The balance sheets of New York City’s pension funds may include a ticking time bomb — the unknown value of billions of dollars they poured into private equity firms over the past decade.
Unlike traditional investments in publicly traded companies, private equity firms — which borrow money to purchase businesses in the hopes of reselling them for a profit — have nearly no reporting requirements. Buyers purchase an interest for a fixed period of time, after which they’re told the value of their investment and are given the option to cash in.
In the current economic environment, experts warn, the city pension funds could be looking at a huge loss, potentially forcing taxpayers to chip in more money to meet contractual obligations to pensioners.
For instance, the New York City Employees Retirement System, which manages the pensions of all municipal workers except for cops, firefighters and Department of Education workers, has sunk $1.9 billion of its $30.4 billion in investments into private equity firms.
But “NYCERS is in the dark as to what these investments are worth [today],” said its former executive director, John Murphy.
NYCERS has invested in 94 different private equity firms — also known as leveraged buyout companies.
“Look what happened to the stock market — there’s been debt liquidation,” said Fredrick Rowe, a hedge-fund manager and chairman of the Texas Pension Review Board.
He pointed out that the lack of liquidity makes it very difficult for the private equity firms to fund buyers for the companies they’ve purchased.
NYCERS referred calls to City Comptroller Bill Thompson, who declined comment.
Additional reporting by Susan Edelman