New York State’s pension fund lost $75m (E76m ) on Global Crossing. Its sole trustee, the state comptroller Carl McCall, got $29,000 in contributions from executives of the troubled telecom company for his campaign to run for New York governor. Andrew Cuomo, McCall’s rival in the Democratic primary for governor, asked him to return the money to show that the comptroller is “not benefiting while pensioners are losing money”.
This is just an example of how political issues are deeply involved into the life of the second largest pension fund in the US, the one with $112bn in assets and almost one million members among New York state employees and retirees.
The comptroller McCall has been harshly criticised by his competitor Cuomo for his management of the retirement scheme; on the other hand he has claimed he is the right person to become governor exactly because of the fund’s performances.
Last fiscal year’s results (year ending March 31, 2002) have been cited by McCall as a success: the performance was 2.8%, ranking first among the nation’s five largest public pension funds. In fact, California Public Employees Retirement System (CalPers) managed only 1.5%; California State Teachers Retirement System obtained 0.8%; New York City Employees Retirement System got 1.8% and Florida’s pension fund got 2.5%. During the same period the Standard & Poor’s 500 index had a return of 0.5%. Besides, New York State’s pension fund had also the best three-year average annual return (3.4%).
The satisfactory results were achieved mostly on the strength of the fund’s real estate investments, domestic stocks and bonds, which offset losses in private ventures and international stocks. According to the new asset allocation study (which was completed in 2000), the overall domestic equity portfolio is designed to maintain the same capitalisation and structure of the Russell 3000 Index, a broad market index. The fund’s assets should be 70% in equities and 30% in bonds, with some flexibility in meeting the targets. Since 2000-2001 the fund started investing in US Treasury inflation indexed bonds (TIPs) to – as the annual report reads – “broadly meet the cash flow requirement of the system’s pension liabilities and to offset the volatility of the fund’s equity holdings” (TIPs target is 5% of the total fund). At the same time the fund started permitting several managers to use exchange-traded funds (ETFs) in the management of its assets, in order to reduce trading costs.
But Cuomo points out that McCall didn’t release figures for the months after March 31, during which the fund lost at least $300m on WorldCom, the biggest loss in the history for the state’s retirement system; and a loss that follows the $75m one on Global Crossing and the $58m on Enron. Cuomo wrote in a public letter to McCall that “retirement savings were threatened or in some cases obliterated, workers lost thousands of jobs and taxpayers will foot the bill” because of investing state pension money in troubled companies. Cuomo also criticised McCall for continuing to employ Alliance Capital as one of the money managers, claiming it was one of the last major equity managers to sell Enron stocks last fall and that some of its former executives had ties to the energy group. Cuomo added that Alliance’s executives contributed to McCall’s campaign, as well as many managers of other companies that do business with the state’s pension fund, for a total sum of $816,000 (12% of all contributions).
Cuomo’s statement was needlessly frightening to retirees, replied McCall’s spokespeople, and unfair, because “every major investor in the nation was heavily invested in WorldCom” as well as in Enron and Global Crossing, which were among the largest corporations in America. The comptroller’s staff denied any link between these investments and political contributions to his campaign; so no money has been given back. They also stressed that the state’s fund is still financial sound, although this year it has begun requiring local government employees to begin making contributions to the fund after three years of ‘holiday’ (the rate is 0.5% of payroll).
McCall is trying to recover some of the money lost with WorldCom, Global Crossing and Enron, by the means of shareholder lawsuits, filed together with other big American pension funds. In WorldCom’s case McCall is even seeking to lead the lawsuit.
Another of his tactics in reacting to scandals and losses, is to enhance his activism on corporate governance issues: together with other public pension funds’ leaders he has demanded that investment firms adopt the same reforms that Eliot Spitzer, New York attorney-general, had imposed on Merrill Lynch to limit the conflicts of interest between investment banking and stock research. These pension funds will not use as money managers or brokers those financial companies that do not meet their demands.

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