Pod Insights Masters in Business BONUS: NY Comptroller Candidate Drew Warshaw on Changing the NY State Pension Funds About this episode On this special, bonus episode, Barry speaks with Drew Warshaw, Democratic Candidate for New York State Comptroller. They discuss his role in building the World Trade Center after 9/11. his career in alternative energy, and running for NY Comptroller. They dive into his thoughts on New York Pensions funds and the changes he'd make if elected.
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0:34 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting
1:16 Speaker 01 and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
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2:07 Speaker 02 This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
2:13 Barry Ritholtz? This week on the podcast, a special bonus episode. Drew Warshaw is candidate for New York State Controller. The Democratic primary is June. That really is the whole shooting match. Fascinating person, helped rebuild the World Trade Center. Background in solar and alternative energy, affordable housing, worked for the Port Authority. I thought this conversation about the New York State pension and the role of the Controller was fascinating, and I think you will also. With no further ado, my conversation with New York State Controller candidate Drew Warshaw. I'm really excited to talk to you because of not just your background, but some of your
2:58 Barry Ritholtz? ideas about the New York State pension plan, nearly $300 billion. It's one of the biggest in the country's. We'll get to that in a bit. I have to start out asking you a little bit about your background. You get a bachelor's in history and government from Cornell. Your MBA from Columbia Business School.
3:17 Speaker 04 Yes.
3:18 Barry Ritholtz? What was the original career plan?
3:20 Speaker 04 The original path was public service. So that's, I started my career in government. I worked for a governor, many governors ago, and then moved up to Albany and worked for that governor. And then when that governor resigned, his name was Elliot Spitzer, which you may have remembered.
3:39 Barry Ritholtz? Sure.
3:40 Speaker 04 The, this was 2008. This was the same week Bear Stearns went down, which I'm sure you remember. And I had to get back to New York City, where I'm from. And the Port Authority was rebuilding the World Trade Center at the time. And the World Trade Center was still a 16 acre hole in the ground.
3:58 Barry Ritholtz? I remember there was a whole lot of dysfunction and arguing with the person who had originally owned the property. I'm forgetting the name of.
4:07 Speaker 04 Larry Silverstein.
4:08 Barry Ritholtz? That's right, Silverstein.
4:09 Speaker 04 Yes.
4:09 Barry Ritholtz? I mean, this went nowhere. It felt like, oh, they're never going to rebuild this. This is going to be a horrific thing for New York City. Tell us a little bit about your involvement in going from a dysfunctional government entity to something a little more resilient.
4:26 Speaker 04 Sure. So I was blessed to become the chief of staff to the head of the Port Authority of New York and New Jersey, and this was seven years after the attacks. And it was still a 16-acre hole in the ground. And to your point, it was peak government dysfunction. Everyone was warring with everyone. There was a private developer, there were insurance companies, there was, unfortunately, the families of nearly 3,000 victims. And there was one of the most complicated engineering and construction projects in the most congested area of New York City, while two mass transit systems had to continue operating, the one train that bisects the site and the PATH system that comes in from the Hudson River. And we got there in 2008, and it was basically a hole in the ground at that point, and they called it the pit, if you remember, down at Ground Zero.
5:10 Speaker 04 And over the next four years, we got it built. And we opened the memorial by the 10-year anniversary. We secured Conde Nast as an anchor tenant for One World Trade Center. We ended up renegotiating the original real estate deal with Silverstein Properties and rationalized the commercial development and the financing of that project to phase it in over time, given where we were in the market at the time. So just the experience of a lifetime, especially for a lifelong New Yorker, to have an opportunity to rebuild my hometown, there's really nothing like it.
5:41 Barry Ritholtz? And what's fascinating and really relevant for today's circumstance is how Lower Manhattan, which was never much of a residential area, very much transformed into a, not quite Brooklyn Heights, but a very residential-friendly, a whole lot more apartments and condos and co-ops. I wonder if that's a little bit of a template for moving forward now that we seem to have 60, 70% rates of return to office.
