Funds surpassed the 7% actuarial target rate, reducing required City contributions by approximately $550 million over the next five years
The New York City retirement systems (Systems) achieved a combined net return of 8.0% across all five pension funds for the fiscal year ending June 30, 2023, New York City Comptroller Brad Lander announced today. The Systems ended FY 2023 with a value of $253.19 billion in assets.
“Despite global economic challenges and market volatility, New York City’s pension funds surpassed our benchmarks and our target rate of return over the past year, and our public sector workers and retirees can rest assured that we are well-positioned to continue delivering strong returns for the long term,” said New York City Comptroller Brad Lander. “I am grateful to the staff of our Bureau of Asset Management for their hard work and rigorous approach to securing added value, and to the trustees of our pension funds for working in diligent partnership to meet our fiduciary obligations to New York City’s retirees.”
“I’m proud of the positive returns achieved in a challenging year, but we must continue to focus on long-term outcomes to deliver on the pension promises made to our plans’ beneficiaries. We will continue to work diligently to build on our capabilities to meet these obligations over a long investment horizon,” said Steven Meier, Chief Investment Officer.
This past year saw a volatile investing environment, due to record inflation not seen since the 1980s, the most aggressive Federal Reserve rate hiking cycle in 40 years, and rapidly shifting geopolitical risk factors including the COVID-inducted supply line disruption and the outbreak of war in Europe. However, the United States economy demonstrated exceptional stability and growth, underscored by a resilient job market and low unemployment.
The strong performance this fiscal year in the face of these challenges is due in large part to the Systems’ diversified asset allocation, portfolio construction, and risk assessment — with a balance of both public and alternative assets across geographic regions. At the end of FY 2023, the Systems had an allocation of approximately 45% in public equities, 30% in public fixed income, and 25% in alternatives. More details about the asset mix and investment managers for each of the five NYC pension funds is available on the Comptroller’s website (a feature added by Comptroller Lander to significantly increase transparency).
Each Systems’ portfolio blends asset classes with an expectation that certain asset classes will perform better in particular years than others. For this fiscal year, public markets accounted for the majority of returns and alternatives delivered close to flat performance. This stands in contrast to 2022 during which private markets accounted for a disproportionate percentage of positive returns.
U.S. Equity | 5.05% |
Developed ex-U.S. Equity | 1.83% |
Emerging Markets | 0.48% |
Core Fixed Income | -0.17% |
TIPS | -0.04% |
High Yield | 0.48% |
Convertible Bonds | 0.08% |
Private Equity | 0.03% |
Private Real Estate | -0.12% |
Infrastructure | 0.16% |
Opportunistic Fixed Income | 0.15% |
Hedge Funds | 0.04% |
Cash | 0.03% |
The New York State Legislatures set a target return rate for the Systems of 7%. When returns are above that rate (as they were in FY21), the City budget is adjusted to require lower deposits. When returns are below that rate (as they were in FY22), the City must contribute additional funds. These annual adjustments are spread over five years to smooth the impact. The 8.0% returns for FY23 will reduce the City’s required contributions to the pension system by approximately $550 million over the next five years, leaving more funds available to meet current obligations.
While the results this fiscal year are encouraging, Lander cautioned that performance of the funds is, of course, significantly influenced by market forces on a year-to year-basis. Fiscal year 2021 was one of the best years for the stock market (and the Systems) in recent decades, however, fiscal year 2022 was one of the worst. The Comptroller’s Bureau of Asset Management and trustees of each of the Systems remain focused on long-term results, an important measurement of a pension systems’ success and sustainability. The Systems have an average 3-year return of 7.5%, 5-year return of 6.8% and 7-year return of 7.9%.
About the New York City Retirement Systems
The New York City retirement systems (the Systems) is composed of five separate and distinct pension funds (the New York City Employees’ Retirement Systems, the Teachers’ Retirement System of the City of New York, the New York City Police Pension Fund, the New York City Fire Pension Fund, and the New York City Board of Education Retirement System). The Systems serve nearly 800,000 members and beneficiaries.
The New York City Comptroller serves as trustee to, and custodian and investment advisor for the five Systems, which are governed independently. The Comptroller’s Bureau of Asset Management oversees the investment portfolio for each System and related defined contribution funds for the Systems on behalf of the Comptroller.
