

                  I have no idea why they think this way since it’s wrongheaded.

                  Investments that give reasonable returns but do not require paying entire staffs of multiple corporations to manage.

                  Some investors seek higher returns and are willing to go further out on the risk spectrum than typical “market” type investments.

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                  • For some reason this discussion reminds me of my brother! He was a very ambitious business guy who after a few years in the field landed a job a Shearson Lehman. Bonds trader. Made HUGE money. And because of that thought he was smarter than the market. After the Collapse he went solo (because he was smarter than the market, see?) … and lost just about everything. Not only almost all his money, but almost his wife, almost his home, almost his second home (well, he did lose that), almost his kids private-school education (don’t know how he managed to save that one)…

                    Thing is, in boom times, everyone’s a genius! In bust times, even the best can’t make a buck! (Well, unless you got REAL money…)

                    Happenstance.

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