New custody related relationships with State Street Bank, Russell Investments and Citibank are expected to generate increased revenue of about $21 million per year for the New York City pension funds, primarily through securities lending, city Comptroller John Liu said.
"The new custodial service will provide for superior administration of our pension assets, reduce risk and generate significant new revenues which in turn reduce pension costs," Liu said in a statement on Nov. 22.
Use of these new banking services began on Nov. 1. Contracts with the banks were issued following a competitive request-for-proposal process that began last year. These banks will replace Bank of New York Mellon, which had provided the master custody banking services since 2003.
"The year-long RFP and negotiation process was well worth the effort," Liu added.
State Street Bank will provide master custody services and will serve as the systems' global administrator for alternative investment holdings.
Russell Investments will be responsible for foreign exchange services that will increase operational efficiencies.
Citibank will provide lending opportunities in several additional markets.
From 2003 to 2013, the market value of pension assets rose from $74 billion to $144 billion and the number of accounts has risen from 400 to more than 2,000, according to Liu, who said the new services will cost an additional $5.7 million a year, more than offset by the additional $21 million per year in new revenues.
In addition to generating new revenues, the new arrangement imposes fiduciary responsibility on State Street Bank and will increase transparency on foreign exchange transactions.
The city's primary employee pension funds are the New York City Employees' Retirement System; the Teachers' Retirement System of the City of New York; the New York City Police Pension Fund Subchapter 2; New York City Fire Department Pension Fund Subchapter 2; and the New York City Board of Education Retirement System.
Moody's Investors Service assigns an Aa2 rating to the city's general obligation bonds, while Fitch Ratings and Standard & Poor's assign AA ratings.