NYC Pensions Begin ‘Critical’ Reforms

Understaffing, inadequate technology, and risk management issues are among the problems being tackled by New York City’s Bureau of Asset Management.

When Scott Evans first arrived at New York City’s Bureau of Asset Management, half of the leadership positions were missing, the staff that did exist was “egregiously undercompensated,” and the office itself was “embarrassingly abominable,” with working conditions no better than those found in a college dorm.

As the CIO summed it up at the common investment meeting for the city’s five pension funds on Wednesday: “We need to show our employees respect.”

“If you don’t have good people, you can’t succeed,” Evans said. “I want every employee to feel we are going to make a long-term investment in them.”

“If you don’t have good people, you can’t succeed. I want every employee to feel we are going to make a long-term investment in them.”This focus on talent development and recruitment comes after a 398-page review of the bureau’s operations highlighted understaffing as an area in need of “critical” attention.

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The report, conducted by Funston Advisory Services, consisted of 240 recommendations to improve the Bureau of Asset Management, which oversees investments of New York City’s $160 billion pension funds. Other areas rated as “critical” by the consultant included risk management and information systems.

Already, Miles Draycott has been brought on as the bureau’s first chief risk officer to tackle operational risks, while new Strategic Initiatives Director Cara Schnaper is focusing on areas including technological needs and reporting processes.

“Right now, our fund accounting processes are clunky to say the least,” Schnaper said during a presentation of the bureau’s roadmap for reforms. “If we don’t get out of all the noise we’ll never be able to look at what’s really on the table.”

Evans estimated that the technology alone needed to improve the bureau’s operations and reporting will cost more than $2 million—more than quadruple the $463,845 grant currently awarded to the bureau for non-personnel expenses.

“We were built to support a stocks and bonds portfolio,” Evans said. “You can’t manage a modern portfolio with an infrastructure that is not robust and that is not suited for the task.”

As for personnel expenses, Evans is requesting an additional $1.3 million to bring the total staff count up to 71. Currently, the bureau employs 48 staffers, with the authorization to hire 13 more.

The CIO is also seeking funding for training programs for bureau employees.

“We want to develop our people,” he said. “Right now we’re not spending any money on training.”

Given that the 240 recommendations made by Funston encompass more work than can likely be completed before Comptroller Scott Stringer’s term ends December 2017, Evans said the goal is to tackle the most severe issues now while creating a foundation for lasting change.

“It is important to us that we’re building an organization that will be here even when those of us with the Stringer administration are gone,” Evans said. “We think we’re making great strides.”

The largest stock exchanges in the UK and Germany have agreed to merge, creating a €27.5 billion ($30.5 billion) financial giant.

London Stock Exchange Group (LSE) and Deutsche Börse AG formally agreed the merger today, having announced talks on February 23.

The deal—described by the firms in a joint statement as “a merger of equals”—sees leading European index providers FTSE Russell and STOXX come under the same ownership.

“The combined group brings together London, a leading global financial centre, and Frankfurt, the home of the European Central Bank and access point to Europe’s largest economy, in an industry-defining combination,” the statement said.

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The merger “brings together two of the most respected and successful market infrastructure providers in the world to lead the way in European capital markets and set the benchmark for further growth and best-in-class services,” said Carsten Kengeter, CEO of Deutsche Börse.

The combination should result in “substantial cost and revenue synergies,” LSE CEO Xavier Rolet added. Savings should reach as much as €450 million a year, according to the merger announcement.

However, the savings the deal aims to achieve “seem rather meagre in a merger which appears to be designed to avoid upsetting staff, directors and, indeed, competition authorities,” said John Colley, a professor at Warwick Business School.

“‘Mergers of equals’ usually result in a lack of clarity in direction and leadership as both camps jockey for influence,” Colley added, referring to the new group’s combined leadership structure. He warned that the combination of executives from both companies could result in a “confused” leadership and “a failure to drive cost savings opportunities arising from the merger.”

Kengeter is to become chief executive officer of the combined entity, with Rolet remaining for a year as an advisor to Donald Brydon (currently LSE chair) and Joachim Faber (Deutsche Börse chair), who will be chairman and deputy chairman respectively.

The agreement gives LSE access to Deutsche Börse’s derivatives trading businesses, while the Frankfurt-based group will benefit from improved distribution through its London partner, according to CIO’s sister publication The Trade. Analysts at Credit Suisse have already speculated that the combined group could bid for NASDAQ in an effort to expand in the US.

“The real issue is achieving scale to compete on a global scale against already consolidated opponents,” Colley said. “Europe needs a strong champion to compete against the US exchanges and Hong Kong. However, competition authorities remain to be convinced of this argument.”

The merger follows LSE’s high-profile acquisition of Russell Investments in 2014. It subsequently put the asset management business up for sale, stripping out its indexes. TA Associates bought the remainder of Russell for $1.15 billion in October last year.

The full details of the merger and subsequent expected ownership structure are available on Deutsche Börse’s website.