Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
New York Pension Earns $40M over 10 Years, Pays Fund Managers $2B in Fees.
@ Maurice: I can't say for sure, considering it's a state pension, but multi employer would be answered with a yes. Probably left to the state & lawyers to " clean it up " as per Detroit ?! Derf
Isn't there something wrong with the conclusion, based on the quoted article? It says the fund returns exceeded expectations, but the fees ate 97% of the extra gains. Not trying to defend the administration of the fund, but the article makes it seem like they still got more than they projected/asked of the managers. I'm not sure the write-up supports the desired ire.
Some of the NYTimes article, and more of the blog, seem to be misreading the report (if the blogger even read the report in the first place).
Since the blogger is focusing on the "public asset classes" (both highlighting text pertaining to these investments and referencing a $2B fee), I'll do the same.
First, about that $2B fee that the NYTimes reported. The actual report says that the total impact of public market fees is $2.023 billion". Emphasis added.
So while the impact on total return (of public assets) was $2B, the fees charged must have been much less.
Despite that $2B market impact of management fees, management did still add value, albeit small. Quoting again from the report: "Over the same period, managers of public asset classes exceeded benchmark returns by an estimated $40 million, even after the impact of fees is assessed." Emphasis added.
Okay, not a lot of value, making the use of management questionable, but still a positive result after costs.
In addition, NYC performed asset allocation ("over/underweight in particular asset classes; a decision the [NYC Bureau of Asset Management] and the [pension] trustees make"). That "resulted in gains of an estimated $725 million".
Again, all quotes from the actual report. While the asset allocation wasn't done by the hired managers, this nevertheless suggests that robo-advisors would not have done as well as the human beings did.
As to the private equity side, I can't comment on the methodology used to evaluate these black boxes (the report says that the city used non-public data in evaluating performance), but Fortune ran a column on that methodology the day after the NYTimes story. I don't know how accurate the Fortune column is either, but it does offer a different slant.
For completeness, here's Stringer's press release on the study.
Finally, in case you're not familiar with Scott Stringer, he's the guy who beat Elliot Spitzer in the primary before winning the city comptroller spot in the general election.
Comments
Derf
Derf
Since the blogger is focusing on the "public asset classes" (both highlighting text pertaining to these investments and referencing a $2B fee), I'll do the same.
First, about that $2B fee that the NYTimes reported. The actual report says that the total impact of public market fees is $2.023 billion". Emphasis added.
As we should all know, thanks to John Bogle, a typical active management fee has an effect that gets magnified over time (because value is slowly bled, value that could have been compounding).
See, e.g. http://www.richmondsavers.com/vanguard-funds-and-the-impact-of-fees-on-your-investment/
So while the impact on total return (of public assets) was $2B, the fees charged must have been much less.
Despite that $2B market impact of management fees, management did still add value, albeit small. Quoting again from the report: "Over the same period, managers of public asset classes exceeded benchmark returns by an estimated $40 million, even after the impact of fees is assessed." Emphasis added.
Okay, not a lot of value, making the use of management questionable, but still a positive result after costs.
In addition, NYC performed asset allocation ("over/underweight in particular asset classes; a decision the [NYC Bureau of Asset Management] and the [pension] trustees make"). That "resulted in gains of an estimated $725 million".
Again, all quotes from the actual report. While the asset allocation wasn't done by the hired managers, this nevertheless suggests that robo-advisors would not have done as well as the human beings did.
As to the private equity side, I can't comment on the methodology used to evaluate these black boxes (the report says that the city used non-public data in evaluating performance), but Fortune ran a column on that methodology the day after the NYTimes story. I don't know how accurate the Fortune column is either, but it does offer a different slant.
For completeness, here's Stringer's press release on the study.
Finally, in case you're not familiar with Scott Stringer, he's the guy who beat Elliot Spitzer in the primary before winning the city comptroller spot in the general election.