Earlier this year, David J. Loglisci, former chief investment officer of the New York State Common Retirement Fund, and Henry Morris, former chief political adviser and chief fundraiser for former New York State Comptroller Alan Hevesi, were indicted on 123 charges, including enterprise corruption, securities fraud, grand larceny, bribery and money laundering. Following the indictment, New York state Attorney General Andrew Cuomo promised to eliminate the use of third-party marketers.
As the nations third largest pension plan, the common fund wields significant influence in the pension industry. Unfortunately, the debate is being framed by leaders from the same organization that stand accused of shameful conduct. Furthermore, the decision to ban third-party marketers, if adopted on a broader scale, could have far-reaching negative consequences on the entire financial marketplace without resolving the breach of fiduciary duty and public trust that is alleged.
The common fund should take a number of key actions to reduce the potential for future illegal activity.
First, it should seek to abandon its one-trustee system in favor of a board composed of independent, outside directors. Having a single elected official as the ultimate decision maker on how to allocate more than $120 billion is not prudent and is prone to abuse. An independent board of directors would provide valuable checks and balances to the process.
Second, it should conduct an independent and exhaustive review of the internal organizational structure and procedures in an effort to promote a stronger culture of governance.
Third, it should reverse the ban on third-party marketers, opting instead to institute a set of full and transparent disclosure requirements pertaining to all investment managers hired. Those disclosures should include all fees, political contributions by the money management firms or their officers, gifts to common fund employees, and any political influence in the selection process.
Implementing these measures would go a long way to restoring the publics trust in the common fund.