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February 19, 2013

Independent Review of State Pension Fund Finds DiNapoli's Reforms Highly Effective

New York State Comptroller Thomas P. DiNapoli today released an independent review of the New York State Common Retirement Fund (Fund) that found it is well-run, operates with an industry-leading level of transparency and invests effectively on behalf of its members. The review by Funston Advisory Services, required as part of robust oversight reforms pushed by DiNapoli, determined the Comptroller is fulfilling his fiduciary responsibilities and that Fund employees act within ethical and professional standards.

“Funston’s independent analysis confirms that the New York State Common Retirement Fund is a leader among public pension funds in this country and is setting a standard for transparency and ethics,” DiNapoli said. “Since becoming Comptroller, I have improved policies and procedures, strengthened internal controls and standards, and increased public disclosure. This review is a validation that we are on the right path and should reassure the people of New York the Fund is being managed properly and ethically.”

A series of recommendations were made by a special Pension Task Force that DiNapoli convened in 2007 in the wake of the pay-to-play scandal under the previous Comptroller. In 2008, DiNapoli collaborated with the then Superintendent of Insurance (now the Superintendent of Financial Services) to strengthen oversight of the Fund and codify task force recommendations and other reforms into a new regulatory framework. Among the regulations is a requirement to conduct “fiduciary and conflict of interest reviews of the Fund every three years by a qualified person.”

The findings of the review, which is the first of its kind for any public pension fund in New York State, were positive. To complete its review, Funston examined 1,700 documents, conducted dozens of interviews with staff and external advisors, worked with an expert benchmarking firm and utilized an advisory team of well-respected financial experts to review the final product. Funston was selected through a competitive process.

The report concluded:

  • The Comptroller is fulfilling his fiduciary responsibilities to act for the sole benefit of the Retirement System’s members, retirees and beneficiaries. The Fund has a strong and effective framework for operations and decision-making processes. Investment-related policies and practices are robust and appropriate.
  • The Comptroller manages the Fund in accordance with acceptable ethical, professional and conflict of interest standards. Investment committees are engaged and functioning according to law. Policies and practices concerning conflicts of interest for investment managers, consultants and advisers are consistent with prevailing industry practice.
  • The Fund maintains a high level of operational transparency and is a leader in most categories of data and policy disclosure. Third party contracts are accessible to the public and fee reporting and transparency provide a leading practice for peers.
  • Investment-related operations are well-run. The Fund makes appropriate use of external managers and total fees paid to managers were either lower or equal in the majority of asset classes to those paid by other funds. In addition, the Fund has a lower average total cost than peer funds to manage assets, and growth in expenses was lower than others.

Walé Adeosun, chair of the New York State Common Retirement Fund’s Investment Advisory Committee, said: “The Funston report affirms the reforms advocated by the Pension Task Force and Comptroller DiNapoli are highly effective and make the Fund one of the most transparent public pension funds in the nation. It also recognizes what the Investment Advisory Committee has long recognized, which is that the Fund has dedicated, high quality staff who effectively manage the Fund’s investments.”

Rick Funston, managing partner of Funston Advisory Services LLC who conducted the review, said: “Following an extensive review process, we found the Comptroller is fulfilling his fiduciary responsibility, and investment operations are well-run. The Fund has a strong and effective framework for operations and decision making processes, and investment policies and practices are robust. The Fund also operates with a high level of transparency. As with any large organization, there are some opportunities for improvement but overall the results were very positive.”

The review notes that DiNapoli has acted upon nearly all Pension Task Force recommendations. DiNapoli’s reforms include being one of the first public pension funds to ban pay-to-play practices and banning the involvement of placement agents or paid intermediaries.

The Funston review identifies some opportunities for improvement. It noted that turbulence at the Fund following the pension fund scandal involving the prior Comptroller, the financial meltdown, and regulatory and leadership changes had slowed the Fund’s progress toward achieving its 2009 target asset allocation plan. While the Fund has had consistently high quality investment staff, Funston recommended examining options for increasing staff resources, particularly in some new or alternative investment areas.

The Comptroller generally agreed with these assessments and indicated that efforts are underway to address opportunities for improvement.

To read the full report, click here or visit: http://www.osc.state.ny.us/reports/pension/NYSCRF_Fiduciary_and_Conflict_of_Interest_Review.pdf.

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