6:13 Speaker 04 Yeah, and much more mixed use, to your point. I mean, no one would recognize- Manhattan today where where it was, you know, in 2000 or in the 90s. And I live in lower Manhattan with my two boys and my wife, not far from the World Trade Center, just given the importance that it has in my life. And it's an incredible area. I think it's, you know, the connectivity, the mass transit. You know, you're close to Brooklyn, you can get uptown anytime you want or out of the city. It's extraordinary.
6:39 Barry Ritholtz? So not only have you worked inside government at the Port Authority, but you've worked for a Fortune 250 energy company. You've worked on affordable housing in the U.S. Tell us a little bit about your business experience.
6:51 Speaker 04 Yeah, so I was blessed to, one, get to help rebuild the World Trade Center and work in one of the most extraordinary government agencies that exists. And got to do it at a very young age. And so I had this extraordinary experience where I had the opportunity to either keep going vertical and keep going up within government or build out. And, you know, I bet that life is long. If it's not, we're sort of in trouble anyway. And so, you know, for my part, when I do things, I want them to be meaningful and transformational. To do that, I think you need experience and you need to broaden your foundation and not just build on high. So I pivoted out of government. I went to business school, as you mentioned,
7:34 Speaker 04 and then joined a Fortune 250 power company that was trying to build a renewable energy investment platform and development platform. And fortunately was led by a very visionary CEO at the time who saw the green revolution coming, wanted to make sure that the the power company was positioned for that and brought in a bunch of different people, some with power and finance experience, some with engineering experience, and then, you know, others like me who just were good at solving complicated problems. And together we built a really strong renewable energy business.
8:06 Barry Ritholtz? And let's look a little bit about housing. We in the United States have a shortage of single-family homes, of starter homes, and then just generally affordable homes. How bad is the housing problem in New York City and in the entire country?
8:25 Speaker 04 It's as bad as it gets, but. I think importantly, and your last point is spot on, this is not just a New York City problem, it is not just a city problem, it is an everywhere problem. And when I left the renewable energy industry, and just to give you a sense, this was late 2019, I was at my umpteenth ribbon cutting for however many solar farms that we had built, and it's an extraordinary thing to be at a solar farm, to see the sun shining on basically three pieces of equipment, clean electrons going into the grid, and you're sort of like, this is a miracle, we figured this out, we just need a battery, we need an extension cord, and we've got this. But what you don't have in that farm in a field somewhere is people.
9:10 Speaker 04 And I'm a New Yorker, and I'm a state and local guy at heart, and the affordability crisis was mushrooming around me, and I just felt like I needed to do something that impacted a person's day-to-day life as opposed to trying to save the species, which we need to do, and climate change is real. But for my part, the home is the centerpiece of a good life, and if you have a good one that provides safety and security and value, everything else opens up. And if you have a home that is the opposite of those things, or if you don't have a home, then things close down on you. And so, we have, I think, the most serious domestic policy crisis in this country is
9:53 Speaker 04 the fact that people cannot afford their own home. My kids, my kids go to public school downtown in Lower Manhattan, one out of every single, one out of every seven public school students in New York City, they don't go home at night, because they don't have one. That's unbelievable. They are homeless. And when I'm sitting there, co-CEO of the most extraordinary affordable housing nonprofit in the country, 1,100 dedicated professionals who are there to address the affordable housing crisis, and it occurs to me, Barry, that we were losing. We were getting smoked. It wasn't even close. And I look over to a government that we are trying to make faster, better, cheaper,
10:37 Speaker 04 and more efficient, and they have all this power, and they have all this money. And we could use those things to address this raging affordability crisis. And that's sort of what turned me on to doing, you know, what we'll talk about, I'm sure, because I was not someone who grew up, you know, wanting to run for office. I was sort of the operator, the heads-down person behind the person. But I got to the point where I realized that the cavalry is not coming. The cavalry is us.
11:06 Barry Ritholtz? So, so let's stay with housing for a bit. We're going to talk a lot about the controller position and, and really what the main focus of that is, but I'm just fascinated by the housing circumstance, starting with, really, since the financial crisis, we've underbuilt single-family homes to say nothing of affordable homes. So just in terms of demographics, depending on whether you believe the realtors, the economists, or the builders, we're 2, 3, 4 million homes short.
11:38 Speaker 04 That's right.
