Scott Stringer Burdens New York City Taxpayers With His Woke Ways
New York City comptroller Scott Stringer is at again. Last Wednesday, the man responsible for the New York City Employees’ Retirement System’s (NYCERS) five pension funds wrote to the CEOs of 67 companies demandingthat they disclose the demographics of their employees by race, gender, and ethnicity—including in their leadership and senior management. “Creating a national movement on the green economy. That’s what Sunrise has been all about,” Stringer earlier declared at a virtual People’s Assembly on BlackRock in May. It’s one thing to have Sunrise Movement activists agitating for a far left Green New Deal that Congress is highly unlikely to pass. It’s quite another to have a climate activist running the $150bn of the city’s pension funds—the nation’s fourth largest.
According to a March report by the City’s Independent Budget Office, the Covid market meltdown, causing a 20% decline in asset values, would require an extra $412m in employer contributions for 15 years. The city’s pension funds were already in poor shape. Three years ago, a realistic estimate of NYCERS pension liabilities implied an average funded ratio of 47%, meaning that the NYCERS pension funds had less than half the money needed to pay promised benefits.
Putting a longtime climate activist in charge of running city pension money has turned out to be financially disastrous. According to an American Council for Capital Formation report by Tim Doyle, since Stringer first joined the NYCERS board of trustees in 2006, its funds have consistently underperformed its own benchmark. At the same time, annual fees more than doubled, from $61.5m in 2006 to $154.7m in 2017.
Before becoming comptroller, Stringer had led a kill-the-drill campaign to ban fracking in upstate New York. Becoming city comptroller the same day as Bill de Blasio took over as mayor, Stringer promised to turn the job, defined in law as custodian of the NYCERS pension funds, into a “think tank for innovation and ideas”—read: making NYCERS a vehicle for left-wing causes.
Stringer sprang into action. He wrote to 151 companies asking that they disclose, among other things, the sexual orientation of their directors. But it’s his climate activism where the funds that he’s responsible for have taken the biggest hits. Twelve percent of the total NYC pension funds’ assets were invested in a Developed Environmental Activist asset class. In February 2017, NYCERS increased its holding in Allied Minds, an intellectual property company, even though activist investor Kerrisdale Capital had slammed the company as “Venture-Capital Junk Drawer” and described the stock price as “hugely overvalued and should fall by as much as 67%.” Immediately after NYCERS upped its Allied Minds stake, the share price promptly halved. (Its share price is currently trading at around 10% of its February 2017 level.)
When, in January 2018, de Blasio announced that the city pension funds would be divesting $5bn worth of equity in fossil fuel companies, Stringer justified the move by claiming that retirees’ financial future “is linked to the sustainability of the planet.” In reality, retirees’ financial security depends on Stringer’s performance as a fund manager, not his record as a climate activist.
Overwhelmingly, fund members want professionalism, not activism. A 2018 survey by the Spectrem Group found that nearly 80% of pension fund members nationwide believe that fund managers’ primary goal should be investment returns. Among those close to retirement (aged 51 and older), the number increased to 91%, even if the pension member supported the particular cause. A tiny minority (11%) wanted their pension to prioritize “worthy political and/or social causes,” even if those generated lower returns.
While having activists running city and state pension funds is bad news for retirees, BlackRock, the world’s largest fund manager, stands to gain. Its traditional low-cost index investing business has become cutthroat and does not appear to be generating fees for anyone, including BlackRock, says corporate governance expert Bernard Sharfman.
The solution to BlackRock’s profitability problem? Persuade state and city pension bosses to switch into fashionable “sustainable” investment funds, which, Sharfman explains, command “higher fees to cover expenses such as identifying stocks to exclude and the purchase of virtue ratings to tell them which companies are politically correct.”
There is no free lunch on Wall Street. Higher fees drain fund performance. Investment decisions based on ideology have already cost New Yorkers dearly. “We are winning the climate fight,” Stringer boasted at the online people’s assembly. It will be city taxpayers and employees who are the biggest losers from Stringer’s climate fight.
