Scott Stringer vowed during his successful campaign for New York comptroller to reduce the $370 million in fees the city's five pension funds pay money managers and consultants annually. His job, which starts Jan. 1, just got harder.
The charges climbed to $472.5 million in the year ended June 30, a 28% gain, a city report shows. In the past seven years, investment expenses for the $137.4 billion retirement system, which is overseen by the city comptroller's office, surged by $280 million.
“I'm going to take a hard look at all of our fees,” Mr. Stringer, a Democrat, said in a statement. “We need to limit costs, ensure payments are commensurate with performance and leverage our size and relationships with other pension funds to negotiate lower fees.”
New York's pension funding deficit totals $72 billion.
To help shore up funding, retirement systems such as New York's have turned to riskier and higher-fee asset classes, such as private equity, hedge funds and real estate. New York City's pension funds had 11.6% of assets in alternatives at the end of fiscal 2013, compared with 4% in fiscal 2006, according to city comprehensive financial reports.
U.S. pension fund costs increased by 0.26 percentage points on average from 2001 to 2010 as retirement systems shifted money to alternative assets that aren't managed in-house, according to a 2012 report by CEM Benchmarking for New York City's pension funds.
“We constantly work to reduce fees across all asset classes, including shedding poorly performing managers, moving public market funds into indexes, and negotiating lower fees in alternatives,” Matthew Sweeney, a spokesman for outgoing Comptroller John Liu, said in an e-mailed statement.
Before departing last month to become president of investment adviser Angelo, Gordon & Co., the city's chief investment officer, Larry Schloss, recommended that the pension funds hire staff with Wall Street experience and pay them higher wages to manage money in-house. That would reduce fees and boost returns, Mr. Schloss said.
New York City is the only one of the 11 biggest U.S. public-worker pension funds that doesn't manage any assets internally.