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PENSION FUND ISSUE BRIEF NO. 3 929-333-4862

PENSIONS AND POLITICS: A LETHAL COMBINATION FOR NEW YORK

It is impossible to find an asset in New York State as large, poorly run and misunderstood as New York’s
Pension System, formally called the Common Retirement Fund (CRF) and interchangeably referred to as
“the Fund” or “the System.” With investments valued at $192.4 billion as of the most recent year for which
audited data are available1 (and approximately $206.9 billion as of March 31st, 20182), it is meant to cover
the retirement costs of 1.1 million State and local government employees. A single elected official,
Comptroller Tom DiNapoli, serves as its fiduciary.
Our initial issue briefs on New York’s Pension System detail the pitfalls that have resulted from electing a
politician with no financial experience as the sole fiduciary of one of the nation’s largest pension funds.
• The first brief covered pension performance under Tom DiNapoli and showed that the CRF’s 10-
year return of 5.36% net of fees massively undershot DiNapoli’s anticipated return of 7.6%,
amounting to an $81 billion shortfall. The CRF’s returns also lagged the returns of the market in
that period as well as other large pension funds of similar size and stature.3

• Our second brief detailed how DiNapoli paid $6 billion in fees to hedge fund managers and other
alternative fund managers, who collectively underperformed the market by significant margins.
DiNapoli’s alternative fund portfolio returned 5.40% over the last ten years while the broader equity
markets returned 7.46%. So these risky and opaque investments cost New York retirees and
taxpayers $7.8 billion in value while DiNapoli paid their managers $6 billion in fees.4
This third issue brief examines an aspect of DiNapoli’s activities that, while popular in some circles, is
nonetheless deceitful. Specifically, DiNapoli uses his market power as sole trustee of the State’s $200
billion Pension Fund as a personal platform to play political activist. The problems with this run deep.
For one, DiNapoli has prioritized politics at the expense of focusing on the investment earnings required to
cover the retirement costs of 1.1 million New Yorkers. While the Comptroller issues scores of press releases
on his attempts to bend industries into compliance with his ideology, he has covered up that his investment
returns lag his own expectations, the broader markets and those of other large public pension funds.
Considering that the primary role of the office is to provide maximum value to those who rely on pension
performance for their retirement savings, this constitutes an $81 billion dereliction of duty.
It is predictable that a career politician with no investment experience or expertise might revert to playing
politics when faced with that level of investment failure. This is precisely what DiNapoli has done. When
it comes to the Common Retirement Fund’s performance, he focuses his public actions, statements and
press releases on his political crusades against American corporations and industries; he has released at
least 112 press releases or similar materials on his shareholder activism work over the past five years alone.
But DiNapoli’s social activism has fallen short of earnest implementation. For one thing, his critical
statements aimed at buying the support of politically fashionable activists come while he maintains the
Pension Fund’s investments in the corporations he condemns. The conflicting actions—i.e., damning press
releases coupled with investment support—merely serve to pull the wool over the eyes of those activists
1
As of the New York State 2017 Fiscal Year (NYS FY2017), which ended on March 31, 2017.
2
The Comptroller’s preliminary announcement of the NYS CRF’s unaudited FY2018 investment results,
https://www.osc.state.ny.us/press/releases/may18/051718.htm (retrieved on May 28, 2018).
3
Trichter for New York, “New York State Pension Fund’s Colossal Underperformance—The Biggest Secret in New York,” July 2018,
https://www.trichterfornewyork.com/pension-fund-ib1
4
The Comptroller has accused us of “cherry picking” the period we measured his investment record. He pointed out that over the last 5 years or
the last 3 years, the CRF saw higher returns. Of course, those years overlap with the second-longest economic expansion in US history and, even
for those years, the Comptroller’s investment returns were below the market. In sum, we measured his performance over his entire ten-year
tenure, including the last 5 years, whereas selecting only the last 5 years to judge the Comptroller’s investment performance carves out years the
market performed poorly. That’s more than just “cherry picking.” That’s the equivalent of calling a mulligan.

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earnestly committed to the cause. And the expense the Comptroller takes to pull it all off comes at a
significant cost to the Pension Fund and the retirees who rely on its assets for their retirement.
Also, the Comptroller was extremely disingenuous about his own investments in gun manufacturers at the
same time he condemned them and publicly stated that the Pension Fund “does not hold any other public
companies whose primary source of revenue is commercial firearms manufacturing.”5 While Remington
was not technically a publicly traded company at the time, the Comptroller nevertheless had a significant
stake in Remington through his Pension investments. At the same time, he clearly intended to give
supporters the impression that the Pension had divested from arms manufacturers—a fact that was simply
untrue. This shows how far DiNapoli is willing to go to make political appeals to activists and supporters.
He has only gotten away with it due to the opaque, risky and expensive nature of the investment vehicles
DiNapoli has relied upon at great cost to retirees, taxpayers and the truth.
Unfortunately, DiNapoli’s gambits in these areas have largely flown under the radar—until now.

