During an industry event a few weeks back, I was pulled aside by a public pension fund manager who objected to my blanket characterization of his peers as “dumb money.” He argued that every large group has both good and bad apples, and that it’s unfair to deride the entire bushel.
I had two possible ways to respond. The first was to say something like: “You’re right that there are many exceptions. Look at CalPERS, for example. It is implementing several strategic review recommendations that make a lot of sense, like reducing the number of relationships for each individual staffer, and forming several more outsourced capital pools.”
But I had a few drinks in me, so instead responded: “Forgetting OBWC for a moment, what do you think about New York City?” He smiled wryly with eyes that said touché, even though all I had really done was pointed out yet another bad apple. Then we moved on to a more important debate over whether or not the Boston Celtics should trade for Allen Iverson (as an aside, this prospective deal may be the only way for the team owners to overcome fan disgust at the Celtics Dancers decision).
Back to point: The “dumb money” term is not meant to insult individual pension managers, as many of them are extremely well-connected and knowledgeable. After all, that’s why so many of them eventually join private firms. Instead, it’s related to upstream organizational decisions that often leave the private equity departments understaffed or in untenable positions (see Illinois/Sudan or OBWC/disclosure). For NYC, understaffing is the main issue.
New York City has five public pension systems, of which four invest in private equity. At the end of fiscal 2005 (i.e., last June), these commitments totaled approximately $3.09 billion. Each pension system has a board of trustees that makes its own decisions, but they do not have dedicated private equity staffers. Instead, recommendations come from the New York City Comptroller’s Office, which serves in a custodial and chief financial advisor role for each pension system (it also gets one vote on each board). The Comptroller’s Office, in turn, employs Pacific Corporate Group as the pension systems’ primary private equity consultant. PCG reports directly to the pension trustees, but works closely with private equity-dedicated staffers in the Comptroller’s Office.
That dedicated staff, however, is thinner than Keira Knightly. It once employed five full-timers (or maybe six), but is now down to just two, including senior staffer Tim Kelly. In other words, Kelly is supposed to oversee $3.09 billion in commitments, even though NYC has not gone the Oregon route of committing $500 million-plus to individual funds. CIO Rita Sallis also has some involvement, but her background is in public finance. It is madness.
When I first began looking into this several weeks ago, the Comptroller’s Office website did not have a single private equity job listing. It now has two, but no explanation for what took them so long (it’s been over a year). It also will not allow me to speak with Tim Kelly, even though its new press secretary clearly knows little about the issues at hand (more plugged-in press secretary Jeff Simmons is on an indefinite “leave of absence”).
This means that I can’t ask about the system’s future strategy, even though it is supposed to be a public system. For example, does it plan to make greater use of the outsourced pool model (it currently has three), or perhaps give PCG some discretionary authority? Why did it decide to rehire PCG following the most recent RFP process (news not yet official, as both sides are haggling over terms), when the firm was in NYC’s doghouse just last year? Why is Tim Kelly not allowed to speak to the press?
Actually, I think I can answer the last one: He’s just too damn busy.