Dive Brief:
- New York City Comptroller Mark Levine announced Friday that the city’s pension funds would undertake a search for new asset managers to provide passive indexing of public equity stocks for the city’s five public pensions systems.
- Levine and the city’s pension funds said the search specifically includes seeking indexes that are weighted by market capitalization, alternatively weighted or those based on ESG factors and limits on carbon, so long as they are consistent with each pension system’s investment guidelines, according to the June 12 press release.
- The hunt for new pension asset managers comes after prior NYC Comptroller Brad Lander recommended the city drop BlackRock and Fidelity over unsatisfactory decarbonization strategies.
Dive Insight:
Three of the city’s pension funds — the New York City Employees Retirement System, the Teachers’ Retirement System and the Board of Education Retirement System — have goals to reach net-zero across their portfolios by 2040. Each of the fund systems surpassed interim targets to decrease their portfolios’ scope 1 and scope 2 financed emissions intensity, and had a weighted average scope 1 and scope 2 emissions reduction of 48.13% between 2019 and 2025, Levine’s office announced in April.
The city’s five pension fund systems — which also include the city fire and police pension funds — held $127.11 billion in public equity investments as of March 31, with “the majority invested in passive index products,” Levine’s office said in Friday’s press release. The city’s pension systems last solicited public equity index services in 2017, according to the release.
“Fulfilling our mandate of delivering strong returns for our public sector workforce and retirees requires ongoing review of our contractual relationships with each of our asset managers,” Levine said in the release. “We cannot keep these relationships on autopilot.”
Asset managers will have until July 15 to submit their applications. Forty percent of the submission evaluation will be based on organizational characteristics like organizational and team structure, diversity of the team and organization, operations and nature and size of managed assets, according to the search notice. The other 60% of the evaluation will be based on firms’ investment management and decision-making, including their investment philosophy and process, risk management and portfolio characteristics and related data.
The evaluation, interview and selection process is expected to begin in September this year and wrap up in March 2027, with the contracts funded and started by June 2027. Selected asset managers will have at least a three-year contract, with options for renewals that could add up to an additional six years, according to the notice.
Under Lander, New York City’s pension funds requested all of its asset managers to submit written decarbonization plans and, ultimately, found those of BlackRock, Fidelity and PanAgora to be insufficient. After submitting “an enhanced net-zero plan,” PanAgora was later removed from the list of asset managers the city’s pensions were recommended to drop.
In their respective April net-zero progress reports, NYCERS, Board of Education and Teachers Retirement Systems said that BlackRock remains “insufficiently aligned” with the pension systems’ net-zero expectations. NYCERS also said that Fidelity remains “insufficiently aligned” with its expectations; the firm does not manage funds for the other two systems.
The city’s pension systems have “set clear climate-risk standards” for its asset managers, and this search for new public equity index services offers “an opportunity to put those standards into action,” according to Ben Cushing, the sustainable finance campaign director at Sierra Club.
“Climate change is a systemic financial risk to the economy and the retirement security of public workers,” Cushing said in a statement Friday. “Passive index managers still make active choices through stewardship, proxy voting, and engagement with portfolio companies. Those responsibilities should not be weakened, delayed, or treated as optional in this search.”
