I have written before about how public pensions are being looted by a combination of malpractice by elected officials and greed by investment banks and advisors. The way it works is like this. In order to for the pension funds to be solvent enough to pay out the promised benefits, the elected officials have to set aside a certain amount of money in highly rated securities that have lower returns. What some elected officials do is to divert some of that money to cover expenses since the tax-cutting mania has resulted in local governments not having enough money to meet their needs. Then when the pension funds run low, these elected officials turn to investment firms that promise high rates of return that they say will make up for the shortfall.
But sometimes, unless they are restricted by law, these securities can be riskier and often do not return the promised rates. But the investment advisors don’t care because where they make their money is by siphoning off huge amounts of money as fees, making the deficit hole even larger. Patrick McGeehan writes that pension funds are losing up to $2.5 billion as fees paid to Wall Street.
The Lenape tribe got a better deal on the sale of Manhattan island than New York City’s pension funds have been getting from Wall Street, according to a new analysis by the city comptroller’s office.
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.
“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.”
Until now, Mr. Stringer said, the pension funds have reported the performance of many of their investments before taking the fees paid to money managers into account. After factoring in those fees, his staff found that they had dragged the overall returns $2.5 billion below expectations over the last 10 years.
“When you do the math on what we pay Wall Street to actively manage our funds, it’s shocking to realize that fees have not only wiped out any benefit to the funds, but have in fact cost taxpayers billions of dollars in lost returns,” Mr. Stringer said.
Most of the funds’ money — more than 80 percent — is invested in plain vanilla assets like domestic and foreign stocks and bonds. The managers of those “public asset classes” are usually paid based on the amount of money they manage, not the returns they achieve. [My emphasis-MS]
Wall Street never misses a chance to rip you off coming and going.