by Mike Sharkey
Staff Writer
Since 1937, the Police and Fire Pension Fund’s board of trustees has been investing member money with a solid, but not spectacular, rate of return. Over the past three years, the Fund has suffered a fate similar to many who invested in the stock market. Although they haven’t experienced catastrophic losses — or gone out of business altogether — the Fund isn’t doing as well as in previous years.
Now, they are looking for help from both the City and the State Legislature.
Fund Administrator John Keane explained there are two reasons the Fund is currently struggling and both can be easily addressed. First, the Fund’s board of trustees, which consists of three police officers, three firefighters and one retiree, is appointed to a two-year term. Given the complexity of the various markets and investments, Keane contends two years simply isn’t enough time for a trustee to learn the intricacies of investing, especially in today’s fickle market, and would like to see the trustees’ terms extended to four years.
“For years we have invested in a market consisting of just stocks and bonds,” said Keane. “Now, with a wider variety of investment vehicles, it takes time to understand them. By law, our board meets quarterly; that means in two years, eight meetings. Years ago, City Council went from two-year terms to four years. Last year we tried. It’s a big learning curve.”
Chief Administrative Officer Sam Mousa agrees with Keane on both counts.
“We think it’s a good idea,” said Mousa of extending the term of trustees. “It takes time for individuals to learn the ropes and some of the knowledge of past investments.”
Keane points to himself as an example of how difficult it can be to fully grasp the stock market and how it can best be utilized by the Fund.
“In 1983, I went to my first trustee meeting. They were using terms — and it could have been Latin or Chinese for all I knew,” said Keane. “I really thought I was in math class.”
Keane also needs for the Fund to be able to expand its investment portfolio. Because of legal restrictions, the Fund can only invest in stocks listed on the [New York] Stock Exchange and A-rated or better securities.
“The City’s general employee fund can buy B-rated stocks. They are a greater risk, but come with a substantially higher rate of return,” said Keane. “Because of the diversity of the market and products, we need to be able to expand our horizons.”
Mousa also concurs that this is the time to allow the Fund to diversify its investments.
“We think they should be authorized to buy lower grade bonds,” said Mousa. “With interest rates so low these days, they can make just as much. The problem is, the B-rated bonds are not as stable, but when they are paying the same interest, it makes sense to get that rate.”
The Fund actually has two other investment avenues. In 1972 they were approved to make real estate investments — which have proven quite successful — and in 1999, the Fund started investing on a limited basis in the international market. Outside of that, their options are limited.
“We’ve been doing about the same thing since 1937. It’s needed as an overhaul,” said Keane. “It’s a very tough market environment right now and it can’t be overcome locally. It has caused our returns to be eroded, which has an impact on the City budget.”
Keane’s right. The Fund expects a rate of return annually of 8.5 percent. Anything under that is supplemented by the City.
“Last year, we closed under a 2 percent rate of return,” said Keane, adding the difference will be made up by the City, which in turn, will have to trim the budget somewhere else.
Mousa said Mayor John Delaney fully supports Keane’s and the Fund’s request and will work to get the changes implemented before the current legislative session ends.
“We will get with our legislative liaison and advise the local delegation and others that this needs to be done,” said Mousa. “The mayor is in support of these ideas. It will not be an issue, especially if the mayor says he’s in support of it.”