NYC Comptroller John Liu Paid Pimco Fund $14 Million in Incentive Fees
The comptroller disclosed the payment in a Sept. 26 response to a Bloomberg News appeal of his decision to withhold details about who got $32 million in “organizational costs” paid to private-equity and real-estate firms.
The $14 million went to Pimco’s Distressed Senior Credit Opportunities Fund from the New York City Employees’ Retirement System, or NYCERS, which Liu supervises. The $41.6 billion fund manages money for 347,000 current and retired city workers, the most of any U.S. municipal retirement system.
“Although NYCERS reported all of these expenses as organizational costs, we report them as private equity, opportunistic and real-estate partnership expenses,” wrote Ricardo Morales, the comptroller’s general counsel, in a letter granting part of the Bloomberg News appeal. “The types of expenses funds may charge as partnership expenses include organizational expenses, transaction fees, interest, tax payments and other expenses.”
Incentive fees are extra compensation paid to investment managers if they meet performance objectives in their contracts. Mark Porterfield, a Pimco spokesman, didn't respond to a telephone call and an e-mail message seeking comment.
The Pimco fund returned more than 60 percent in fiscal 2010 -- from July 1, 2009, to June 30, 2010 -- and the $14 million in incentives compensated for that performance, said Michael Loughran, a Liu spokesman. The retirement system for the city’s civil employees had $220 million invested in the Newport Beach, California-based firm’s distressed-bond fund on June 30, 2010.
In addition to the incentive payments, the pension’s 2010 annual report shows it also paid Pimco’s distressed fund $1.3 million in management fees.
A document released by Morales listed $17 million in partnership expenses paid to more than 200 investment funds, in addition to the incentive fees paid to Pimco. Liu’s office wouldn’t provide details on how that money was spent.
The document lists incentive fees paid to two other investment funds, both much smaller than those paid to Pimco.
An Angelo, Gordon & Co. and GE Capital fund that managed about $20 million also received an incentive fee of $207,837, and an Alliance Bernstein fund received $287,709 to manage about $40 million in the 2010 fiscal year, according to the comptroller’s office. Both funds participate in the U.S. Treasury’s Public Private Investment Program, which finances the purchases of distressed mortgage securities.
Liu, 44, a Democrat, was elected after vowing to open for public scrutiny the operations of the city’s five employee pension funds supervised by the comptroller. His pledge followed a scandal in which a former Democratic city and state comptroller, Alan Hevesi, admitted getting almost $1 million in payments and favors for himself and his friends from investment firms in return for hiring them to manage pension assets.
Liu has banned gifts to workers in his department, mandated disclosure of contacts between investment managers and employees and required firms to disclose fees paid to middlemen. He also created websites with information on city contracts and advocated webcasts of pension board meetings.
When his office refused to disclose the recipients or the nature of the $32 million in organizational costs listed as a line item in the 2010 annual report for the civil employees’ pension, Bloomberg News sought the information under the state’s freedom of information law.
The office denied the information more than three months after the inquiry, and Bloomberg News appealed.
Pimco, home to Bill Gross’s $245 billion Total Return Fund, is owned by Munich-based insurer Allianz SE. (ALV) The investment firm’s assets under management expanded more than sixfold in the past decade to $1.3 trillion.
Pimco set up the Distressed Senior Credit Opportunities Fund to buy mortgage-backed debt that plunged in value after the subprime market collapsed.
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