New York examines investment transactions for non-compliance

The Mercer Sentinel Group has completed a review of the New York Common Retirement Fund’s investment transactions approved by the State Comptroller over a two year period, concluding only one out of 112 transactions did not comply with written policies and procedures.

The transaction in question was a $50 million private equity transaction in March 2007 with Cerberus Institutional Partner Series Four, where the identity of the placement agent was disclosed by the investment manager in a side letter, but the fee amount was not disclosed to the fund.

Mercer concluded this did not meet the adequate disclosure of whether a placement agent was used, as required by the NYCRF procedure. The other four disclosure requirements were met for that transaction – external adviser recommendation and due diligence, reasonableness of fees and management expenses letter, internal investment recommendation and recommendation approval memorandum.

Mercer Sentinel reviewed 40 external equity transactions, 33 real estate, 28 private equity, nine absolute return strategies, and two fixed income transactions from February 7, 2007 to February 29, 2009 to ensure they comply with written policies and procedures. The total value of the transactions was about $19.5 billion.

Thomas DiNapoli became New York State Comptroller and in that time has taken pride in the transparency of policies and procedures he has introduced.

These include: quarterly reporting of fund performance; monthly reporting on investment transactions, including
placement agent and intermediary information where applicable; created and filled the positions of inspector general and special counsel for ethics; strengthened the internal investment evaluation process to include review by the heads of all asset classes, external advisers, and the inspector general and special counsel; expanded and strengthened external advisory committees to enhance external review of investment procedures and decisions; and banned the use of third-party placement agents from fund investments.

“Since taking office, I’ve made it a priority to manage the state pension fund with greater transparency and accountability to the public,” DiNapoli said.

“This report is an important affirmation that we have adhered to policies and procedures put in place to protect the interests of the fund. We’re working to ensure the unethical practices of the past administration will not be repeated.”