Key Findings

Comptroller DiNapoli exploits the Pension System to polish his progressive profile with unsurpassed
hypocrisy. During his tenure as Comptroller, he has led all public pension funds in shareholder activism
for social causes.6 But DiNapoli’s brand of activism is particularly hollow. He is heavily invested in
profitable but politically vulnerable industries that he then lines up for censures that appeal to a base of
political supporters. His strategy to simultaneously invest and attack makes no sense economically or
politically, assuming he genuinely cares about advancing the causes he champions. We have documented
four specific examples to make this point.
Lawyers, Guns and Money
In March 2018, DiNapoli wrote to nine financial institutions, including Visa, Mastercard and American
Express, to warn that allowing consumers to use their services for legal gun purchases could pose a
"financial risk" and lead to "widespread publicity and reputational harm."7 It was in keeping with
DiNapoli’s progressive projects—this time moving himself to the front of an emerging anti-gun movement.

Except DiNapoli commandeered an investment in Remington—the most controversial gun manufacturer in

America, according to anti-gun activists. It was Remington that made the military-style assault rifle used
in the Newtown massacre. Weeks after that shooting in 2012, DiNapoli vowed to end State Pension Fund
investments in gunmakers.8,9 But he retained his investment in Remington through Cerberus Capital
Management, a $48 billion private equity firm. Remington recently filed for bankruptcy to protect it from
creditors—as well as legal claims brought by family members of the 20 children and 6 adults killed at Sandy
Hook Elementary School.10

While the Comptroller generally takes credit for bolstering companies in which private equity firms invest
using State pension money,11 Remington is an instance where his office did not issue a press release or

5
Office of the State Comptroller’s press release, 15 January 2013, https://www.osc.state.ny.us/press/releases/jan13/011513.htm (retrieved on
June 6, 2018).
6
Data from Proxy Monitor’s database of Fortune 250 Shareholders Proposals, http://www.proxymonitor.org/Default.aspx.
7
“DiNapoli Pushes JPMorgan, BofA, Visa, to reconsider gun sales,” Crain’s New York Business, 4 April 2018.
8
Katie Gibson, “BlackRock unveils lone of gun-free investment products.” CBS News, 5 April 2018,
https://www.cbsnews.com/news/blackrock-unveils-line-of-gun-free-investment-products/ (retrieved on April 30, 2018).
9
Ben Jay, “New York’s pension funds still invest in guns, tobacco and oil,” City and State, 3 April 2018.
10
Mathew Haag, “Remington, Centuries-Old Gun Maker, Files for Bankruptcy” New York Times, 25 March 2018.
11
Office of the State Comptroller’s Press Release, 20 August 2013, https://www.osc.state.ny.us/press/releases/aug13/082013.htm (retrieved on
June 6, 2018)

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public disclosure about its investment. And while Cerberus was abandoned by many investors after Sandy
Hook,12 DiNapoli stuck with them.13

Perhaps the Comptroller sold the Pension System’s stake in Remington back to Cerberus when given the
opportunity in 2015.14 CalPERS publicly sought to do that. If DiNapoli did, he again failed to issue any
notice, likely because he hoped nobody would find out about the original investment in Remington in the
first place. He even stretched the truth about the Fund’s exposure to Remington when he issued a press
release in January of 2013, claiming: “The Fund does not hold any other public companies whose primary
source of revenue is commercial firearms manufacturing.”15 While Remington was not technically a
publicly traded company at the time, the Comptroller clearly intended to give supporters the impression
that the Fund had completely divested from arms manufacturers—a fact that was simply not true.

Low-Energy Decarbonization

The Comptroller claims he “has been a global leader in the fight against climate change,” and that “Our
Pension Fund is at the forefront of the worldwide effort to build a lower carbon economy.” He says his
“international leadership in addressing investment risk arising from climate change resulted in his
participation in both COP 21 in Paris and COP 23 in Bonne, France.” 16

His big advancement fighting climate change, according to his press materials, is his creation of a “low-
carbon index” that mirrors broad equity returns while excluding carbon-intensive corporations. The
Comptroller is increasing the Pension System’s investment in the index this year to $4 billion, claiming it
will play a role in moving the larger world order away from fossil fuels.

