The audit report said that adequate internal controls were not in place to ensure that all possible investment strategies are being explored to mitigate excessive investment losses that create unfunded liabilities for the Firefighters and Police Officers Retirement Trust (FIPO) and the General Employees and Sanitation Employees (GESE) pension Trust that the city is required to fund.
In addition, Investment Managers for the GESE pension Trust were not promptly terminated for not achieving the established performance thresholds. The audit indicated that six investment managers appeared on the watch and probation lists in the period October 1, 2007, to September 30, 2009, and two of the six were not properly monitored.
According to a Bloomberg news report, BlackRock Inc. and Atlantic Capital Management LLC went on a probation list in June 2009 and March 2005, respectively, Victor Igwe, the city auditor, said. Atlantic was dropped in April 2008, and BlackRock remains under contract.
Managers are placed on a watchlist when their returns fall below certain targets. Those who remain on the watchlist for six months are then placed on probation. After a year on probation the fund has the option to end the firm’s contract.
“It is unclear why the board would establish a minimum-performance requirement that is not promptly enforced, particularly when such lack of performance results in over $4 million of loss to the city,” Igwe said in the report.
The report also said adequate internal controls were not in place to ensure that an asset/liability study for the GESE pension Trust was performed in a timely manner.The auditor’s report is here.