NYC Pension Funds Beats Target, Returns 7.24% in 2019

Higher return on actuarial asset value equates to $112 million in total savings

New York City Comptroller Scott Stringer reported unaudited preliminary investment returns of 7.24% for the city’s $194 billion retirement system for the fiscal year that ended June 30.

The preliminary returns were disclosed in the city’s fiscal year 2020 adopted budget report. Because the market value of pension assets is above the actuarial target of 7%, the gain on market value means a higher return on actuarial asset value. As a result, the excess earnings will be phased in over six years beginning in fiscal year 2021, and will translate into total savings of $112 million over three years: approximately $19 million, $37 million, and $56 million will be saved for fiscal years 2021, 2022, and 2023, respectively.

“I am pleased to report today that our city’s economy and fiscal condition continued strong over the past fiscal year,” said Stringer in a statement. “Our city’s economy is strong but we don’t have unlimited resources, which means we need to manage our budget with care today for the long-run benefit of our city.”

According to the New York City Employees Retirement System (NYCERS) 2018 comprehensive annual financial report, the annual money-weighted rate of returns, net of investment expense for the funds, were 8.61% for fiscal 2018, 12.99% for fiscal 2017, 1.45% for fiscal 2016, 3.10% for fiscal 2015, and 17.01% for fiscal 2014.

Although the preliminary results didn’t mention asset class performance or allocation, the allocation for fiscal years 2017 and 2018 were the same: 29% in domestic equities, 20.0% in international equity, 33% in domestic fixed income, and 18% in alternative investments.

The comptroller’s office also reported that the city’s economy grew 3.4% in the second quarter of the year, after reporting 3.1% growth the previous quarter. It said this was fueled by a strong labor market and strong wage growth as measured by average hourly earnings. Additionally, the banking sector, which is a key driver of the city’s economy, continued to “perform strongly” when measured by revenues and profits, which it attributed at least in part to lower corporate tax rates and deregulation.

Net income after taxes for the top six banks in the US rose to a record of more than $32.6 billion in the second quarter, while pre-tax net income of the banks rose 4.2%. Taxes paid by the top six US banks fell 14.5% during the second quarter from the previous year thanks to the lower federal corporate income tax rate enacted in 2017.

Additionally, total venture capital investment in the New York metro area hit a record second-quarter high of $4.11 billion in 2019, though this was down from venture capital investment of $4.48 billion in the first quarter of the year.

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