Meanwhile, the Comptroller retains over 50 oil and gas companies that are among the world’s most carbon-
emitting in the Pension Fund’s equity portfolio.17 Exxon remains among the top ten holdings in the CRF’s
stock portfolio and has been in the top ten since 2008, when DiNapoli took office. For many years, it was
number one. The Pension Fund reports that it maintains over 11.6 million shares of Exxon worth close to
$1 billion.18 The Comptroller refuses to quantify the size of the Pension Fund's other fossil-fuel holdings,
but we know it is formidable.19 While that may make sense from an investment standpoint, holding these
shares undermines the justification, cost and urgency behind DiNapoli’s “non-carbon” index intended to
move the larger world order away from fossil fuels.

The low-carbon index the Comptroller celebrates was created by Goldman Sachs exclusively for DiNapoli.
While the Comptroller has refused to disclose its costs, we know that Goldman doesn’t work for free. So
DiNapoli paid a Wall Street investment bank to create a smokescreen for distracting environmentalists from
noticing he invests in smokestacks. This makes no sense for New York taxpayers and retirees, who are the
ones who ultimately paid Goldman for DiNapoli’s bespoke index.

12
Ryan Dezember, “Cerberus Capital to allow investors to sell stakes in gun business.” Wall Street Journal, 15 May 2015.
13
The Comptroller continues to invest in Cerberus Capital, as revealed in the 2017 CAFR, p.120.
14
Michael Merced, “Cerberus, unable to sell Remington, will buy back its shares,” New York Times, 15 May 2015.
15
Office of the State Comptroller’s press release, 15 January 2013, https://www.osc.state.ny.us/press/releases/jan13/011513.htm (retrieved on
June 6, 2018).
16
Office of the State Comptroller’s Press Release, 31 January 2018, https://www.osc.state.ny.us/press/releases/jan18/013118.htm (retrieved on
April 30, 2018).
17
New York State Governor’s Press Release, 19 December 2017.
18
CRF 2017 CAFR, p. 98, https://www.osc.state.ny.us/retire/word_and_pdf_documents/publications/cafr/cafr_17.pdf
19
Robert Steyer, “New York Governor calls on Common Retirement Fund to move away from fossil-fuel investments,” Pensions & Investments,
19 December 2017.

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Unfriending Facebook (and Twitter and Google)

In spring 2018, social media websites—specifically Facebook—faced a growing backlash upon revelations
of user data breaches and potential use of their sites to meddle in the 2016 presidential election.20 DiNapoli
was quick to capitalize on the moment’s political opportunity.

In May 2018, DiNapoli announced that he was filing shareholder petitions at Facebook, Twitter, and
Alphabet (Google’s parent company) that demanded they show the steps they are taking to prevent users’
exposure to “fake news, hate speech, and sexual harassment,” on their respective services.21

This posed a host of problems. First, DiNapoli continues to retain nearly $3 billion in stock in the three
companies. In any event, DiNapoli is no expert in the complexities of regulating online speech. The field
of how social media sites handle controversial speech is continuing to prove itself highly contentious and
complex. But by declaring himself the arbiter of what should be deemed as unacceptable content (within
the blurry confines of “hate speech” or “fake news”), DiNapoli has created a perverse kind of speech
policing by an elected official with arbitrary market power granted to him via the State Pension Fund’s
public holdings. This raises the question of whether he has run afoul of the letter or principles of the speech
protections granted to Americans (and American companies) by the First Amendment. Either way, it is
clear DiNapoli’s foray into deciding how social media firms with billions of users should be managed is
well beyond his own capacity and that of his office.

Albany’s Bad Apple

One of the earliest and most direct examples of the Comptroller using his position for political activism
came in 2010 when he intervened in a labor dispute between the Retail Wholesale & Department Store
Union and a Mott’s Apple Juice plant in Williamson, NY. While the negotiation between a private employer
(already facing a prohibitive business environment in New York) and its employees should clearly be a
private matter, DiNapoli indterjected because the union representative was a close political ally.
He promptly wrote Mott’s on Comptroller stationary and informed them that the Pension Fund owned $33
million in Dr. Pepper/Snapple stock and threatened that he would sell off 938,000 shares if the company
did not grant concessions to the union. For a company with a market capitalization of roughly $9 billion at
the time, the extortion attempt was laughable.22 Whether it was the weak position of the Comptroller or
another reason, the company did not cave to DiNapoli’s demands and continued to keep production rolling
even after the union went on strike. But the incident may have served as a lesson to New York’s businesses:
do not cross the Comptroller’s labor allies unless you want trouble from a former Assemblyman who
suddenly found himself in charge of billions of dollars of public assets to weaponize for his friends.23

Politics & Pensions: A Lethal Combination

These instances reveal the ways the State Comptroller can leverage the official capacities of his office to
support political activism.
The first is by formally filing shareholder proposals with companies in which the Pension Fund owns a
stake. The New York State Pension Fund’s size provides the Comptroller with opportunities to weigh in on
meritorious issues that can increase value for shareholders, such as corporate governance. But it also

