NYC Comptroller Changes Tune on Pension Funds’ Alt Holdings

Brad Lander wants the city’s pension funds to be able to invest more in alternative assets. Last year he called some of them ‘risky and speculative.’


New York City Comptroller Brad Lander appears to be warming up to alternative investments.

Lander, who is custodian of the $274.7 billion in assets held by New York City’s five public pension funds, recently called for state lawmakers to update a law and increase the amount the city’s pension funds can invest in alternative assets to 35% from 25%. He said that if this could not be done, then the cap on global equities should be raised to 30% from 10%.

Lander recently testified before the state legislature and requested a refresh of the so-called “basket clause.” The basket clause allows up to 25% of a New York public pension fund’s assets to be allocated to investments not otherwise expressly authorized by state law, or that exceed permitted percentage limitations. He said the law “fails to reflect the realities of the modern investment world and hampers our ability to prudently diversify our portfolio, maximize our risk-adjusted returns, and save money in the long term.”

Lander said that “either of these requested legislative changes would allow public pension funds in New York State to prudently diversify their portfolios based on current market conditions and obtain potentially greater returns while maintaining a consistent, prudent level of risk.”

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In his speech, Lander pointed out that he is not alone in seeking out higher returns through private investments, as many pension funds and endowments currently invest more than 25% of their portfolios in assets that would count against New York’s basket clause. Lander lauded Yale University’s $42.3 billion endowment, noting that it has well over half of its investments in private assets and “has achieved returns that consistently outpace other portfolios.”

Times have changed, he said, as institutional investors are unlikely to be able to invest as they have in the past while also meeting return targets. Despite a record-breaking year for many institutional investors in 2021, the general consensus among economists is that investors need to prepare for a low-return environment, which is spurring many to seek out higher returns.

However, Lander’s testimony strikes a different tone than the strategic plan he released last year when running for office, in which he said he would consider reducing the city’s pension fund investments in private equity and hedge funds. He also referred to hedge funds, private equity, and private real estate funds as “risky and speculative” in an April 2021 press release that accompanied the plan.

“A portion of the city’s pension funds are in riskier assets such as hedge funds, private equity, and private real estate funds,” Lander’s plan said. “Due to the highly speculative and often extractive nature of these investments, and the high fees some charge, the strategic planning process will examine the full costs and benefits of the funds’ alternative asset allocation strategies.”

The basket clause at issue also restricts investments in a wider set of asset classes, such as alternative credit, global equities, and infrastructure. That means that by raising the cap on the basket clause, Lander can also seek out higher returns by increasing the diversification of the city’s assets.

Lander declined to comment for the story.

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Cryptocurrency Exchange to Pay $100 Million in Fines Over Lending Platform

BlockFi settles charges that it misled investors about the level of risk involved in its interest-bearing accounts.


BlockFi Lending has agreed to pay $100 million to settle charges that it violated securities laws by misrepresenting the risk involved in its cryptocurrency interest-bearing accounts, and for operating as an unregistered investment company for more than a year and a half.

The company agreed to pay a $50 million penalty to settle charges brought by the Securities and Exchange Commission, and to stop its unregistered offers and sales of its lending product, BlockFi Interest Accounts, also known as BIA. The company also said it would attempt to bring its business within compliance of the Investment Company Act within 60 days. Separately, BlockFi also agreed to pay an additional $50 million in fines to 32 states to settle similar charges.

“This is the first case of its kind with respect to crypto lending platforms,” SEC Chair Gary Gensler said in a statement. “Today’s settlement makes clear that crypto markets must comply with time-tested securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940.”

According to the SEC’s cease-and-desist order, BlockFi offered and sold BIAs to investors, through which investors lent crypto assets to BlockFi in exchange for a variable monthly interest payment. BlockFi generated the interest paid out to BIA investors by deploying its assets in various ways, including loans of crypto assets made to institutional and corporate borrowers, lending US dollars to retail investors, and by investing in equities and futures.

As of Dec. 8, BlockFi and its affiliates held approximately $10.4 billion in BIA investor assets, and that figure was a high as $14.7 billion as of the end of March 2021.

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The SEC argues that the BIAs were securities because they were notes BlockFi offered and sold as investment contracts. The regulator also accused BlockFi of having a materially false and misleading statement on its website for over two years concerning its collateral practices and, therefore, the risks associated with its lending activity.

BlockFi also operated as an unregistered investment company for more than 18 months, according to the SEC, as it was an issuer of securities engaged in investing, reinvesting, owning, holding, or trading in securities, and owned investment securities that exceeded 40% of its total assets in value. And the SEC said BlockFi violated the Investment Company Act when it engaged in interstate commerce without registering as an investment company with the SEC.

Without admitting or denying the SEC’s findings, BlockFi agreed to the cease-and-desist order prohibiting it from violating the registration and antifraud provisions of the Securities Act, and the registration provisions of the Investment Company Act. BlockFi also agreed to cease offering or selling BIAs in the US.

Earlier this month, the SEC issued an investor bulletin warning investors that interest-bearing accounts for crypto asset holdings are not as safe as bank or credit union deposits.

“Companies offering interest-bearing accounts for crypto assets do not provide investors with the same protections as do banks or credit unions, and crypto assets sent to those companies are not currently insured,” the SEC said in the bulletin. “As a result, you should not expect the same level of security, safety, and soundness with these crypto asset interest-bearing accounts that you have with bank or credit union deposits.”

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