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Jul 14, 1:15 PM EDT

Outside review says NY pension fund responsible, needs staff



ALBANY, N.Y. (AP) -- An outside review of New York's $178 billion pension fund for public workers shows it has been managed responsibly for the past three years but needs more staff and higher pay to continue the quality performance and cut costs for outside advisers.

The second review of the Common Retirement Fund since it was rocked by a pay-to-play scandal in 2007 said the fund continues to meet ethical and conflict-of-interest standards. Michigan-based Funston Advisory Services has conducted both reviews.

New York Comptroller Thomas DiNapoli, the fund's sole trustee since the scandal, said Thursday the mandated periodic reviews help ensure the problem doesn't recur.

"The bottom line is it validated that the reforms are working," he said.

Former Comptroller Alan Hevesi spent 20 months in prison after a felony conviction for official misconduct. An attorney general's investigation says that pension fund officials and cronies, including a Hevesi political adviser, got fees and favors from financiers seeking chunks of the fund to manage.

In 2009, the retirement fund banned paid placement agents, which are used by other funds.

The fund covers more than 1 million workers and beneficiaries.

In the latest review, released Thursday, Funston examined 96 investment transactions approved by the comptroller from April 1, 2012, through March 31, 2015, concluding that they all followed policies and legal requirements.

"We did not identify any instances of inappropriate or unethical behavior," the report said.

Funston said most of its recommendations from three years ago, such as better documentation and computer support, were implemented. But the fund remains "severely understaffed for its scale and complexity, with underdeveloped risk analysis and management capabilities and an over-reliance on outsourced investment management and support functions."

The reviewers noted the pay levels were in the bottom quarter among similar public pension funds, raising concern about staff turnover and recruiting. They again recommended adding staff and raising pay, anticipating lower overall costs by keeping more work in-house.

The fund, with 37 investment staff and 21 other employees, paid $561 million in outside management fees last year. That was up from $552 million a year earlier and $454 million in 2013.

"The reality is, in this environment, the fund doesn't generate much of a return where the markets have been up and down and basically flat lately. The alternatives are where we've gotten the extra returns. So while there are more fees there, there's been a benefit in terms of returns," DiNapoli said. "We agree with the need to reduce fees. By having more staff, you could do more of this in-house."

Chief Investment Officer Vicki Fuller's salary is about $320,000 a year, with most other staff making much less, the comptroller said. They are paid by the fund itself, at levels "significantly behind" what the New York City comptroller's office and state teachers' retirement fund pay investment staff, and levels should be competitive, DiNapoli said.

The fund's estimated annual return on investment is 7 percent, though it was nearly flat at 0.2 percent for the last fiscal year that ended March 31.

"Global financial markets have changed dramatically over the years," said Fuller, who joined the fund in 2012. "There are market challenges and risks that require the fund to increase its sophistication, bring more investment expertise in-house and be an increasingly nimble investor."

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