In the wake of the Detroit bankruptcy and allegations of mismanagement of the city’s pension funds, New York State financial regulators have issued subpoenas to 20 consultants and advisors to state pension funds. They are investigating the controls in place to prevent conflicts of interest as well as the payment of consultants, which can vary widely depending on the type of investments they are reviewing.
Larger consultants like Wilshire Associates, Callan Associates, Towers Watson and Russell Investments, as well as smaller firms, are the subject of the investigation. It will review the bidding process, pitch books, compensation practices, relationships with the money managers they recommend and in-kind payments and job offers.
In Detroit, pension officials were found to have taken junkets paid for by consultants, while the former sole trustee of the pooled New York pension system served 20 months in jail after being convicted of selling pension contracts. Fraud and mismanagement at public pension funds has been front and center recently, including a feature article in Rolling Stone magazine (“Looting the Pension Funds”), along with high-profile municipal bankruptcies. This issue affects not only pensioners but also taxpayers, who might see their taxes increase and public services diminish. What a concept — charging more for less service.
