New York City comptroller stays mum on manager terminations

New York City Comptroller John Liu, who campaigned last year promising “full accountability and transparency,” has refused to disclose the identities of some of the money managers fired by the city's $103 billion pension funds.

In an April speech to business leaders, Mr. Liu said he dismissed six managers for “poor performance.” He refused to identify them all, even after Bloomberg News sought their names under the state's Freedom of Information Law. Mr. Liu didn't want to embarrass them, said his spokeswoman, Sharon Lee.

“The intent was not to say X, Y and Z are awful and incompetent,” Mr. Liu said in a July 15 interview. “The intent was that we are reviewing the portfolio to identify poor performance and we are taking action. Does that mean we should go out and start excoriating individual fund managers?”

While Mr. Liu said in the interview that he would comply with the request to release the names, he didn't say when they'd be made available.

“We haven't decided not to disclose,” he said. “The operative term is that you haven't gotten it yet.”

In an e-mail sent July 20, Ms. Lee said the office intends to answer the freedom-of-information request by Sept. 15. “We intend to fully honor the comptroller's commitment,” she wrote.

On July 21, Mr. Liu’s office disclosed that Acadian Asset Management, which managed $646 million for three New York City pension funds, was one of six investment advisers dismissed for “poor performance.”

Mr. Liu’s office said it terminated Acadian, whose investments for New York City included Greek stocks, for “underperformance relative to the market.”

The order to Acadian, which was hired in July 2007, says assets managed by the firm “were transitioned to other investment managers” this month.

A voice mail for Churchill Franklin, Acadian’s COO, wasn’t immediately returned.

One of five tax dollars collected by New York City, about $7.6 billion, will go into the city's five public pension funds this year. That's more than 10% of the city's $63 billion budget and more than it costs to operate the police or fire departments.

City officials project the cost to the municipal budget of pensions covering more than 581,000 current and former police officers, firefighters, teachers, civilian employees and school administrators to increase to $7.8 billion in 2012, from $1.3 billion in 2002.

All five pension funds had liabilities exceeding assets as of June 30, 2007, the most recent actuarial valuation in last year's annual report. The New York City Fire Department Pension Fund had the worst ratio, with assets covering only 55% of future liabilities.

“These are some of the biggest pension funds in the U.S.,” said E.J. McMahon, senior fellow for tax policy at the Manhattan Institute, a research group advocating lower taxes and reduced government spending. “If their funds blew up and lost 80% tomorrow, the taxpayers still have to make good on it. They should be more transparent.”

Mr. Liu's stewardship of the funds has included barring the public from pension-board deliberations on investment policy. That compares with funds for police and firefighters in Los Angeles and teachers in Chicago, which both hold open gatherings.

The $199.4 billion California Public Employees' Retirement System, the largest U.S. defined benefit plan, posts monthly updates of investment returns, quarterly reports on manager performance and investment transactions. New York City's pension websites don't provide up-to-date investment returns or lists of managers.

Restricting the public's access to investment-committee meetings and delaying disclosure of the names of terminated managers is sometimes necessary “to protect the assets,” Mr. Liu said. “It's not a question of not giving the information.”

Mr. Liu promised “open government” and “intrinsic accountability” as recently as July 1, when he unveiled a website he said would provide public access to city spending decisions.

Taxpayers searching for information on current performance of New York City's pension funds won't find it either on the comptroller's or most funds' websites. Only one fund, for teachers, posts returns from 2010. The most recent data on the other four are from financial reports dated June 30, 2009. They don't include data on individual managers' returns.

Mr. Liu first publicly revealed his dismissal of the six New York pension managers during an April 8 Manhattan breakfast sponsored by Crain's New York Business, a sister publication of Pensions & Investments.

“Should the funds underperform, the shortfalls will have to be shouldered by our taxpayers,” Mr. Liu said. “As such, we've already terminated a number of investment managers due to poor performance. Their allocations were redirected to other asset classes and investment managers where the expected return on investment is higher. And, in several cases, we've renegotiated the management fees for more favorable terms on behalf of our pension funds.”

In a news conference after the speech, Mr. Liu declined to identify the six asset managers, how much city money they had been given, or how much the pension funds had paid the fired managers in fees.

“We want to have good relations with the investment community,” Ms. Lee, his spokeswoman, said at the time. “We want to avoid causing any embarrassment.”

