(Bloomberg) --
Schloss, 58, points to Ontarios C$130 billion ($126 billion)
Im not looking for
SAVING MONEY
The 38 staff members in the city comptrollers Bureau of Asset Management oversee five funds for police, firefighters, teachers, school administrators and civil-service workers. They get paid an average of $100,000 a year, less than the median base salary of a first-year
Investing directly means the Toronto-based
Among New Yorks outside arrangements is a $60 million investment by four pensions in a real-estate fund sponsored by Colony Realty Partners, a Boston-based private-equity firm that oversees $3.2 billion. The fund has lost 15.5 percent since 2006, while Colony has reaped $7.7 million in fees, according to the comptrollers office.
PAYING FEES
Last year, three city pension funds paid more than $1.2 million in fees on a $160 million investment in a real-estate fund co-sponsored by Fisher Brothers, a New York-based property investor and
The city could hire a 5 person real-estate team, pay them around $2 million and start doing some joint ventures, Schloss said. On a $1 billion investment that returns 12%, New York City could save $20 million in fees over five years, he said.
Emily Margolis, a spokeswoman for Colony, didnt respond to e-mailed and telephoned requests for comment.
CALIFORNIA'S WOES
Managing money internally and paying staff higher salaries and bonuses isnt always a formula for success. The
Yet its 6.1 percent average annual return for the 10 years ending June 30, 2012 is 1.1 percentage point less than that of the Pennsylvania Public School Employees Retirement System. The Pennsylvania fund manages only 26 percent of assets internally and paid Chief Investment Officer Alan Van Noord $269,302 in 2011.
'WAY AHEAD'
New York City will pay $8 billion this year toward retirement benefits, a
Theyre way ahead, Schloss said in an interview in his seventh-floor office in the
The Ontario fund employs a staff of investment managers earning an average of C$720,000 a year to increase assets worldwide. Their investments include ownership of Toronto Eaton Centre and other shopping malls, a stake in Seoul-based
MANAGING MANAGERS
In New York, theres plenty of talent and its ridiculous that the city wont pay enough to hire it, Schloss said. A plan to manage a portion of assets internally, with compensation levels benchmarked to New York City insurance companies, endowments and pensions, hasnt gained traction with fund trustees, he said.
Were not really in the asset-management business, Schloss said. We manage managers.
Bringing Ontarios approach to New York may be a challenge. While the citys retirement system has about 60 cents of assets for every $1 in obligations, union officials say theyre wary of tinkering with it.
MANAGEMENT 'YEARNING'
Why would you try to dismantle a system thats performing well? said Greg Floyd, president of Teamsters Local 237, which represents 24,000 city employees. Floyd sits on the board of the citys $46 billion civil-employees pension. Pension-fund trustees have to approve raising investment staff salaries and authorize internal asset management.
Theres a yearning among union trustees to manage assets in-house, though we are never going to be able to pay private-industry salaries to work in government, said
REPLACING STAFF
When you get a new comptroller, you get a new chief investment officer, Schloss said. Its not good for performance to have a system where your senior staff turns over every four years.
The Ontario fund, which also has offices in
What sets Ontario Teachers apart is governance and compensation, Leech said.
The fund paid its 250-person investment staff C$180 million last year. The workers arent government employees, meaning their salaries arent subject to civil-service rules. High salaries and bonuses attract Wall Street-caliber talent, Leech said. About 35 percent of assets are in so-called alternatives such as private equity, real estate, and hedge funds.
'SECOND-STRINGER'
We compete with KKR, said Leech, referring to the private-equity firm founded in 1976 by Jerome Kohlberg,
The Ontario fund has a nine-member independent board that sets policy and delegates day-to-day management to the professional staff. New Yorks five funds have 58 trustees spread across several unions and political jurisdictions.
Two years ago, Mayor
ACCOUNTING BACKGROUND
The five boards were to be pared down to a single 12-member body that would set investment policy. Asset management would have been separated from the comptrollers office to insulate it from politics.
Unfortunately, the plan was cut off at the knees by some of the unions, said
Instead of union officials and political appointees, Ontario Teachers board members are chosen for their backgrounds in business, finance, economics and accounting. Only one board member is a former teacher.
What does a kindergarten teacher know about investing? said Leech.
When Schloss was chosen to oversee the citys pensions in 2010, Liu described the funds structure in a press release as a
PAY OBSTACLE
To an inexperienced staff he added Barry Miller, a former managing partner at Nottingham Capital Management, to oversee private equity. He hired Seema Hingorani, former research director at Pyramis Global Advisors to oversee hedge funds. Both earned $175,000 annually. Miller resigned to join Connecticut-based private-equity firm Landmark Partners on May 20, said Matt Sweeney, a spokesman for the comptrollers office.
We wanted to hire a number of people but couldnt because of compensation, Schloss said.
Asset management staff are required to live in New York City unless they get a waiver. Obtaining one involves multiple agencies and City Hall approval, Sweeney said.
The
Its just really hard to say, Hey, come work here for $100,000 and you have to live in the five boroughs, Schloss said.