11:38 Barry Ritholtz? Relative to 330-something million Americans, that is very likely, over the next 25 years, to be 350, 360, 370. So, so given that, and given you have federal rules, you have state rules, you have private sector rules, you have local city and county and town rules, what can we do to improve the housing situation? What should we be doing at each of those levels?
12:05 Speaker 04 Yeah, so we have a massive under-supply problem, a supply-demand imbalance, and, you know, whether it's 2 million, whether it's 7 million, it's too many million homes short. And people feel that every day, whether it's in their rent or in home prices. And what we saw at Enterprise Community Partners, which is the affordable housing nonprofit that I worked for, as to your point, at every single level, it is virtually impossible to build a home that people can afford. And I thought citing a solar farm was difficult, and you get pushed back. Try citing an affordable property. And there are so many layers of bureaucracy. And whether it's from the financing side, the capital structures of these affordable properties,
12:50 Speaker 04 you need a decoder ring to figure them out. They are so complex. The building code that I think is the silent killer of affordable housing in this country. We talk a lot about zoning and that is also an issue. But what gets talked about much less is even if a piece of land is perfectly zoned, it is still hard to get the math work because the minute you hit dirt, particularly in New York, with the complexities of the building code and the gold-plated nature and the outdated and so on and so forth, it is a fortune to build. So whether it's the cost of construction or the cost of capital and the cost of land, you have so many different things working against you. And those are some of the roadblocks that we need to start clearing.
13:32 Barry Ritholtz? How significant is the NIMBY, not in my backyard issue, that once people are established and they have a home, hey, we don't want affordable housing. We don't want Section 8 housing in our area. You're going to send property values down. How legitimate are those concerns? And how can they be addressed?
13:56 Speaker 04 Yeah, you have this incredible dynamic in this country where the incumbents of homeownership are actually economically incented, in theory, to not allow greater supply. Because just if we're in a supply-demand world, if the supply goes up and demand stays constant, the value of their underlying property either will sort of rest in a neutral position or potentially go down. And so there is just this literal economic self-interest to not want to allow more homes into your neighborhood. And then there's cultural things and there's all sorts of other cross-currents. It is a big problem. And unfortunately, what we've seen is
14:40 Speaker 04 if you actually study this and you look at what happens when you introduce new supply of homes, what you don't see is Home values plunging, you don't see, you know, wild traffic jams or the schools getting filled up. You see a balance because these things can't come online all at once anyway. They are phased in over, over time. And a place will naturally adjust to the inflow of new homes and new people. And I think much too ma- much too much is made from a very small, but very loud group of people who, to your point, say, "Not in my backyard."
15:17 Barry Ritholtz? So let's talk a little bit about the controller position. Um, most people don't really know what this role is. We're going to go into a lot of details. Uh, but essentially, this is one of the most significant financial roles, uh, in the state. There are regular audits and oversight of all sorts of tax and spending revenue, as well as overseeing, uh, the New York State Pension Fund, which is almost $300 billion. I think it's the third largest in the country. Is that right?
15:50 Speaker 04 That's right. That's right.
15:51 Barry Ritholtz? So, so tell us a little bit about this role.
15:53 Speaker 04 Yeah. You know, everyone's heard of the governor. Everyone's heard of the Attorney General. Well, there's a third statewide position in New York, and it's the New York State Controller. And, you know, put simply, the State Controller is the state's Chief Financial Officer, Chief Auditor, and Chief Investment Officer of the third-largest fund in the United States of America, all rolled up into one job. One, one person has all three of those responsibilities. So it's an extraordinarily powerful position. Unfortunately, too few New Yorkers have ever heard of it, and the ones who have can barely pronounce the title. So we need to do a lot more to educate the public on the awesome responsibility
16:35 Speaker 04 and authority of this one office. And part of the challenge has been, it's been occupied by the same person in the same seat for 18 years, uh, who has stayed well below the radar, and unfortunately, I think is, is sort of treating the position like a lifetime appointment. And we have, as I mentioned, you know, being, uh, you know, focusing on the affordable housing crisis, we have a position that is sitting on all this power and all this money and not, and is not being flexed for the people without it. And I think if we could get in there with energy and surround ourselves with talent, we have all the levers we need to address so many of the crises that we face.
