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TL;DR: "So for instance in U.S. equities the funds got annual returns of 8.24 percent for 10 years, versus annual fees for U.S. equities of about 0.08 percent.

TL;DR: "So for instance in U.S. equities the funds got annual returns of 8.24 percent for 10 years, versus annual fees for U.S. equities of about 0.08 percent. So the funds got 99 percent of the returns on their investment, and the managers got 1 percent of those returns. Again, paying managers 1 percent of the returns they generate does not seem particularly egregious to me, though I suppose there's an argument the other way." "None of this seems like a blanket reason to condemn "Wall Street," but, you know, politicians gotta politick. My takeaways are something like: 1. New York pension funds' performance is fine. 2. They pay fees that, over all, are quite low. 3. Their alternative investments seem to somewhat outperform public-market benchmarks, though maybe not as much as they'd like."

astazangasta 12y ago
Orly? So you're OK with paying an extra 1% above the market rate on your mortgage? Because that's the kind of thing you're talking about. 1% a year will eat quite a lot out of your retirement over 40 years. I.e. 40%.
- deleted 12y ago
  [deleted]
- lelandbatey 12y ago
  The fees are 1% on returns not on the "balance" as it where. The total fees as a percent of total invested assets are 0.2% per year.
  - chriogenix 12y ago
    the fee is not on the return its on the balance. so if you make money, they make money. if you lose money they still make money. mutual fund feeds end up being massive over a long period of time which is why financial advisors do so well if they have a big enough asset base
- lloydde 12y ago
  You had me right up to the 40%. Could you provide the math there? I think the context of the 1% would be 1% of the interest rate, not the principle.
  - deleted 12y ago
    [deleted]
- grmarcil 12y ago
  The public market funds outperformed their passively managed benchmarks, even considering the management feeds paid. To continue your mortgage comparison, New York is paying a real estate professional a certain percentage of money to find them a better deal on their mortgage, and NY still gets a better rate going through them after their fees are paid.
  - jib 12y ago
    Except with a mortgage you're not running a risk that next year you will suddenly have an extra 50k added to your mortgage. Actively managed money has a very nice angle going. They can charge money to actively manage your funds, while still getting to keep a share of any profits generated. Insurance companies have to pay money to get access to the same funds, to do the same gambling. It is somewhat insane that you can run a business where the choices are: a) Do admin work to balance an indexed portfolio for price A b) Gamble with money for price (B + X% of profits) And somehow people feel its ok that the price of B is higher than the price of A.
harmegido 12y ago
I disagree with #2. I'm an individual investor. I can get into vanguard index funds for around a 0.05 fee, depending on the fund. The author estimates that the NYC pensions were paying a roughly 0.25 fee on their funds. That's a $10 billion customer paying 5X in fees what a small investor like me pays. I think that's insane.
- jevgeni 12y ago
  But they aren't buying index funds..?
  - harmegido 12y ago
    They should be. There's no way the 5X charge is worth the active management. And yes, I realize that in this 10 year period it was, but that's just variance.
    - danielweber 12y ago
      Why is 5X "too much"? That's 5X of a very small amount. I would happily quintiple my risk of dying from a meteorite strike for $20,000.
  - kaybe 12y ago
    How much would you expect for index funds?
    - bradleyjg 12y ago
      Vanguard has a total US stock market fund for institutional investors, with a minimum investment of $200M, that has an expense ration of 2 basis points (.02%) The FTSE world ex US fund is 10 basis points and a $100M minimum. At $57B and $27B invested respectively I imagine the city could negotiate an even better deal if it was going to put all the money in each category into a single fund. That said, the author of the linked article does have a point. The expense numbers on the public market side don't look outlandish when expressed as an expense ratio rather than a ten year total number.
Shivetya 12y ago
The issue isn't how much they are being charged, the issue is that far too many public employee unions have large pension deficits and cities, states, and the like, need a bogeyman. Looking for related stories, this pension went from over funded in 99 to underfunded by 2012, to the tune of only having 63% of what is should have. Likely this is just the trial balloon, expect similar articles as the truth about government employee pensions funding comes to the forefront. Unlike private pensions the government at different levels can twist the rules quite a bit. couple of scenarios come out of this 1) cuts to benefits, likely only through bankruptcy like Detroit. NYC should be able to avoid this result 2) tax increases to fund the pensions properly 3) finding new creative ways to fine financial companies for exploiting retirees and the like 4) bailouts, after all we have elections in a few years and what good polio wouldn't be for bailouts.. by the state or feds (again not necessarily for NYCERS, they are bad off but not the worst out there) I
- briandear 12y ago
  Money managers are the least of public pensions' problems. Unfunded liabilities are far bigger; it's easy to blame Wall Street rather than the policy makers who continue down the road to insolvency.
nandemo 12y ago
> annual fees for U.S. equities of about 0.08 percent. So the funds got 99 percent of the returns on their investment, and the managers got 1 percent of those returns. If you round up 0.08%, it should be 99.9% and 0.1% respectively.
- ZachPruckowski 12y ago
  You're not supposed to round 0.08, you're supposed to divide 0.08/8.24. The 8.24 is the percentage point return for the pension fund and the 0.08 is the percentage point cost for the fees
- bzbarsky 12y ago
  No, because the 0.08% is a percentage of the _assets_. So if your return is 8.24% of assets per year and your fees are 0.08% of asserts per year, then your fees are 0.08/8.24 = 0.0097 of your returns. Or in other words 0.97% of the returns. Rounding gives you the 1%.
  - nandemo 12y ago
    I stand corrected.

