Submitted by John Murphy, Feb 28, 2007 18:06

On June 8, 2006 the NYCERS Board of Trustees approved an investment expense budget for FY-2007. The amount was $75.1M. This was an understated amount since approximately 10 private equity managers were not included. Neither were the investment consultants that are under contract to NYCERS. These oversights will probably raise the total amount to $80M. I estimate that this budget amount for next year, FY-2008, will be over $100M.

As recently as FY-2003 NYCERS investment expenses were $28.4M.

What does NYCERS gain from spending $80M on investment expenses. I'm sure someone will say increased diversification and increased expected rate of return for the portfolio. Notice the term used is expected not actual rate of return.

I very sure that NYCERS could prudently reduce investment expenses to $15M per year. At the same time NYCERS could maintain an adequately diversified portfolio and increase the portfolio's actual rate of return. This would be a very boring portfolio, heavily indexed. It would, however, make the pensions of the employees of the City of New York more secure.

In addition the City would save $65M plus interest payable in FY-2008. Always keep in mind that there are 4 other city pension systems.

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