17:12 Barry Ritholtz? So I'm fascinated, and I bet a lot of our audience is fascinated by, we don't really think about New York State pension. My wife is a teacher. I have friends who are police and fire people, state hospital doctors and emergency room nurses. There are just a whole run of people that benefit from the New York State pension. Tell us a little bit about what's going on in that pension. $300 billion, that's real money.
17:45 Speaker 04 Yeah, so let's be clear. Every New Yorker is impacted by this pension fund. So one, to your point, there are nearly 1.25 million beneficiaries. These are public school teachers, these are firefighters, these are cops, these are frontline government workers. So they are directly impacted. But who funds the public pension fund?
18:03 Barry Ritholtz? Don't they kick in?
18:04 Speaker 04 Taxpayers. They do kick in a portion, but taxpayers pay the overwhelming amount of the contributions into the pension fund. So your property taxes and your state income taxes. They are taxed and all 11 million New York tax filers pay into our public pension fund. So everyone is impacted. And what's so extraordinary is this is not only the third largest public pension fund in the United States, but it's run by one person. He is the sole trustee of this fund.
18:33 Barry Ritholtz? There's not an investment committee and a lot of consultants?
18:36 Speaker 04 He does not report to a board of trustees. The New York City Comptroller reports to five different fiduciary boards.
18:43 Barry Ritholtz? Who are those five boards?
18:46 Speaker 04 It's currently, there's the teachers, there's the firefighters and cops, there's the public employees and so on and so forth. The state comptroller reports to himself. He is the board. He is literally the chief investment officer. He is the fiduciary. He runs this money.
19:04 Barry Ritholtz? So should there be a board of trustees the comptroller as head of the pension fund reports to? How do you propose changing that structure?
19:13 Speaker 04 Yeah, I think, so just to be clear, only one other comptroller nationally has that level of sole trusteeship, that authority. That's Connecticut, which is a much, a much smaller fund. And I think corporate governance is so critical here. I think a board structure makes so much sense, but we have to get that board structure right. And one of the challenges, and this is, you know, I've looked at sort of best practices across the country. One of the challenges of these public pension funds is their boards are political appointees. And so you get into a situation where, you know, the governor gets an appointment and the state senate majority leader and the assembly and so on and so forth. And so now you have this board that you hope is accountable, but in many ways, you've
19:57 Speaker 04 actually diffused accountability away from a person who's publicly elected. At least they have a job interview every four years and have to come up to a sort of anonymous, unknown board that sort of operates wherever they operate and are politically appointed. So I think, you know, moving to a board structure, to me, on its face, makes perfect sense. There is way too much concentrated power in one human, but if it becomes a politicized board, I think we have a problem. So I think we have to move in that direction, but we have to do that thoughtfully and carefully.
20:30 Barry Ritholtz? Really interesting. Coming up, we continue our conversation with Drew Warshaw, candidate for New York state comptroller, talking about what most New Yorkers don't understand about the position. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.
21:35 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting
22:17 Speaker 01 and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
23:02 Barry Ritholtz? I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Drew Warshaw. He is a candidate for New York State Controller in New York. Really, the primary is the whole thing, and that will be held in June of 2026. Let's talk a little bit about this role that so many New Yorkers either don't understand or don't even think about. You mentioned Attorney General and Governor. Everybody knows those titles. Tell us a little bit about the important powers of the New York State Controller.
23:40 Speaker 04 Yeah, I think what is extraordinary and unfortunate
23:45 Speaker 04 Is we have a position in government that is sitting on all this power and all this money and it is not being used for people without it. And what do I mean? New Yorkers cannot afford to live in New York right now. We have a massive affordability problem, not just housing, anything, electricity bills, insurance, and so on and so forth. And there is a person up in Albany, whose job it is, is to address things like that. Although unfortunately, I don't think he understands that or knows that. And so I want to take this position and I want to use the massive levers of power and the massive levers of money and help address the raging cost crisis and affordability crisis of New Yorkers. And I think we can do that, whether it is managing the public pension fund in a very different
24:30 Speaker 04 way, and I'm sure we'll talk about that.
24:32 Barry Ritholtz? Absolutely.