The refusal led Bloomberg News to make a request under the state's Freedom of Information Law on April 11 seeking the identities of the firms Mr. Liu said he terminated, the reasons for the terminations, the managers' performance data and the amount of the fees they had received. The office said it would respond by June 11.

On that date, Allen Fitzer, the comptroller's records-access officer, e-mailed a letter to Bloomberg News identifying two of the six terminated firms: Emerald Infrastructure Development Fund and RiverSource Investments.

The assets of four other managers “have not been completely liquidated, transferred and presented to the appropriate funds as ‘finalized,'” he wrote in withholding the names of the others.

Mr. Fitzer said he would identify the other four as “soon as the transitions are complete.” The letter didn't disclose how much the city had paid the companies in fees, or the size of the investments.

In response to another Bloomberg News request, Mr. Liu's office e-mailed an internal June 11 memo that said Emerald had been given $75 million from four pension funds and was terminated in February after it made no investments. The city paid it management fees of $2.9 million from 2008 to 2010, the memo said.

Tom Vogel, a spokesman for Emerald, confirmed that the pension funds gave Emerald $75 million in 2008 for investments to finance construction of revenue-generating projects in Northern Ireland.

“Our goal from the start was to find the right investments that would provide an acceptable risk-adjusted return for our investors,” Mr. Vogel said in an e-mail. “Initial investment-period market conditions were such that we were not able to do so, and we understand that was the pension fund's reason to dissolve.”

The police pension fund ended its $56 million investment deal with RiverSource in February, according to the city's June 11 memo. The money was originally placed with J.&W. Seligman & Co. in 2002. RiverSource bought the firm in 2008 and “immediately replaced investment staff with a staff with no previous track record,” the memo said.

The pension funds paid management fees of $1.9 million and the fund had a 7.9% rate of return, according to the memo.

Ryan Lund, a RiverSource spokesman, declined to discuss the transaction.

The city's five pension plans employ 319 asset managers, according to the comptroller's office. In the 12 months ended March 31, the plans' investments returned 35%, nine percentage points less than the S&P 500 gained over the same period. The five funds lagged their benchmark indexes by 1.3 percentage points to as much as 6.8 percentage points.

Mr. Liu and his predecessor, William Thompson, pledged to protect the pension funds' integrity last year after a kickback scandal ensnared a number of politically connected placement agents, or marketers, hired by investment firms to get business from the state pension fund.

Mr. Thompson recommended terminating Aldus Equity Partners as a manager of city pension funds after state Attorney General Andrew Cuomo alleged that the firm and its managing partner, Saul Meyer, had paid Hank Morris, a political consultant to former state comptroller Alan Hevesi, to get business.

The funds also gave at least $100 million to Catterton Partners, a private equity firm that used Praetorian Securities as its marketing firm. Mr. Hevesi's son, Daniel, a Praetorian employee, reaped agent fees in the deal, Mr. Thompson's office said last year.

The New York securities firm withdrew its securities registration in 2008, according to a filing with the Financial Industry Regulatory Authority Inc.

Mr. Liu has maintained a ban on middlemen instituted by Mr. Thompson, and implemented disclosure requirements for money managers, including that they must report all contacts with employees of the comptroller's office. He also refused to take campaign contributions from investment managers and their agents seeking to do business with the funds.

Mr. Thompson confirmed in a July 6 interview that Emerald won the business in 2009 on the recommendation of William Howell, a placement agent who had donated $13,900 to Thompson campaigns for comptroller and mayor, according to city campaign finance records.

The former comptroller said he had no role in selecting Emerald. The choice was made by “professionals who had no idea who contributed to my campaign,” Mr. Thompson said. Howell didn't return a message left on his telephone answering machine at his home in Rockville Centre, N.Y.

Pension board meetings excluded the public during his eight years as comptroller because disclosure could affect the price of an investment, Mr. Thompson said.

“It's a very competitive world and you don't want to create a situation where your investment decision becomes public,” he said.

The comptroller's office has not yet complied with the Bloomberg News request for the identities of four of the six terminated companies, an up-to-date accounting of how much money they managed, what they billed in fees and the reasons for their dismissals.

“I'm not defending the system as it is,” Mr. Liu said in the July 15 interview. “The system has been in place for a long time.”