Pension Managers Face Firing for Badmouthing?

Cristina Alesci and Henry Goldman of Bloomberg report, NYC Pension Managers May Face Firing for Badmouthing:

Newly hired managers for part of New York City’s $108 billion pension might be fired if they criticize workers’ benefits, according to a trustee of the police retirement fund.

Joseph Alejandro said he proposed that the fund’s board be able to dismiss future managers who disparage a public pension, “its beneficiaries or any trustees or employees.” The Employees’ Retirement System is also considering the provision, he said. Blackstone Group LP’s chief strategist, Byron Wien, strained relations with New York unions last year when he said benefits are “too generous.”

“The intent isn’t to chill analysts who provide legitimate information,” Alejandro said in an interview yesterday. “We are trying to prevent money managers from taking positions that are essentially opinions based on political viewpoints.”

Unions across the U.S., including the American Federation of State, County and Municipal Employees, are rallying members and lobbying lawmakers to counter what they call an assault on recession-weary working people by governments trying to lower costs. New York Mayor Michael Bloomberg, who presents his 2012 budget this week, has made trimming pension expenses a priority for his third term.

The mayor, confronting a $2.4 billion deficit in a $67.5 billion spending plan for the fiscal year beginning July 1, has proposed that new workers must reach 65 to collect full benefits. He would also increase worker pension contributions and end an annual $12,000 payment to retired police and firefighters that costs at least $600 million a year.

Freedom of Speech

Restricting pension-fund managers’ comments wouldn’t run afoul of freedom-of-speech rights under the U.S. Constitution, said Charles Sims, a First Amendment lawyer at Proskauer LLP, a New York-based firm. The amendment applies only to government actions, he said.

“Even considering a public pension board to be part of government, it still can require confidentiality or other speech restrictions in a contract,” Sims said.

The proposal is being reviewed by the New York City comptroller’s office, which oversees pensions, said Alejandro, treasurer of the Patrolmen’s Benevolent Association. Michael Loughran, a spokesman for Comptroller John Liu, declined to comment. Harry Nespoli, chairman of the Municipal Labor Committee, didn’t return a message left with his office.

No Discussions

The Fire Department Pension Fund is also considering the provision, Alejandro said.

Tom Butler, a spokesman for Steve Cassidy, firefighters- union president, denied that his union is in discussions about such language. Zita Allen, spokeswoman for Lillian Roberts, executive director of District Council 37, the city’s largest municipal union, declined to offer an immediate comment.

“There have been no such discussions” with trustees of the United Federation of Teachers, said Richard Riley, a spokesman for the union’s president, Michael Mulgrew. A telephone call to the office of the Board of Education Retirement System wasn’t answered.

The city’s five pensions had $108.6 billion of assets at the end of November, according to the comptroller’s office.

Nycers, with more than $38 billion, paid $140.6 million in fees to investment managers in the year that ended June 30, according to its website. The $22 billion Police Pension Fund paid $80 million.

Fees Paid

The Teachers’ Retirement System, with $39 billion of assets, paid about $100 million in management fees in the previous fiscal year, the latest publicly available figure. The Board of Education Retirement System, with $2.6 billion of retirement assets for administrators and non-teacher school workers, paid about $9.8 million. The $7.2 billion Fire Department Pension Fund doesn’t post pension information on its website.

Blackstone, the world’s largest private-equity firm, has been trying to mend relations with the pensions after Wien’s comments. Its president, Tony James, met in May with representatives from one of the five plans that have $750 million committed to the firm. He also sent a letter addressing Wien’s remarks to the head of the New York City Employees’ Retirement System. Blackstone’s spokesman, Peter Rose, declined to comment.

Best Returns

“Investment decisions should be focused on how to generate the best possible returns,” said Marc LaVorgna, a spokesman for the mayor. “The decisions should be agnostic in almost all respects.”

The city’s annual pension costs, now about $7.5 billion, will increase to about $9 billion by 2016, from $1.4 billion in 2002, the mayor has said. That’s about 12 percent of New York City’s budget for next year, according to the November spending plan.

Pension and benefit costs are “simply not sustainable” and the mayor and labor leaders must compromise on changes to the retirement plan, Council Speaker Christine Quinn said today in her State of the City speech.

Blackstone’s dust-up with the city’s pensions came as the firm diversified beyond private equity, its third-largest business at the end of last year by assets under management. Chief Executive Officer Stephen Schwarzman’s push has meant hiring personnel not in the buyout business, whose clients include pension funds.

It would be difficult for a pension fund to terminate its current commitments to a manager because of the long-term nature of the private-equity asset class, said Andrew Wright, a partner at Kirkland & Ellis LLP in New York.

Illiquid Securities

“It’s one thing for an investor in a hedge fund to submit a redemption request,” he said. “It’s another thing for an investor to seek to cash out of a closed-ended private equity fund that makes investments into illiquid securities over a 10- year period.”

Efforts to cut retirement costs have spawned protests from beneficiaries, including lawsuits. An Afscme advertising campaign called “Stop the Lies: Public Service Workers Under Attack” tries to shift the blame for state deficits away from employees and onto corporations and Wall Street.

Afscme points out that its average member earns less than $45,000 a year and that average pensions are about $19,000 annually.

I must admit that I find it ridiculous for anyone on Wall Street to badmouth public service workers, claiming that their benefits are "too generous". Sure, there are abuses related to pension spiking and double pensions, but it's simply wrong to claim that public sector workers enjoy "generous benefits". And this from a veteran Wall Street strategist who got 9 out of 10 predictions wrong in 2010 (to be fair, I agree with Byron Wien, stocks are heading much higher).

I bet Tony James had a nice long discussion with Mr. Wien telling him to keep his mouth shut because those pensions have been very good to Blackstone over the years, making senior executives very rich as they collected nice juicy fees. In fact, today I checked out Blackstone's stock price, which has rallied sharply since last summer (but still not back to IPO price).

Such are the perils of going public. You can no longer escape public scrutiny. Take note Carlyle because when you go public, you better make sure nobody on your payroll pisses off public sector employees and their unions.

Does this mean I'm pro-union and anti-Wall Street? Hell no! Most unions make my blood boil but then I just look at the banksters on Wall Street who collected outrageous bonuses after being bailed out by US taxpayers and think to myself Madoff kept good company. Moral of this story: stop badmouthing people who you know will never in a lifetime of working hard earn a fraction of the outrageous bonuses you collect in a year. Keep your mouth shut and don't badmouth the hands that feed you those nice juicy fees.