24:32 Speaker 04 The incredible audit powers, the fact that this person could audit anything that touches a state tax dollar, a quarter of a trillion dollars gets spent every single year in New York, and he has an all access pass to being able to audit any of that spending, which is basically the ability to audit anything. And then what is not well known is that the New York State Comptroller also oversees this thing called the New York State Unclaimed Fund, which is all, which is where all of our money or uncashed checks are, you know, health insurance benefits that don't somehow find their way to our mailbox gets, gets, you know, goes up.
25:08 Barry Ritholtz? And that's a pretty decent chunk of money, isn't it?
25:09 Speaker 04 It turns out it is. It should be zero because it's New Yorkers money and it is the state comptroller's job to give it back to New Yorkers. But it is $20 billion. There's $20 billion in the New York State Unclaimed Fund. When the comptroller was appointed 18 years ago, that number was only $7 billion. And by the way, that's still too high. And so that is a rare thing to be able to quantify the performance of an elected official. Sort of how do you do that? Especially with like a senator or an assemblyman or is it how many bills that they sponsor? But what if the bills are bad bills? Or what if they're in the minority and they don't get passed? This is something in the job remit, in the description, that a fund that is supposed to go down has nearly tripled in size and it's New Yorkers money. In the middle of an affordability crisis, this guy is sitting on $20 billion of our money.
25:55 Barry Ritholtz? So let me, let me defend the sitting New York comptroller, a gentleman named Tom Donapoli. He's been in the job for almost two decades. His reputation is, he's a steady technocrat. He's done some audits, he's found some wastes and savings. It's not like he's, you know, doing nothing. What do you credit him doing right? And, and where do you think the biggest areas he's fallen short?
26:22 Speaker 04 Sure. Well, look, I think, and this is not nothing, and he, he leads with this. Now, my problem is, uh, this is a problem if this is your reason for running. And what he says is, he has never been indicted, and he's never been in a sex scandal.
26:40 Barry Ritholtz? Now, in New York, that's a pretty big thing. Elliot Spitzer stepped down, lots of other public officials in New York have had to step down, and this predates me too by a long time.
26:50 Speaker 04 Yeah. For my part, though, the bar has to be a bit higher than that.
26:54 Barry Ritholtz? So no sex scandals is not just the minimum?
26:57 Speaker 04 I, I don't think that could be the, the definition of success in a position of this consequence. And unfortunately, that is what we have heard. So, look, I, I, I, I think he is not corrupt. Um, I don't know of any sex scandal, uh, but we have to be doing more. And you asked some of the things that he could be doing more of. I think the way he has managed the $300 billion public pension fund has amounted to malpractice. I think it has cost New Yorkers, and, you know, we'll talk about this, nearly $60 billion of extra taxes that have come out of our pocket and literally just been vaporized. Um, so I think whether it's the public pension fund, the fact that he hasn't been able to get $20 billion of New Yorkers back into their pockets in the middle of an affordability
27:42 Speaker 04 crisis, or the way he focuses the audit authority, not going after the things that matter most to New Yorkers, and instead, spreading his staff and diluting his staff over thousands and thousands of audits. And if you audited 2,000 things every single year, it is very difficult to get to the root cause of any one of them. And so I think just even the level of focus, and we could talk about some of the ideas and some of the areas that I would audit, um, just need to be fundamentally more focused. And when you run large organizations, or large businesses, or even large government agencies, resources are finite at the end of the day. And you need to understand that, and you need to concentrate those finite resources on the things that matter most.
28:23 Barry Ritholtz? So let's talk about the New York State Pension Fund, nearly $300 billion. You've taken to standing by the Wall Street charging bull with a giant check for $21 million that you say is how much the fund is wasting every week. So that's $1.1 billion a year in fees.
28:46 Speaker 04 Yes.
28:46 Barry Ritholtz? We'll dive into that. I'm just curious, what sort of reaction do you get from people down by the bull on Wall Street?
28:54 Speaker 04 Yeah, so I think Drew for NY is what you're talking about in terms of-
28:58 Barry Ritholtz? And by the way, it's lower Broadway near Wall Street.
