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Letters to the Editor: Stocks NYCERS's Best Buy

Letters to the Editor

Stocks NYCERS's Best Buy

To the Editor:

As of June 30, 2005, the New York City Employees' Retirement System had assets valued at almost $35 billion ($36.4 billion as of 12/31/2005). These assets belong to the members and retirees of the system, and not the City of New York or the participating employers. The trustees of the system are required to prudently invest these assets in the best interest of the members and retirees. Other interests must not interfere with this prime objective. The following is a recap of some of the major classes of investments for NYCERS. Listed is the type, the quoted value of the asset as of 6/30/2005, the annual expense for fiscal year 2005, and the annual rate of return, gross of fees, for the previous ten-year period:

Type                                           Assets                           Fees               Returns

U.S. Stock Index Fund             $13.7B             $0.34M (0.24 bp)           10.10%
International Stocks                 $4.9B              $15.70M (32 bp)               7.59%
U.S. Government Bonds         $1.62B             $0.49M (3bp)                    8.06%
U.S. Junk Bonds                     $1.67B             $5.80M (35 bp)                 7.81%
Private Equity/Real Estate      $0.54B             $11.20M (210 bp)             0.00%   (7 years)

The stock index fund is the best-performing investment in the NYCERS portfolio and is essentially free of cost. Why then would anyone pay higher fees for smaller returns on the other types of investments? Every pension fund needs a mixed bond portfolio, but wouldn't a bond index fund significantly reduce fees with the same performance or better?

Investment decision are always complicated and involve risk. NYCERS, however, has never applied a rigorous cost/benefit analysis or an historical critique to these decisions. In addition, the fact that investment managers make extensive campaign contributions totally distorts this process.

By the way, budgeted investment expenses went up 50 percent in FY-2006 to $61M. I suspect that these expenses will be over $80M in FY-2007. There is no five-year projection for these costs as is required of all other budgeted items. Keep in mind also that there are four other city pension systems.

JOHN J. MURPHY

Editor's note: Mr. Murphy is the former Executive Director of NYCERS.