NEW YORK -- The New York City Retirement Systems is overhauling risk oversight systems and procedures for its $89 billion in retirement assets.
As a result, automated compliance monitoring, risk attribution, portfolio risk/reward analytics and improved external manager risk reporting are expected to be in place by year's end.
By early 1999, New York officials expect to add a total plan risk measurement system and a new management information system.
New York's move to revamp its risk controls and systems is in part driven by the work Jon Lukomnik, deputy comptroller, has done with the Risk Standards Working Group. That panel, composed mainly of pension executives, created a model for pension officials to evaluate their risk management practices.
Moreover, the big unexpected investment losses of a few years ago, such as those of Orange County, Calif., spurred many in the city to take a closer look at New York's risk practices, said Harris M. Lirtzman, director, risk oversight, in New York City's bureau of asset management.
Despite the changes to the risk systems, the five pension funds that comprise the New York City Retirement Systems won't change the way they manage assets, Mr. Lukomnik said. Instead, the systems will allow for better oversight and management of external managers, and for possible minor refinements, he said.
The new systems are not a magic bullet, Mr. Lukomnik said. They serve as a "gut check to be used in conjunction with other tools."
New York officials are relying on both the city's primary custodian, Citibank N.A., New York, and one of its pension consultants, RogersCasey & Associates Inc., Darien, Conn., for help in creating the new risk management approach, in part because of budgetary constraints.
But the changes will not be based solely on technology.
"What we're trying to do here is balance a quantitative and qualitative approach to risk management," Mr. Lirtzman said.
The added use of technology will free up other resources to look at the bigger picture from a risk perspective, he said.
New York will use a compliance monitoring system offered by Decalog BV, a subsidiary of Oshap Technologies Ltd., Herzliya, Israel. The Decalog system, IDEE, will be offered through a licensing agreement with Citibank.
The compliance system will supplement existing investment position and trade controls with daily reports identifying breaches of controls and triggering penalties.
Citibank will provide New York with risk attribution and risk/reward analytics through a licensing of software from BARRA Inc., Berkeley, Calif., Mr. Lirtzman said. The BARRA system should be in use in New York by the end of this year.
RogersCasey, the consultant to the New York City Teachers' Retirement System, and a unit of BARRA, performed some test runs on the teachers' portfolio using the BARRA analytics, he said.
Likewise, a different Citibank-licensed BARRA system will be used for total portfolio risk analytics that will be based on value at risk. The VAR-based system will be used for shaping long-term policy and tracking and evaluating external managers, he said.
Mr. Lirtzman took over in September, after a smaller-scale internally run effort was dropped.
Mr. Lirtzman previously was chief of staff in the New York City Housing Authority. Before that, he was an investment banker at Merrill Lynch & Co., New York, he said.
Cost is always an issue, but Mr. Lukomnik said city Comptroller Alan G. Hevesi has been supportive in providing needed resources for risk management.
No specifics on cost were provided, but the risk management package was negotiated as part of the city's overall pension fund custody contract with Citibank. Given that New York City is Citibank's largest pension custody client and one of its first users of the risk package, the fee schedule probably was favorable.
Mr. Lukomnik noted Mr. Lirtzman's efforts have met less resistance from staff members than expected.
"I expected an initial period of resentment," Mr. Lukomnik said. But after just a few months of work, staffers are eager to bring Mr. Lirtzman into new projects, he said.
New York City staffers also want to gain the support of the fund's external managers, but don't want to pressure them unduly.
"How do you support an existing risk culture without strangling it?" Mr. Lirtzman said.
He said a major part of his work will be an improvement in the quality of reporting.
The risk information will be integrated into existing reports that will be streamlined, with the goal of keeping the risk data understandable, he said. Too much data can overwhelm people, he said.
Although New York has several specific changes planned, Mr. Lirtzman's role will not end when those changes are completed.
"I'm going to be busy for several years," he said.
And Mr. Lukomnik added: "The world isn't static. When you say you're done, you're dead."