29:01 Speaker 04 Right, so if you go to Drew for NY on Instagram or X or whatever social channel, you will see what Barry is talking about. But every single Friday, which is payday, which is when New Yorkers get paid, I go down to the Wall Street Bull and I call, I don't know what we can say on this podcast.
29:19 Barry Ritholtz? You can say whatever you want.
29:19 Speaker 04 Okay, I call Bull on the fact that our New York State Controller for the last 18 years has given $11.3 billion in fees to hundreds of Wall Street bankers who fundamentally didn't do their job, who did not beat the market net of their fees. They did not even come close. In fact, they underperformed his own market benchmarks by 39% and got $11.3 billion in fees. And we got this all off of the controller's annual reports.
29:47 Barry Ritholtz? Is that how you got to 50-plus billion dollars, was the underperformance?
29:50 Speaker 04 The underperformance would have, had to be made up by taxpayers. Now, the state controller walks around and he goes, you know, "I've done a really good job." Why? Because the Public Pension Fund of New York is one of the best funded in the nation. And he's right. It is. But he doesn't tell you why.
30:07 Barry Ritholtz? It's funded through taxes?
30:08 Speaker 04 It's funded because 11 million New York taxpayers over the last 18 years paid $59.1 billion in extra property taxes and extra state income taxes to make certain it was fully funded. It was the taxpayers that insured that, not the stewardship of the investment fund, because it is New York State law for the Public Pension Fund to be fully funded. Mickey Mouse could be the state controller and it must be. The question is- How? How is it funded? Is it through the investment income and the returns? If you're doing your job? Or is it through taxpayers subsidizing the underperformance? And that's what we found, Barry. We found that $59.1 billion of additional taxes, what we call the Denaply Tax, has had to subsidize that 39% underperformance over the last 18 years.
30:53 Barry Ritholtz? So I live in Nassau County, which I think is like the third or fourth highest property tax in the country. Are you telling me that my taxes are higher? Because the New York State Pension Fund is not even getting market beta? Is that what I'm to understand?
31:10 Speaker 04 That is exactly the case. You understand this perfectly. And that is the direct connection between this job and people. And that's just one of the direct connection between this job and everyday New Yorkers' lives. On Long Island last year, 10 of the 13 towns on Long Island blew through their property tax cap. The reason they blew through it is because Tom Denaply did not do his job. It's because he underperformed the market and we are sending billions of dollars of property taxes, $1.1 billion last year alone, or $20 million every single week, every single payday alone in fees to a bunch of bankers who fundamentally did not do their job. And if you and I didn't do our job for 18 straight years, what would happen to us? We'd be fired.
31:53 Speaker 04 And these guys continue to get paid and paid and paid.
31:56 Barry Ritholtz? So let's talk a little bit about what that pension fund should look like. And full disclosure, I've testified at various state pension funds. I've made the argument, actually it was about a dozen years ago to the Connecticut Pension Fund, that they should move away from high-priced alts and just simplify. What do you think we should do with this $300 billion pension fund? How should it be positioned?
32:26 Speaker 04 So the state comptroller right now pays 664 different investment managers to actively invest the fund. And their promise is we will beat the market net of our fees. And as we've established, they have not even come close. And what I would do is I would replace the 664 investment managers. Managers with a diversified set of low-cost index funds. To your point, let's not pay all these fees for something that they have been unable to do over the last 18 years, and let's take the market return. Let's focus on asset allocation. To be very clear, that matters. You know, whether it's between 89 or 93.4% of a portfolio's return will be driven by your asset allocation.
33:07 Speaker 04 So let's spend our time and resources on getting that right and making sure that asset allocation matches the job description of the fund, right? Asset allocation can look very different depending on what that fund needs to do, the liquidity needs, and so on and so forth. So let's focus on that. Once we do that, the picking and choosing of the underlying securities and so on and so forth, to me, I think that's a loser's game, as one person famously said it. And I think we should save taxpayers their money in the form of these fees, and we'd earn a better rate of return for the pension, and we'd be able to lower property taxes in the process.