astazangasta 12y ago

Orly? So you're OK with paying an extra 1% above the market rate on your mortgage? Because that's the kind of thing you're talking about. 1% a year will eat quite a lot out of your retirement over 40 years. I.e. 40%.

deleted 12y ago
[deleted]
lelandbatey 12y ago
The fees are 1% on returns not on the "balance" as it where. The total fees as a percent of total invested assets are 0.2% per year.
- chriogenix 12y ago
  the fee is not on the return its on the balance. so if you make money, they make money. if you lose money they still make money. mutual fund feeds end up being massive over a long period of time which is why financial advisors do so well if they have a big enough asset base
lloydde 12y ago
You had me right up to the 40%. Could you provide the math there? I think the context of the 1% would be 1% of the interest rate, not the principle.
- deleted 12y ago
  [deleted]
grmarcil 12y ago
The public market funds outperformed their passively managed benchmarks, even considering the management feeds paid. To continue your mortgage comparison, New York is paying a real estate professional a certain percentage of money to find them a better deal on their mortgage, and NY still gets a better rate going through them after their fees are paid.
- jib 12y ago
  Except with a mortgage you're not running a risk that next year you will suddenly have an extra 50k added to your mortgage. Actively managed money has a very nice angle going. They can charge money to actively manage your funds, while still getting to keep a share of any profits generated. Insurance companies have to pay money to get access to the same funds, to do the same gambling. It is somewhat insane that you can run a business where the choices are: a) Do admin work to balance an indexed portfolio for price A b) Gamble with money for price (B + X% of profits) And somehow people feel its ok that the price of B is higher than the price of A.

harmegido 12y ago

I disagree with #2. I'm an individual investor. I can get into vanguard index funds for around a 0.05 fee, depending on the fund. The author estimates that the NYC pensions were paying a roughly 0.25 fee on their funds. That's a $10 billion customer paying 5X in fees what a small investor like me pays. I think that's insane.

jevgeni 12y ago
But they aren't buying index funds..?
- harmegido 12y ago
  They should be. There's no way the 5X charge is worth the active management. And yes, I realize that in this 10 year period it was, but that's just variance.
  - danielweber 12y ago
    Why is 5X "too much"? That's 5X of a very small amount. I would happily quintiple my risk of dying from a meteorite strike for $20,000.
- kaybe 12y ago
  How much would you expect for index funds?
  - bradleyjg 12y ago
    Vanguard has a total US stock market fund for institutional investors, with a minimum investment of $200M, that has an expense ration of 2 basis points (.02%) The FTSE world ex US fund is 10 basis points and a $100M minimum. At $57B and $27B invested respectively I imagine the city could negotiate an even better deal if it was going to put all the money in each category into a single fund. That said, the author of the linked article does have a point. The expense numbers on the public market side don't look outlandish when expressed as an expense ratio rather than a ten year total number.

Shivetya 12y ago

The issue isn't how much they are being charged, the issue is that far too many public employee unions have large pension deficits and cities, states, and the like, need a bogeyman. Looking for related stories, this pension went from over funded in 99 to underfunded by 2012, to the tune of only having 63% of what is should have. Likely this is just the trial balloon, expect similar articles as the truth about government employee pensions funding comes to the forefront. Unlike private pensions the government at different levels can twist the rules quite a bit. couple of scenarios come out of this 1) cuts to benefits, likely only through bankruptcy like Detroit. NYC should be able to avoid this result 2) tax increases to fund the pensions properly 3) finding new creative ways to fine financial companies for exploiting retirees and the like 4) bailouts, after all we have elections in a few years and what good polio wouldn't be for bailouts.. by the state or feds (again not necessarily for NYCERS, they are bad off but not the worst out there) I

briandear 12y ago
Money managers are the least of public pensions' problems. Unfunded liabilities are far bigger; it's easy to blame Wall Street rather than the policy makers who continue down the road to insolvency.

nandemo 12y ago

> annual fees for U.S. equities of about 0.08 percent. So the funds got 99 percent of the returns on their investment, and the managers got 1 percent of those returns. If you round up 0.08%, it should be 99.9% and 0.1% respectively.

ZachPruckowski 12y ago
You're not supposed to round 0.08, you're supposed to divide 0.08/8.24. The 8.24 is the percentage point return for the pension fund and the 0.08 is the percentage point cost for the fees
bzbarsky 12y ago
No, because the 0.08% is a percentage of the _assets_. So if your return is 8.24% of assets per year and your fees are 0.08% of asserts per year, then your fees are 0.08/8.24 = 0.0097 of your returns. Or in other words 0.97% of the returns. Rounding gives you the 1%.
- nandemo 12y ago
  I stand corrected.