Managing New York’s Retirement Nest Egg

One would think that $88.7 billion is a lot of money for a young person to handle. But Deborah Gallegos of Santa Rosa, N.M., doesn’t think it’s enough. Not in New York.No?“No,” Ms. Gallegos – who, as New York’s chief investment officer, is in charge of determining what the city’s five retirement funds do with their cash – said at lunch yesterday. “New York is the financial capital of the world. But we are fourth or fifth down the ladder in terms of our pension portfolio. California is ahead of us, so is Florida. I want New York to be at least a couple of notches higher, maybe even become number one.”For that to happen, she will need to nearly double the value of the city’s portfolio – currently $88.7 billion – to match the $170 billion that the California Public Employees Retirement Systems, Calpers – the largest retirement system in America and the third biggest in the world – holds. She will also need to close the gap between New York’s portfolio and what the city needs to contribute in order to stay on course of actuarial projections for meeting its obligations to retirees.“Yes, of course it’s a tough task,” Ms. Gallegos, who’s on the right side of 40, said. “But we’re prepared. We’re implementing a diversification of our holdings into alternate assets such as private equity and real estate. We’re aiming at earning 8% annually on our investments – that’s the least it will take to meet our projections.”And will she meet those projections?“Deborah is the right person at the right time,” William C. Thompson Jr., the city’s comptroller, told The New York Sun last night. “We needed a knowledgeable and talented person to do the job, and I’m pleased that she came on board to help implement our plans.”Mr. Thompson hired Ms. Gallegos from her native New Mexico, where she served as deputy state investment officer for the State Investment Council, whose $8 billion portfolio she helped grow to $12 billion by the time she left. Indeed, coming to New York was a sort of homecoming: before her stint in New Mexico, Ms. Gallegos was a vice president at JP Morgan Fleming Asset Management in Manhattan, where she worked for six years for its global emerging markets fund. And before that – which is to say, after receiving her MBA from the University of California at Berkeley – she was a rising star in the equity research group at Morgan Stanley & Company.She’s come to New York at a time of rising budgetary pressures on the Bloomberg administration. As part of the changes that Comptroller Thompson is making, the longtime custodian of the city’s pension funds, Citigroup, was replaced by the Bank of New York. Indeed, Ms. Gallegos must contend with a history of uneven performance of the city’s pension portfolio. Its value fell from $97.4 billion at the end of fiscal 1999 to just $73.9 billion at the end of fiscal 2002. When that happened – and it happened largely because the stock market did poorly, she pointed out yesterday – the city was forced to increase its contribution to the pension systems. In fiscal year 2000, the city contributed $695 million dollars to the fund. The next year, the number nearly doubled, rising to $1.2 billion.The situation improved last year. The overall return on the city’s investments was 12% for the calendar year – and 8% for the fiscal year ending June 30. This meant that no contribution was required on the city’s part.The uptick may have caused her boss, Mr. Thompson, to heave a sigh of relief, but Ms. Gallegos’s job hasn’t become any easier. She must deal with the boards of each of the city’s five pension funds – the teacher’s union, the Police Department, the Fire Department, city employees, and the Board of Education – and each meeting can be a veritable inquisition. Each board has between eight and 11 members, and each member can often have a vocal point of view about where the fund’s money is invested.Then she must supervise the development of overall investment policies, standards, and guidelines of the comptroller’s Bureau of Asset Management. That means oversight of some 80 investment advisers and consultants.That also means carefully monitoring a portfolio that includes investments of which 65% are in publicly held equities in America and what’s called Eafe – Europe, Australia, and the Far East – but also increasingly in emerging markets. In fact, Ms. Gallegos – who is Hispanic – prides herself on her familiarity with emerging markets in Latin America and the Middle East because she dealt with those areas during her earlier successful run in the private sector.So, the reporter wanted to know, what’s it like dealing with these enormous sums of money every day of the year?“I’ve been fortunate in my personal investments, even if that meant taking risks that I could take because I’m a young person,” Ms. Gallegos said. “But when it comes to investing other people’s money – particularly money that needs to keep up with the inflation rate and still be adequate by the time they retire – well, that’s a very big responsibility. What that means is that I can’t ever afford to let up.”She can trace her energy and ambition to her college days at Berkeley. She obtained internships at financial companies, and at the Washington office of New Mexico Senator Peter V. Dominici, a Republican. She was mentored by Michael Torres, a financier who urged her to reach beyond her grasp. She still remembers how Mr. Torres told her that she had an opportunity to excel in financial services, a field where there were few Hispanics, let alone Hispanic women. Between her undergraduate period and business school at Berkeley, she worked for Callan Associates, a San Francisco consultancy where she learned about pension funds and about the power that institutional investors wield.“And I learned to do things with a smile,” Ms. Gallegos said. “But I also learned to be an insister. I insist. People who work with me know that. When I want things to be done, I expect them to get done yesterday. I’m an implementer. I get things done. Always have been that way, always will.”The reporter thought: just the right attitude for New York. Bill Thompson was on the mark: Deborah Gallegos may indeed be the right woman at the right time to reinforce the city’s finances so that today’s municipal workers can breathe a bit easier about tomorrow’s nest egg.

Managing New York’s Retirement Nest Egg

Managing New York’s Retirement Nest Egg

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