New York City will completely overhaul the investment office responsible for its five pension funds, City Comptroller Scott Stringer announced Tuesday.
The planned changes are the recommendations of a 398-page report reviewing the management and operations of the Bureau of Asset Management, which oversees the investments of the city’s $160 billion pension funds. The assessment, conducted by Funtson Advisory Services, is the first independent analysis of the bureau’s operations since 2002.
“The evaluation is clear: we have to fundamentally rethink how the Bureau of Asset Management does business,” Stringer said. “For too long, too little attention has been paid to our investment operations and there was nothing that could be done to cut through an intractable bureaucracy. Today, that era has come to an end.”
According to Funtson, the bureau’s operations need to be brought “up to the standard of its peer pension systems.” The consultant made a total of 240 recommendations over 20 areas of operation, including investment management, risk and compliance, organization and administration, strategic plan and budget, staff development and training, and records management.
“To continue to fulfill our fiduciary duties, we must re-engineer every process and procedure and bring our investment operations into the 21st century,” Stringer said. “In the coming months and years, I will be working with the trustees of all five pension systems to address these serious issues.”
The issues cited by the review include the lack of a strategic plan, overreliance on third-party consultants, and under-staffing caused by low compensation and ineffective recruitment. The investment program itself was also found to be too complex: From 2001-2015, while the value of assets managed doubled, the number of external managers increased five-fold.
Source: New York City Office of the Comptroller
“Bringing this asset management operation up to leading practice will take all hands on deck over a period of many years,” said Scott Evans, Deputy Comptroller and CIO. “We have already begun to look anew at every process and procedure we have, but this review shows clearly why we need a fundamental re-architecting of the Bureau of Asset Management.”
Stringer and Evans will work with the pension system trustees to develop a roadmap for the bureau’s reorganization, which will be presented at their March investment meeting. Several initiatives already underway include expanding recruitment efforts, establishing internal investment and operational risk committees, and reviewing investment benchmarks.
“Our goal is to make the Bureau of Asset Management the gold standard of performance, risk, compliance, and ethics,” Stringer said. “This comprehensive review provides us a clear picture of what steps we need to take to address our most critical needs.”