$2.55 Billion in gains -- $40 million in returns to investors

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Rich Cape Cod
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$2.55 Billion in gains -- $40 million in returns to investors

Post by Rich Cape Cod » Mon Jun 15, 2015 10:02 pm

I’m retired law enforcement (41 years total). My first twenty were with the NYPD. I received my copy of the Retired Lieutenants Association newsletter today. A small article in the newsletter was titled:

Eating Up Pension Profits

The City Comptroller reported that in the last decade the five city retirement systems gained $2.55 Billion (as with a “B”) dollars. These investments returned to the various pension funds $40 Million (as with an “M”) dollars.

I have no comment on the above which would be permissible for me to share with the members of this forum which would not get me banned.

Rich
Last edited by Rich Cape Cod on Mon Jun 15, 2015 10:04 pm, edited 1 time in total.
Rich Cape Cod/AZ

sawhorse
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Re: $2.55 Billion in gains -- $40 million in returns to investors

Post by sawhorse » Tue Jun 16, 2015 12:06 am

I'm a bit confused. So the return was $40 million over a decade? It says they got $2.55 billion in new assets. When did this money come in? If it was yesterday, ss an extreme example, then you can't judge by that.

Surely the association can do something about this. Depending on the specifics, there may be grounds for a class action.

Were they invested with Madoff by any chance?

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ray.james
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Re: $2.55 Billion in gains -- $40 million in returns to investors

Post by ray.james » Tue Jun 16, 2015 12:15 am

when they mentioned decade what years are they talking about?

between 2003-2013/similar decaded the return were around 8.8% averaged per year with dividends included. So ideally the money should be close to double. So if we assume, the deposits averaged over 10 years, I would expect atleast 750mill- 1B over last decade. And no mentioned what was the original assets in the pension funds. Something doesn't seem right here. Can the link be included?
If this is true, it is really sad!
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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JoMoney
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Re: $2.55 Billion in gains -- $40 million in returns to investors

Post by JoMoney » Tue Jun 16, 2015 4:45 am

Searching the article title "Eating Up Pension Profits" will find various related articles
http://www.nytimes.com/2015/04/09/nyreg ... gains.html
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

NightFall
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Re: $2.55 Billion in gains -- $40 million in returns to investors

Post by NightFall » Tue Jun 16, 2015 6:49 am

Reading the linked article, the situation is not as bad as you might initially think. 2.5 billion in fees over a 10 year period on 160 billion in assets is about 0.16% expense ratio (assuming I read the article correctly). It could be much worse. Of course accounts of that size could probably get lower expense ratios.

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nedsaid
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Re: $2.55 Billion in gains -- $40 million in returns to investors

Post by nedsaid » Tue Jun 16, 2015 6:55 am

This might be a bogus story. I recall a thread about certain NY pension funds talked about fees eating up "extra gain" and how horrible it all was. As I remember, the total fees for the pension fund were maybe 0.20% a year. It turned out that the funds matched or beat the indexes by a hair.

I took the $160 Billion and divided it by 250 million and came up with 0.156%. I took the 2.5 billion in fees over 10 years and annualized it. Allowing for the fact that the portfolio grew, you are looking at 0.20% or maybe 0.25% if you want a high estimate. It sounds like the pension fund barely beat the indexes. Vanguard could do it cheaper with index funds but for active management, this isn't highway robbery.

My guess is that Vanguard could do all of this with publicly traded assets for 0.05%. That would be a big savings over 0.156% or 0.20% or 0.25%. It also sound like the pension funds invested not quite 20% of their assets in private assets that are not traded publicly, which Vanguard would not do. My guess is that they had directly owned real estate, private equity, and other such assets in the pension funds.

The article did not say that the pension funds underperformed the indexes. What it said was that the fees ate up 97% of the "extra gains."

This is a tempest in a teapot. The NY City pension funds could go to Vanguard and the performance they would achieve would be about the same as what they have been getting.
A fool and his money are good for business.

MnD
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Re: $2.55 Billion in gains -- $40 million in returns to investors

Post by MnD » Tue Jun 16, 2015 10:40 am

I owned Royce Total Return Fund for many years and concluded that the fund did outperform small value index funds (before fees).
After fees it was about the same so all the out-performance was paid to the fund managers and sponsors.
Sounds like the same story here on a massive scale.
70/30 AA, Global market cap equity. Rebalance if FI <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

sawhorse
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Re: $2.55 Billion in gains -- $40 million in returns to investors

Post by sawhorse » Tue Jun 16, 2015 10:45 am

nedsaid wrote:This might be a bogus story. I recall a thread about certain NY pension funds talked about fees eating up "extra gain" and how horrible it all was. As I remember, the total fees for the pension fund were maybe 0.20% a year. It turned out that the funds matched or beat the indexes by a hair.

I took the $160 Billion and divided it by 250 million and came up with 0.156%. I took the 2.5 billion in fees over 10 years and annualized it. Allowing for the fact that the portfolio grew, you are looking at 0.20% or maybe 0.25% if you want a high estimate. It sounds like the pension fund barely beat the indexes. Vanguard could do it cheaper with index funds but for active management, this isn't highway robbery.
Now I remember that original thread. Yes, it's a piece of unfair sensationalist reporting. The problem isn't that the fees were too high, as they actually were quite low. The problem was that the investments underperformed.

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