Trustees Tout Expense Cuts But Behind Closed Doors it's Another Story


Recently posted in the Frequently Asked Questions section of the AFM-EPF website is a highly important new disclosure that the trustees have hired Cambridge Associates as an “Outside Chief Investment Officer” (OCIO). This is an important development because it puts in perspective just how out of touch the AFM-EPF trustees are in December 2017. They are not replacing Meketa, our fund investment consultant since 2010, but they are adding another layer of management and expense heaped on top of what is already the bloated administration of our pension fund. It is no wonder that the expenses of the AFM-EPF are by far the highest in our industry. Our trustees spent over $250 million over the last 10 years, with an investment return that is dead last in the business. (The 3 and 5-year returns are also at the bottom of the peer group. See our previous article about these numbers here.)
Now with the addition of an Outside Chief Investment Officer, Cambridge Associates, expenses at the AFM-EPF will be even higher. The layers of expenses at the AFM-EPF are truly staggering. First, we have Cambridge Associates (OCIO), then Meketa our fund consultant, both of which are taking substantial fees for their overall management of the fund. These two firms then choose over 25 investment managers, who each take a cut of the assets under management. Then there are often sub-managers who take a further cut. For example, in the private equity and alternative investment sector (in which AFM-EPF is heavily invested), most of the funds we invest in are a “fund of funds.” These funds are nothing more than general contractors who sub-contract out the actual investing to other funds.  
On top of all that expense, AFM-EPF office has a staff of over 70 reporting to Maureen Kilkelly, who is earning $425,000 per year and her deputy, Will Luebking, who earns $280,000 per year. Cambridge Associates has been hired by AFM-EPF as its “Outside Chief Investment Officer (OCIO)”. If our trustees have outsourced the role of chief investment officer, then what are all the high-priced managers on staff at the AFM-EPF doing?  
Finally, we must ask why, after turning in the worst investment performance in our peer group over the past decade, is Meketa still serving as investment advisor and why is Meketa collecting a handsome fee for doing the same work that Cambridge Associates is doing? MPS has learned that in early 2016, the trustees hired Gallagher Fiduciary Advisors, LLC, to select a new investment advisor. In October 2016, Gallagher recommended that Meketa not be considered for this role. The trustees overruled that recommendation and made the decision to hire Cambridge and keep Meketa as well.
In December of 2016 when our trustees disclosed for the first time that we might be facing cuts to existing benefits as soon as spring of 2017, they sent to plan participants an offensive letter stating What Participants Can Do:
"Given our financial status, we are faced with the reality of the one-dollar benefit multiplier as the basis for any benefits earned in the future. This means that while the AFM-EPF pension you receive will still be important, for many the benefit will be a modest one. A modest pension emphasizes the importance of having a comprehensive retirement strategy that includes a personal savings component to supplement the AFM-EPF pension and Social Security benefits.”
In December of 2017, as our trustees still seem to be embracing a plan to cut our existing benefits in the near future, MPS has a message for “What Trustees Can Do” on behalf of plan participants: Stop wasting our money. Stop making poor management decisions and stop saying publicly you are going to cut down on expenses at the AFM-EPF while behind closed doors the opposite is true. Start being accountable to plan participants for your actions both past and present.