New York City pension plan cuts ties to hedge funds

The New York City Employees Retirement System (NYCERS) board of trustees in April voted to liquidate all of its investments in hedge funds. In doing so, NYCERS became the second large public pension in the US to severe its ties to hedge funds.

NYCERS is the largest of the city’s five public pension funds with more than $51 billion in assets.

The board of trustees made its decision because hedge fund investments have performed poorly and are too expensive.

Hedge fund investments are “lousy,” said NYCERS board of trustees member Henry Garrido to New York magazine.

Garrido’s made his assessment after reading a report by the city’s comptroller.

According to the report, the fees charged by firms that manage alternative investments–investments in private equity companies, real estate, and hedge funds–cost the the city’s five public pension funds $2.6 billion over ten years.

Last year, hedge fund performance was especially troubling.

NYCERS’ hedge fund investments had a rate of return of -1.88 percent, a rate of return below the S&P index and the traditional bond market.

Despite the hedge funds’ lackluster performance, they still collected their 2 percent management fees on $1.5 billion worth of assets that they managed for NYCERS.

“Hedges have underperformed, costing us millions,” said Letitia James,  New York City’s public advocate. “Let them sell their summer homes and jets, and return those fees to their investors.”

NYCERS is the second large public pension fund that decided to stop investing in hedge funds. The California Public Employees Retirement System (CalPERS) did so in 2014.

CalPERS Chief Investment Officer Ted Eliopoulus said that the cost, complexity, and the inability to scale hedge fund investments to a size appropriate for CalPERS were the reasons for CalPERS’ decision.

Bloomberg reported that in fiscal year 2014 before the market took the downturn that characterized its performance in 2015, CalPERS paid $135 million in fees for “hedge fund investments that earned 7.1 percent, contributing 0.4 percent to its total return (on investment).”

The decision by NYCERS was applauded by Hedge Clippers, an activist group that has been waging a campaign against public investment in hedge funds.

Prior to the NYCERS decision, Hedge Clippers had spent months lobbying for the pension fund to cut its ties to hedge funds.

Hedge Clippers is urging other public institutions to do the same because hedge funds investments often are at odds with the public interest.

One of its issue papers, “Endangered Endowments: How Hedge Funds Are Bankrupting Higher Education,” finds that hedge fund managers hold a disproportionate number of seats on boards that oversee university endowment funds and use their positions to steer investments to companies they own or to which they have ties.

“Hedge funds collected an estimated $2.5 billion in fees from university endowments in 2015 alone, even though 2015 was reportedly the worst year for hedge fund performance since the financial crisis (of 2008),” reads the issue paper.

According to the paper, “many universities are cash-strapped because they have prioritized paying high fees to hedge fund managers while asking students, faculty, and staff to make up the difference.”

Hedge Clippers is also highly critical of hedge funds role in the current crisis now gripping Puerto Rico.

The unemployment rate in Puerto Rico has climbed to 12.5 percent, and the cash-strapped government has had to cut or eliminate health care, education, and social services.

The Puerto Rican government has asked Congress to grant it permission to work out a deal with its creditors in order to take the pressure off its suffering citizens.

But hedge funds, which swooped in to scoop up cheap Puerto Rican debt, have successfully lobbied Congress to prevent legislation that would enable Puerto Rico to make a deal with creditors.

Hedge Clippers started off as a project of the American Federation of Teachers, whivh grew tired of the role that hedge funds were playing in the effort to privatize public education.

According to a report from the American Prospect, hedge fund owners bankrolled a number of local school board elections in order to stack school boards with proponents of charter schools.

But since its inception, Hedge Clippers has expanded into a broad coalition that includes labor, community, environmental, social justice groups that are outraged by the corruption spawned by the influence of hedge funds over public institutions.

“The Hedge Clippers are working to expose the mechanisms hedge funds and billionaires use to influence government and politics in order to expand their wealth, influence and power,” states a description of the group on its website. “We’re exposing the collateral damage billionaire-driven politics inflicts on our communities, our climate, our economy and our democracy.  We’re calling out the politicians that do the dirty work billionaires demand, and we’re calling on all Americans to stand up for a government and an economy that works for all of us, not just the wealthy and well-connected.”