33:42 Barry Ritholtz? Right. The data on active managers beating their benchmark, and to be fair, a big chunk do every year, but it's just about half, usually a little less each year. Over time, that drops to about 20% over five years, 10% over 10 years. And over 20 years, it's virtually nobody. You know the handful of names, Warren Buffett, Peter Lynch, et cetera, but the vast majority, vast, vast majority, don't.
34:10 Barry Ritholtz? What sort of response do you think you would get from Wall Street, who is very happy to collect big fees on underperforming funds? And again, to be fair, there is a substantial chunk of fund managers that do great each year. It's just really hard to pick them consistently over time.
34:30 Speaker 04 And that's the thing. So, one, the response that I've gotten from people who understand finance and investments, no one could possibly understand how someone could hire 664 different investment managers. Effectively, he's bought the most expensive index fund in the world with the worst tracking error, and that's basically what he has done, right? And with a lower Sharpe ratio than the market. So you're getting A worse risk adjusted rate of return and you were underperforming the market by thirty nine percent. So it's like on every possible level, this this thing is not performing. And I'm not here to say, you know, we can debate active management versus passive management. What I am here to say is for purposes of a two hundred and ninety one billion dollar fund
35:13 Speaker 04 that is managed by a bunch of folks in Albany. I do not believe that fund should or needs to try to pick the pickers and to somehow be the ones who frankly, I think are would be arrogant enough to think that they know how to choose these folks. And they have six hundred and sixty four of them. So I don't know how selective you could be by basically hiring everyone anyway.
35:36 Barry Ritholtz? Hey, someone has to be pretty good in that group.
35:38 Speaker 04 Right, exactly. But how do I know which one? And I'm not arrogant enough to think I do.
35:43 Barry Ritholtz? So here's the pushback. And I have this discussion on the regular. But the pushback is, well, we could be concentrated in any one index or any group of indexes. But we want non-correlated returns and we want the potential to outperform the market. So when we go to venture capital or private equity or private credit or real estate investments, it allows us to withstand whatever the market or the economy throws at us because these are so non-correlated. And they give us the chance to outperform the market. When you buy an index, all you're going to get is the market.
36:27 Speaker 04 Yeah, sure. So I guess a couple of things on that. One, I think, I think, you know, diversification matters. So, you know, that's back to asset allocation. Absolutely, we need to be thoughtful about diversifying. We need to be thoughtful about, you know, idiosyncrasies and trying to find those non-correlative asset classes. But to me, the the idea that we should put our money in a bunch of private asset classes to basically, you know, perform an exercise in volatility washing just because they may not have to mark to market their valuations the way, you know, Every split second in the public markets, we know exactly what an asset is worth in terms of that value discovery and price discovery.
37:10 Speaker 04 To me, that is not, that can't be the reason we are putting our money in private asset classes. We can deal with volatility in the mechanics of the contribution rates and, you know, look back periods and smoothing mechanisms and things like that. But let's not that, let's not have that be the reason we put our money in private asset classes. If there are idiosyncratic opportunities, if there are ways to diversify within the context of a private market, I am open to that. But what I am not open to is the idea that just because it's somehow in private equity, the laws of physics and gravity of the economy are not impacting the underlying assets simply because the ownership model looks different.
37:55 Speaker 04 Right? I mean, to me, that doesn't mean that we've diversified. It just means we've changed the ownership structure. Not, not, and if we can, if we can diversify, I would love to have that conversation and we could get the benefits of those idiosyncrasies, then great. Like, I truly am open to that conversation. But to me, it can't simply be because we're going to wash away the volatility, because that is a terrible reason to make investments.
38:21 Barry Ritholtz? That volatility washing, you're channeling Cliff Asness of AQR. He's the one who's champion that phrase more than anybody else. And he's a quant and, and an active manager. And he says, if you're putting things into privates just so you don't have to do quarterly reporting, you're, you're probably paying too much in fees and you're probably giving up too much in terms of future returns.
38:49 Speaker 04 Yeah, it's a bad reason.
38:50 Barry Ritholtz? Right.
38:51 Speaker 04 And again, in the context of a pension fund, we could deal with volatility. I appreciate and I'm sensitive to the liquidity needs to ensure benefit payouts, but we can do those things outside the context of our investment choices. We could do that in the context of the mechanics of how the pension fund is funded and smoothing mechanisms and averaging and so on and so forth. We don't have to do it. In the, in the actual job of investments.
