New York City Comptroller Scott Stringer on Thursday called for a ban on private placement agents across the city's five pension funds.
Such a ban is the lynchpin of the newly elected Stringer's proposal to overhaul the bureau of asset management's oversight of the funds, which have a combined value of $150 billion.
Stringer detailed his six-point plan in a breakfast speech to the Citizens Budget Commission watchdog organization.
The pension funds' 58 trustees across five boards would have to approve the measure, and state legislation would probably be necessary, he said after the speech. Stringer said he hoped to have the proposals in place by March at the latest.
"This will show the rating agencies that we believe in responsible money management," Stringer said in an interview at the Yale Club in midtown Manhattan. "We're not doing this in the first 100 days or the first six months. We're doing this in 30 days."
Stringer took office Jan. 1 after eight years as Manhattan borough president. He has already launched audits of the New York City Housing Authority and the city's three library systems.
Moody's Investors Service rates the city's general obligation bonds Aa2, while Fitch Ratings and Standard & Poor's rate them AA.
Stringer called the private placement ban "a steel barrier against pay-to-play abuses in our pension system."
State Comptroller Thomas DiNapoli imposed such a ban for the state pension fund five years ago, but it did not extend to city funds. Stringer said that also in 2009, while a trustee of the New York City Employee Retirement System, he had called for it.
"Not just from private equity, but from all asset classes. It's long overdue," said Stringer.
In moves that need no pension board approval, Stringer will appoint senior risk and compliance officers, who will report directly to him; require employees with investment decision-making authority to regularly report personal trading to the senior compliance manager; implement ethics training with an emphasis on foreign asset control regulations; appoint an internal auditor and committee; and develop an enhanced internal process for reviewing disability payments.
Stringer's general counsel, Kathryn Diaz, will coordinate the overhaul along with his eight deputy comptrollers.
"So much of the recent financial crisis involved a lack of systemic effort to assess and control risk, and too much effort to evade rather than implement best practices," Stringer said during a speech that included historical references to corrupt 1870s mayor Boss Tweed and mid-20th century author Wallace Sayre.
Pension management has become a white-hot issue in public finance as rating agencies attach greater weight to pension debt, putting further downward pressure on ratings.
According to a Morningstar report issued two weeks ago, New York's per capita unfunded actuarial accrued liability, $8,726, was the highest among the 25 cities it examined. Based on a fiscal 2013 valuation, Morningstar estimated the city's funding ratio at 60.7.%
Richard Larkin, senior vice president and director of credit analysis for H.J. Sims & Co., called Stringer's overhaul proposals well-intended but said they don't deal with the city retirement system's biggest problem.
"They are intended to give the city's citizens more confidence that dealings within the pension funds are above board. Nice, but basically political posturing," said Larkin. "As I see it, none of these reforms are going to improve investment returns for the billions of dollars invested in city pension funds for retirees.
"As a financial analyst, political reforms are nice, but I focus on investment returns and the safety of the fund's portfolio," Larkin added. "To paraphrase an old expression, 'money talks, political posturing walks.'"