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Sweden’s pension funds drop Walmart investments; Portland suspends further investments

Citing Walmart’s systemic abuse of workers’ rights, four state-managed Swedish public pension funds became the latest in a growing number of public pension funds divesting themselves of Walmart stocks and bonds.

Prior to the divestment decision, Handels, the Swedish union of retail workers, wrote a letter requesting a review of the funds’ Walmart investments to determine whether they matched the funds’ social responsibility goals.

“It’s a welcome and wise decision,” said Lars-Anders Häggström, head of  Handels to The Local, “Our union members have expressed astonishment when they found out their pension savings were invested in Walmart. If we influenced the AP Funds’ decision today, we are of course delighted.”

Closer to home, the Portland, Oregon City Council has voted to stop investing in Walmart at least until the end of 2014. City Commissioner Steve Novick said that the city council took the action because of the retail giant’s “voluminous” record of poor corporate  behavior.

Sweden’s public pensions, known as the AP Fund, are an amalgamation of six different funds worth a total of $140 billion. Four of those funds had invested in Walmart.

The AP Fund has an Ethical Council whose mission is to ensure that  the funds invest in companies that act responsibly toward the larger community.

In its letter to the Ethical Council, Handels said that Walmart had stifled employee efforts to improve their working conditions through organizing and collective action.  Walmart’s interference, according to Handels, is a violation of the workers’ right to freedom of assembly and association established by the  United Nation’s International Labor Organization.

Walmart recently fired workers like Carlton Smith of Los Angeles and Colby Harris of Dallas for participating in legal unfair labor practices strikes and for organizing fellow workers. Smith and Harris are both members of OUR Walmart, a group of Walmart associates organizing for change on the job. Other members of OUR Walmart have also been fired or disciplined for trying to improve working conditions and for speaking out for change.

The Ethical Council had opened a dialogue with Walmart in an attempt to find common ground that would allow the funds to continue to hold investments in the company, but after extensive talks, the council reported to the funds’ managers that “Walmart continues to fall short of (the) dialogue(‘s) objectives.”

“We welcome this important decision by Sweden’s pension funds, and the work of our affiliate union, Handels, in making it happen,” said Phillip Jennings, the general secretary of UNI, a worldwide confederation of commercial worker unions. “This is yet more evidence that Walmart values its profits over the human rights of its own workforce.

“The world’s pension funds are deserting Walmart in droves, and rightly so,” added Jennings. “It is about time the company showed the sort of responsibility that should come with being the world’s biggest employer.”

In 2006, the Norwegian Government Pension Fund, which at the time was worth $240 billion, divested itself of Walmart of  $400 million worth of the company’s stock. According to Stacy Mitchell, writing for the Institute for Local Self Reliance, the Norwegian decision was based on a report by its own ethical council.

After examining Walmart’s practices in North America, El Salvador, Nicaragua, and China, the council concluded that  continuing to invest in Walmart would make the fund complicit “in serious, systematic or gross violations of norms” including the forcing employees to work overtime without compensation, discrimination against women,  hazardous working conditions, and “aggressive anti-union tactics.”

In June 2013, PGGM NV, which manages the public pension fund in the Netherlands, added Walmart to its exclusion list and dropped its $183 million investment in Walmart from its portfolio because the company would not address PGGM’s concerns about Walmart’s poor labor relations.

According to a PGGM press release, “The policy pursued by Walmart in the US restricts employees’ opportunities to organize themselves in trade unions. This is not only contrary to fundamental principles and rights at work (ILO), but also contrary to the codes Walmart has compiled for its own suppliers.”

In Portland, the City Council voted unanimously on October 2 to temporarily cease investing in Walmart.

Commissioner Novick, who proposed the investment ban, cited the company’s bribery of Mexican leaders, its aggressive anti-union actions, and its decision to reduce health insurance benefits for employees.

The city, however, did not divest itself of Walmart investments.  In fact In September, it purchased $20 million worth of Walmart bonds.