Chicago’s new city treasurer is pushing a plan that could potentially save tens of millions of dollars a year by getting 11 local government pension funds to buy investment services together–and, so far, the idea is getting a good reception.
Under the proposal by City Treasurer Kurt Summers, a clearinghouse would be established among funds covering the city, Cook County, the Chicago Park District and the Water Reclamation District in which they’d share information on how much they spend on fees and other charges by investment managers that handle their assets.
Each of the funds would remain separate and make its own investment decisions. But the information on how much each is charged would be shared, opening the door to “aggregate fee pricing” and other collective actions. Summers, who serves on the boards of some of the funds, and reps from each fund would coordinate the effort.
When fully operable, the joint effort could save $25 million to $50 million a year, and a total of $1 billion over coming decades, Summers said. “That’s $1 billion that doesn’t have to come from taxpayers.”
The board for one of the funds, which covers city laborers, endorsed the clearing house in a resolution yesterday. Other funds will consider the matter in the near future. Cook County Board President Toni Preckwinkle supports the idea, said spokeswoman Karen Vaughan, “although there are still some operational details to work out.”
Summers, a former exec at Chicago money manager Grosvenor Capital Management, said cities such as New York and Atlanta already have such joint purchasing arrangements for a good reason–they can save money.
FEES RANGE WIDELY
He noted that one unnamed investment firm charges the Chicago Transit Authority fund 42 basis points (.42 percent of assets, annually), the park district fund 35 basis points, the police fund 33 points and the municipal fund 30. If they submitted one lump sum for investment, the expected charge would be just 25 basis points, Summers said.
Currently, 80 percent of the assets of the 11 funds are with the same management firms, which collectively get 75 percent of what the funds spend overall on such fees. The differing fees for the same services “shouldn’t happen,” Summers said.
The proposal gets a thumbs-up from Laurence Msall, president of the watchdog Civic Federation. “There’s real potential there,” Msall said, saying the likely savings are “within that range” of $25 million to $50 million a year.
“It’s not a panacea,” Msall added, referring to the fact that some of funds have unfunded liabilities running into the billions of dollars. “It will help.”