New York City Comptroller: Ax Rule Forcing Private Equity to Pay Legal Bills

Mandate now forces PE operators to cover their own litigation tabs in disputes, instead of passing along the costs to NYC pension fund investors.


Scott Stringer is worried. New York City pension funds are having a tough time enlisting private equity (PE) firms due to a requirement that PE outfits pay for litigation expenses out of their own pockets instead of shunting the cost onto investors.  

So, as the city official overseeing the funds, City Comptroller Stringer is urging fund trustees to scrap this rule, which would help the buyout firms if they run into trouble with regulators or other litigants, as first reported by the New York Post. The idea is to get more PE players managing city pension money.

The New York City Public Pension Funds, the collective of the city’s five pension funds, implemented the private equity rule, called the “GP Expenses Provision,” roughly five years ago after Carlyle Group was swept up in a collusion case and had to pay a $115 million settlement, the Post reported.

The city’s private equity rule is uncommon among public pension funds. It was put forward by trustees in an effort to prevent saddling pension beneficiaries with millions of dollars in liabilities. Settlement charges would come out of pension investment funds managed by the asset managers. 

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But the city pension system has since had trouble striking deals with private equity managers because of the rule, the report said. Talks with top firms, including Nordic Capital, Thoma Bravo, and Silver Lake Partners, all fell through in the past year. 

In June, an arrangement was dropped to have Silver Lake manage $313 million in pension money; in July, Nordic Capital pulled out of a $280 million deal; and in September, a $250 million one with Thoma Bravo fizzled. 

Officials at the $239.8 billion public pension system say getting rid of the rule will help the fund retain top investment managers and improve returns.

“Each of these managers has delivered first-quartile historical track records,” according to a pension funds memo obtained by the Post. “These missed opportunities (and any future missed opportunities) of high-performing, in-demand managers have the potential to negatively impact [city pensions’] ability to maximize risk-adjusted returns.” 

“We are currently the only major pension system with this uniquely stringent requirement and the trustees are engaged in a discussion about impacts to competitiveness,” Comptroller Press Secretary Hazel Crampton-Hays said in an emailed statement.

“As a fiduciary, the comptroller believes in holding private equity funds accountable for their own wrong-doing and is working with the trustees to ensure we maintain the best possible investments for the funds. Our process on this issue is ongoing and it is premature to discuss information that has not been finalized,” Crampton-Hays continued.

Representatives for Nordic Capital and Silver Lake declined to comment. Thoma Bravo did not respond to requests for comment.

Gary Bruebaker, former chief investment officer at the Washington State Investment Board (WSIB), who is now retired, was in favor of getting rid of the rule.

“It falls into the category of being penny-wise and dollar-foolish,” Bruebaker said. “They’re trying to save a couple dollars on legal fees but it precludes them from getting into the best investment funds, and the best funds, they can just take the next person’s money.”

Stringer, who is making a bid for city mayor, oversees the New York City Public Pension Funds, the nation’s fourth largest pension system.

The five pension funds under the total system are the New York City Employees’ Retirement System (NYCERS), the Teachers’ Retirement System of the City of New York (TRS), the New York City Police Pension Fund (POLICE), the New York City Fire Pension Fund (FIRE), and the New York City Board of Education Retirement System (BERS).

In June, the NYCERS system with $79.9 billion in assets had just $4.7 billion in private equity investments, $3.8 billion in private real estate, and $3.7 million in hedge funds. 

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Canadian Pension to Invest C$5 Billion in Green, Social Bonds by 2025

British Columbia Investment Management also aims to cut carbon exposure of public equities by 30%.


The C$171.3 billion ($135.9 billion) British Columbia Investment Management Corp. (BCI) said it will invest an additional C$5 billion in sustainability bonds by 2025, up from C$887 million at the end of last year. The pension fund also said it will reduce the carbon exposure in its global public equities portfolio by 30% by 2025, using 2019 as a baseline.

The moves are part of BCI’s commitment to five-year climate-related targets for its public markets program.

“These targets will help ensure our clients benefit from the shift to a low-carbon economy,” Gordon Fyfe, BCI’s chief executive officer and CIO, said in a statement. “They set concrete near-term goals that will help us track our progress as we continue to champion long-term and sustainable growth.”

BCI defines sustainability bonds as bonds whose proceeds will be exclusively applied to finance or re-finance a combination of green and social projects. Green bonds enable capital-raising and investment for new and existing projects with environmental benefits, while social bonds are use-of-proceeds bonds that raise funds for new and existing projects that have positive social outcomes.  

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BBVA Global Markets Research estimates that the current size of the green, social, and sustainable bond market is approaching $1 trillion, equal to an estimated 0.86% of the total bonds in circulation. BBVA also said global issuance of instruments labeled as green, social, and sustainable totaled $351 billion in 2020, which is a 37% increase from the previous year.

The pension fund said the 30% reduction target in global equities will be measured using weighted average carbon intensity, as recommended by the Task Force on Climate-related Financial Disclosures (TCFD). It also said the 2019 baseline aligns with best practices among global investors and closely reflects BCI’s current investment strategy based on more active, internally managed mandates.

BCI’s global portfolio of fixed income and public equity investments represented C$112.8 billion, or 65.9% of the pension fund’s assets under management (AUM) as of March 31. The program invests in Canada, the US, and internationally in developed and emerging markets using index and active management strategies.

The pension fund said the targets represent the evolution of the objectives outlined in its Climate Action Plan, and align with its strategic approach of leveraging environmental, social, and governance (ESG) issues for both value creation and risk management.

“These targets balance ambition with feasibility and provide a clearly defined pathway for BCI to seize on climate-related investment opportunities and reduce the climate transition risk of our public markets portfolio,” said Daniel Garant, executive vice president and global head of public markets. “Gradually lowering exposure to carbon-intensive companies and engaging with companies and regulators to adapt to the low-carbon economy will lead to better financial outcomes for our clients.”

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