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Did New York City's Comptroller just admit he violated his fiduciary duty?

mjvcaj

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Jun 25, 2005
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Yesterday, Comptroller Scott M. Stringer, who oversees hundreds of billions of dollars for NYC's pension funds, released a press release critical of Wall Street's fees.

In it, he decided to use a 10-year cost summarization, an age-old scare tactic, noting: "The analysis concluded that, over the past 10 years, the five pension funds have paid more than $2 billion in fees to money managers and have received virtually nothing in return, Comptroller Scott M. Stringer said in an interview on Wednesday."

Then, he literally admitted the following:

"We asked a simple question: Are we getting value for the fees we're paying to Wall Street?" Mr. Stringer said. "The answer, based on this 10-year analysis, is no."

Yet:

Over the last 10 years, the return on those "public asset classes" has surpassed expectations by more than $2 billion, according to the comptroller's analysis. But nearly all of that extra gain - about 97 percent - has been eaten up by management fees, leaving just $40 million for the retirees, it found.

So, in other words, Mr. Stringer appears to believe that his investments should be privy to more of the outperformance rather than fees paid to outperform.

As Matt Levine points out, this is quite a silly game he seems to be playing (that is, criticizing his own investment strategy):

http://www.bloombergview.com/articles/2015-04-09/new-york-discovers-wall-street-charges-fees

If he admits that his strategy was a poor one to use, hasn't he opened to the door to the following two questions:

1) Why did Mr. Stringer wait 10 years to conduct this analysis? Is this lackadaisical approach a breach of fiduciary duty?

2) If Mr. Stringer realized that his allocation and strategy was not ideal for the NYC pension funds, why should they continue to keep him in charge of this money?
 
Isn't part of all of this the simple fact that none of the benchmarks (e.g., the Russell 3000 Index) include any kind of management fees, yet anyone actively investing is going to have to pay something to someone for managing their portfolio?

Also, the guy's sound bite will be completely misconstrued by a lot of people. Many will incorrectly believe that the pension funds made no money at all on their investments despite paying Wall Street $2 billion to make money for them. Yet the reality is that the pension funds made a decent profit on their investments--just not all that much more than the various market indexes.

It reminds me of a politician screaming that the other side wants to cut funding for program X, while in reality the other side simply wants program X to receive a smaller increase in funding than what was previously planned.
 
Cliff Notes version of the problem and solution, when dealing with these kind of sums, the city absolutely shouldn't be paying on a percentage basis of the amount being managed..
 
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