New York City's pension fund system would ban all placement agents and hire more risk and compliance officers, as well as an internal auditor, as part of new Comptroller Scott Stringer's push to improve management and governance of the city's pension system.
The changes, announced by Mr. Stringer on Thursday, affect the comptroller's bureau of asset management, which manages investments for the five public city pension funds that have aggregate assets of about $145 billion. The comptroller is the custodian and the investment adviser to the five pension funds, each of which has a separate board of trustees.
Mr. Stringer, who took office in early January, said he will recommend to each board that private placement agents be banned for all investments. He said these financial middlemen are now banned only for private equity investments by the city pension funds.
”We must have a broader, formal ban to ensure that New York City does not experience the pay-to-play scandals that have plagued other funds in recent years,” according to a transcript of a speech delivered by Mr. Stringer to the Citizens Budget Commission, a non-partisan, non-profit civic group that makes recommendations for financial and regulatory changes for New York City and New York state.
Eric Sumberg, a spokesman for Mr. Stringer, said in an interview that two current managers of international equity funds in the city pension system used private placement agents. The managers are Thornburg Investment Management and Sprucegrove Investment Management.
The $160.7 billion New York State Common Retirement Fund, Albany, was rocked by a pay-to-play scandal that eventually led to the jailing of former state Comptroller Alan Hevesi in 2011. Under state law, the New York state comptroller is the sole trustee of the New York State Common Retirement Fund. The current comptroller, Thomas DiNapoli, banned all private placement agents in 2009 for the state pension fund.
Mr. Stringer also said he would:
- appoint risk and compliance officers, reporting directly to him, to “strengthen, monitor and continually improve risk and compliance measures.”
- establish an investment disclosure policy “that requires relevant employees to regularly report” their personal trading more frequently than the current annual reporting;
- implement for bureau staff training in ethics, conflict of interest and financial regulation, which will “go beyond what they currently receive under conflicts of interest board rules and procedures”; and
- appoint an internal auditor — a new position — and an internal audit committee to oversee the reforms.
“The compliance function is currently decentralized among personnel in the bureau of asset management,” Mr. Sumberg added. “Comptroller Stringer will elevate the compliance function by appointing a chief compliance officer and by expanding and better coordinating compliance functions and monitoring.”