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Treasurer moves to chip away at pension crisis by reducing investment fees

Eight months ago, City Treasurer Kurt Summers took office with a promise to do his part to solve the $30 billion pension crisis at the city and public schools that has dropped Chicago’s bond rating to junk status.

Summers vowed to improve investment returns and reduce millions of dollars in fees paid to investment managers.

On Wednesday, Summers took the first step toward delivering on that promise in a way, he hopes, could save as much as $50 million a year or $1 billion over the lifetime of all 11 of Chicago’s public employee pension funds.

At the treasurer’s behest, more than half of the funds have signed a joint resolution that will set the stage for the treasurer’s office to work together with the pension funds to launch an online database that will allow them to share information on how much money in fees they pay to investment managers.

The CTA’s pension fund and the CTA Retiree Health Care Trust were the sixth and seventh funds to put the cost-saving partnership over the top.

The treasurer’s office will now start gathering fee data needed to build the online clearinghouse and launch it by next year. New York City, Atlanta, Los Angeles and London have already done the same. The information will be accessible to pension fund officials and trustees as well as the general public.

Together, the 11 pension funds pay $144 million in investment fees to 236 different investment managers on $35 billion in assets. Each fund has its own process for choosing investment managers. Each fund pays a different fee, even for the same investment manager.

The top 50 investment managers handle more than 75 percent of the cumulative assets. Eighty percent of the fees are collected by firms that manage investments for multiple pension funds.

The go-it-alone strategy has not served the pension funds well and, in a small way, has contributed to the pension crisis.

Since investments and fees are not aggregated, some funds are paying 30 percent to 40 percent more for investment managers than other funds.

“For years, the city’s public employee pension funds have been overcharged relative to the size of their investments on behalf of workers and retirees,” Summers was quoted as saying in a press release.

“Launching the clearinghouse will help ensure each of our pension funds, taxpayers and retirees are treated fairly when it comes to investment fees.”

On the day he was sworn into his first elective office, Summers noted that the firefighters and laborers pension funds were paying dramatically higher fees to their investment managers than the municipal employees and police pension funds.

“One fund is paying 80 percent more in fees. Another is paying 50 percent more. Yet, there’s one client: The city of Chicago. That’s real money. For fire, the value of that is about $2.5 million a year on $1 billion in assets,” he told the Chicago Sun-Times.

“These kinds of things aren’t going to solve the kinds of holes we have. But any benefit we can find to invest more efficiently and less expensively is a benefit to taxpayers and retirees.”

Summers is the Harvard-educated grandson of longtime community activist Sam Patch, a close adviser to former Mayor Harold Washington.

U.S. Rep. Bobby Rush, D-Ill., gave Summers his first job in politics by hiring him as an intern. In between high-powered jobs in the finance industry, Summers served as chief of staff to both Chicago’s 2016 Olympic bid committee and to County Board President Toni Preckwinkle.

When Mayor Rahm Emanuel appointed Summers to replace retiring Treasurer Stephanie Neely, the mayor responded to critics who called it an insider deal by arguing that he needed “more than a seat-warmer” because the treasurer sits on boards overseeing four city employee pension funds.

The mayor has since raised Summers’ profile by appointing him to chair a revamped Infrastructure Trust billed as a game-changer that has been painfully slow to get off the ground.

By doing his small part to chip away at the pension crisis, Summers hopes to build his brand even more — to the point where he could run for mayor in 2019 if, as expected, Emanuel opts to call it quits after two terms.