20
Margaret Hartmann, “Facebook Haunted by Its Handling of 2016 Election Meddling,” New York, 20 March, 2018,
http://nymag.com/daily/intelligencer/2018/03/facebook-haunted-by-its-handling-of-2016-election-meddling.html
21
Office of New York State Comptroller’s Press Release, “29 May 2018, https://www.osc.state.ny.us/press/releases/may18/052918a.htm.
22
Historical Market Capitalization Data, Y Charts, https://ycharts.com/companies/KDP/market_cap
23
Douglas Turner, “Politicians wade into private waters,” Buffalo News, 5 July, 2010.

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provides opportunities for the Comptroller to advance his political agenda. Tom DiNapoli is a career
politician with no expertise in investing, let alone creating shareholder value. So he has focused on the
latter.
According to data compiled by Proxy Monitor, Tom DiNapoli is among the most prolific public pension
fund managers when it comes to shareholder activism, particularly concerning social issues. He has staged
52 shareholder proposals at the largest 250 publicly traded companies from 2008-2017, 50 of which have
been about social policy issues that are difficult to tie to shareholder value—the most of any public pension
fund in this area.24 Yet the Comptroller’s activism reaches farther than these data quantify; his office has
issued at least 112 shareholder letters or press releases targeting businesses of all size since 2013. DiNapoli
takes this action while still holding shares of the companies, a measure of hypocrisy that simultaneously
puts the Pension Fund at risk should his negative action hurt share prices.
The second is by divesting (or threatening to divest) the pension fund from any companies or industries to
which the Comptroller has a political aversion, as he claimed to do with guns and fossil fuels. While the
effect of such actions on large, profitable companies or industries is negligible,25 the consequences of
dumping large quantities of smaller companies’ stock can be enough to bend them to his will.

Conclusion and Recommendations

DiNapoli invests freely in industries he then excoriates to raise his political profile. The strategy is hard to
reconcile. As an investor, he’s hurting the Fund’s positions. This has become exceedingly clear with the
release of our recent reports, which have shown DiNapoli has massively underperformed the market, losing
out on over $80 billion in value for the Pension Fund over his tenure.26 As the Pension Fund’s fiduciary,
he’s failing those who depend upon him to do his job, which is to maximize returns for retirees.

As an activist, he’s hoodwinking advocates by not sincerely siding with their causes. He claims he’s a
“global leader” in the fight against climate change, but in reality, his bespoke “solution” was just a
smokescreen so no one notices his bigtime investments in smokestacks. The same can be said for his anti-
gun agenda. Again, the losers are retirees and taxpayers who pay for DiNapoli’s underperformance. As a
politician who talks one way but walks the other, he’s seems almost without equal. This comes as he
stretches the role of the Comptroller’s office well beyond what is intended or advisable.

The Comptroller of New York State should be a non-partisan, professional office focused on, among other
responsibilities, investing public assets to maximize the retirement savings of the New Yorkers he serves.
In contrast to the incumbent’s actions, I pledge to do the following if elected:

• Stop using pension assets as leverage for disingenuous political posturing. As discussed in prior
issue briefs, I would focus the CRF’s investments in passive, low-cost index funds. This would
create far more transparency and eliminate the opportunity for politicizing the Fund for personal
political purposes.

• Uncover the amount of money Tom DiNapoli paid Goldman Sachs for his bespoke index that
excludes high-carbon emitting corporations and determine its value, taking into account how much
the Comptroller has directly invested in high-carbon emitters.

24
Data are from Proxy Monitor’s database of Fortune 250 Shareholders Proposals, http://www.proxymonitor.org/Default.aspx.
25
Paul Tice, “Fossil-Fuel Divestment Is Futile,” Wall Street Journal, 29 May, 2018, https://www.wsj.com/articles/fossil-fuel-divestment-is-futile-
1527635953.
26
Trichter for New York, “New York State Pension Fund’s Colossal Underperformance—The Biggest Secret in New York,” July 2018,
https://www.trichterfornewyork.com/pension-fund-ib1

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These actions would augment those I proposed in my previous Pension Fund issue briefs and would
culminate in a far more transparent and affordably-run Pension Fund in the interest of New Yorkers, who
ultimately are on the hook for DiNapoli’s politicization of the Fund at the expense of its retirees and
taxpayers. I will further build on these steps to rectify the mismanagement of the Pension Fund in
subsequent issue briefs and white papers, which are forthcoming and will be available on my website,
TrichterForNewYork.com.

- Jonathan Trichter, Candidate for New York State Comptroller.

Additional research provided by Michael Sargent.

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