Pension Funds Not Shaken By Wall Street Earthquake; Thompson: Losses Not Heavy
By TOMMY HALLISSEY
City Comptroller William C. Thompson, Jr. Sept. 17 reassured city employees that their pension funds were safe despite investments in all three companies — Lehman Brothers, Merrill Lynch and AIG — whose massive fiscal woes last week caused devastating losses on Wall Street.

The Chief-Leader/Michel Friang WILLIAM C. THOMPSON: Diversification reduced hit.

Mr. Thompson serves as investment advisory to the five city pension funds, which have assets of more than $100 billion. "It is important for me to reassure the approximately 640,000 retirees, beneficiaries, and city employees who are invested in the system that their money is safe and secure," he said.

Giant Potholes on 'Street'

On Sept. 15, Lehman Brothers filed for bankruptcy after suffering huge losses from sub-prime mortgages; Merrill Lynch was sold to the Bank of America; and stocks dove more than 500 points that day in reaction. Later in the week, the Federal Reserve jumped in to rescue AIG, a giant insurance company, which was teetering on the brink of bankruptcy.

The Comptroller's office said that the five pension funds had $560 million invested in Lehman Brothers Asset Management division — $445 million in private equity and $115 million in real estate. "Both of these are safe," said Kristen McMahon, spokeswoman for Mr. Thompson. The asset management division was excluded from the bankruptcy filing of Lehman Brothers, but was expected to be sold in a "matter of days," according to Dow Jones.

The city also owned roughly 2 million shares of Lehman Brothers, which were worth about $15 million on Sept. 10, but only $7.6 million on Sept. 12. "However, I must emphasize that our investments in Lehman Brothers securities are just a minuscule percentage of the funds, which currently total more than $100 billion," Mr. Thompson said at a press conference at City Hall on the day Lehman Brothers filed for bankruptcy. "Since I took office in 2002, the trustees of the pension funds and I have reduced the funds' exposure to risk by diversifying our portfolio beyond the traditional asset classes."

He continued, "In light of recent events in the economy and financial markets, this approach is helping us withstand the tough times. By dramatically increasing the amount we invest in private equity, real estate and other asset classes, we have ensured the long-term health of our portfolio."

'Well-Positioned to Weather Crisis'

The pension fund also owned 8 million shares of AIG that were worth $97 million before the market dip, but days later were down to $48 million. As of Sept. 15, the pension funds owned more than 5 million shares of Merrill Lynch worth in excess of $90 million.

"In the long-term, we as a city are well-positioned to survive the current crisis," Mr. Thompson said on Sept. 17. "New York City has weathered other troubles on Wall Street before, such as the financial crisis of the 1970s, the stock market in 1987 and the burst of the dot-com bubble only a few years ago."

The following day, the Comptroller announced that the New York City Employees' Retirement System purchased $15 million in State of Israel fixed-rate bonds, a far safer investment than Wall Street stock.

On Sept. 18, Mr. Thompson announced the city pension funds ceased the lending of securities to 19 firms listed on the Securities and Exchange Commission's "naked" short-selling list, including Morgan Stanley and Goldman Sachs.

"I am deeply concerned by the damage to the long-term values of the funds' investments in major financial companies that is being caused by speculators' reckless short sales of those companies' shares," the Comptroller wrote in a letter to the Bank of New York Mellon, the city's custodial bank.