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Andrew Cuomo Hoping New Yorkers Distrust Hedge Funds More Than They Distrust Albany

It's bad that New York is investing with hedge funds since there are not hedge funds in New York(?)

The never-ending cavalcade of surreal bipartisan nightmares that history books will refer to as "The 2016 Election," has made us all overlook a lot of dumb stuff going on in other places.


Take for instance, a certain place where crazy dumb scruples-free political shit goes down all the time: Albany, New York. The Empire State's political scene is the most entertainingly corrupt spectacle outside of Illinois, and never fails to not disappoint. So colorful, venal and starkly power-hungry are the characters populating New York's capital city that most end up arraigned and many end up convicted.

Overseeing this badly written, dark satirical take on "Game of Thrones" is Governor Andrew Cuomo, a man born to run Albany (not a compliment) and take on all comers like a subtlety-free Lannister from Queens. Cuomo's inability to brook criticism or rivalry is a fact of life in New York (Bill de Blasio knows what we're talkin' about) so it seemed like a weird idea when State Comptroller Tom DiNapoli decided to poke at the Governor with a stick by auditing some of his signature economic development programs.

Now, DiNapoli wasn't going too far off the reservation by wanting to learn more about the convoluted tax break deal that Cuomo christened as the Excelsior Jobs Program. That program, which lives inside Cuomo's even more opaque Empire State Development Corporation, has long been viewed by many as a curiously ineffective yet oft-used piece of policy. Some especially woke-ass reporters even started digging into ityears ago.

But it was a clear provocation, and what with Cuomo feeling a bit under pressure lately thanks to some stereotypically Albanyesque corruption revelations that have hit a little close to home, the response was always going to be comically out of proportion. So without further ado, here's a taste of a report released yesterday from the New York State Department of Financial Services:

Department of Financial Services Superintendent Maria T. Vullo today released a report finding that the New York State Common Retirement Fund (CRF), the investment arm of the New York State and Local Employees’ Retirement System and the New York State and Local Police and Fire Retirement System (“collectively, the System”), for years has invested pension system funds in high-cost underperforming hedge funds and nontransparent private equity funds. The New York State Comptroller is the sole trustee with complete authority and responsibility for the System addressed in the DFS report. 

The Comptroller of New York is in bed with "the hedge funds!?" That sound you hear is about 19 million New Yorkers not clutching their pearls in scandalized shock.

Yes, a lot of hedge funds are eating shit underperforming these days, and yes, it is quite en vogue among managers of state pension systems to make political hay out of their newfound resistance to 2 and 20, and yes, we as a culture have re-cast asset managers into the multipurpose villain role once played by "bankers," but the argument that hedge funds have snakecharmed the New York State Comptroller isn't just hacky, it's dumb. And not only because DiNapoli has literally already scaled back state pension investment in hedge funds.

How dumb? Let's go back to the DFS report:

The 20-page DFS report finds that the Comptroller has over relied on so-called “active” management by outside hedge fund managers, who consistently have underperformed low-cost diversified index investments while charging huge fees. Over the last fiscal year alone, the CRF has paid more than $150 million in fees to hedge fund managers for managing $8 billion in assets, or approximately 4.5 percent of the fair value assets of the System. In comparison, CRF paid $59.2 million in fees and commissions for the substantially greater $61.5 billion invested in domestic equities, 34.5 percent of the fair value assets of the System, representing less than one-tenth of the 1 percent fee on assets under management. Shockingly, CRF has paid out $1 billion in fees to hedge fund managers over the last eight years, while these assets have woefully under-performed, costing the system $3.8 billion in excess fees and underperformance. Hedge funds are the worst of the six asset allocation classes with a 10-year record.

Shockingly? Really? A New York state agency is shocked by hedge fund fees? That's pretty amazing considering that its economy is propped up by a financial sector that calls the state home and in which much of that fee revenue is spent. It's also weird because the DFS (which Cuomo essentially created and is run by Cuomo appointees) is pretty well-acquainted with hedge funds and how they work. Even more galling is that the numbers meant to stick it to DiNapoli in the report don't even add up, but we'll let Owen Davis handle that whole situation.

The report is also a balls-out political hit piece. Cuomo is using the most flammable of straw men to go after his enemy. Pointing at DiNapoli and yelling "Hedge fund lover!" is more than somewhat hypocritical considering that he relies heavily on the industry for political donations to run for office in a state that - once again - is politically and economically interwoven with hedge funds.

How interwoven? Cuomo's closest aide, Secretary to the Governor Bill Mulrow, once ran for Comptroller. He didn't win, but in the years leading up to his appointment as secretary last year, Mulrow was a senior MD at a small little hedge fund named Blackstone. Now, we're not intimating that Mulrow is a plant by the hedge fund industry to influence Cuomo and cheat New York state. By all accounts, Mulrow is an intelligent and honorable person who is acting as a public servant while in Albany. Insinuating anything else just because he worked at Blackstone would be ridiculous.

Kind of like using bad numbers and overall market dynamics to go after your political enemy and haphazardly demonize hedge funds is also absurd.

See what we did there?



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