39:17 Barry Ritholtz? So, so let's stay with that because it's really a fascinating way to think about. Whenever I talk about perpetual funds like a pension or a foundation, they have certain obligations. There's a substantial payout every year. If you're a tax exempt foundation, it's 5% at a minimum. I think the pension fund pays out a whole lot more than that each year, right?
39:42 Speaker 04 That's right.
39:43 Barry Ritholtz? Like 15 or 16 billion dollars a year. So, that's, that's, that's not an insubstantial chunk of money. How do you think about, and how should whoever's running the New York State Pension Fund think about the future liabilities that fund has for forever and what it means for asset allocation? Does this mean we steer away from liquid assets? Does this mean we steer towards fixed income? How, how do you think about that asset allocation model?
40:14 Speaker 04 I think it's, it just needs to be balanced and it needs to align and reflect to the job description of the fund. And, you know, I was talking to a chief investment, a former chief investment officer of one of the largest public pension funds in the United States. And, and he was the one who, you know, who reminded me, you know, Drew, what, what is the job description of the New York State Public Pension Fund? What does it need to do? What are, what is the benefit stream that it needs to pay out? What is the income stream that is coming in, whether it's from the investment income or, you know, public taxpayers and, you know, employers, the 3,000 municipalities that are paying into the public pension fund that are funded by those property taxes? So to me, that is first principles.
40:54 Speaker 04 And for my part, you know, I think we absolutely can be in areas that are less liquid. We just need to have balanced liquidity. We just need to ensure that, on the other hand, we have pockets of the portfolio that we know can perform or we know can pay out and we know are highly liquid. And, and fortunately, in the capital markets, there are plenty of asset classes that can provide that liquidity while some of our, our assets may be tied up. And and you know can either get whether it's some you know illiquidity premium or some other cash flow characteristic that is useful again for that broader job description of the fund that has to pay out now but also to your point is the ultimate long term investor.
41:39 Speaker 04 The state of New York is not going away anytime soon. They are a forever open fund and we need to have that focus of and that balance of what are our liquidity needs today and over the foreseeable future but how are we investing to ensure that the the public employees and the public school teachers who just entered the workforce who are teaching my two sons are are going to have the benefits paid out you know thirty thirty five forty years from now.
42:07 Barry Ritholtz? And for sure ninety percent of the assets don't need to be liquid each year even if most of them will be it's less than ten percent annually that has to be paid out. What you're proposing sounds radical but I could look at elsewhere around the country. I know CalPERS made a shift a few years ago ten years ago where they took a lot of money away from not just underperforming hedge funds but even fairly well performing hedge funds that were kind of pricey and rolled them into index funds and then very famously the Wall Street
42:47 Barry Ritholtz? Journal did this somewhat hilarious article about the head of a Nevada pension fund and it's one person who is fully indexed and really goes in answers some email answers his own phone has lunch and goes home.
43:04 Speaker 04 Yeah.
43:04 Barry Ritholtz? This isn't really radical what you're proposing this is BlackRock half of their twelve trillion dollars is is passive or I should say indexed even more of Vanguard's eleven trillion is indexed. This is fairly state of the art thinking.
43:23 Speaker 04 If you want to use radical it is radical common sense. It is the first day of business school you know they gather you around and they they say come close we're gonna we're gonna tell you a secret. It turns out it's really, really hard to beat the market net of fees. It's really hard to do that over a long period of time. It's especially hard to do that with a fund size as big as $300 billion that just wants to regress to the mean.
43:46 Barry Ritholtz? Right.
43:47 Speaker 04 And so focus on asset allocation. Think about diversification. Think about that job description. But once you do, don't worry about the last 6% or whatever it is, which a lot of people argue may not be skill, could be luck, could be a lot of other factors. I don't need to have that debate right now. For purposes of the third largest public pension fund in the United States of America, we should not be trying to beat the market and doing something that we can't possibly do because it turns out over the last 18 years, it has crushed taxpayers in the process in the middle of an affordability crisis. And what we've seen, Barry, and what this basically amounts to is our state comptroller over the last 18 years has overseen one of the largest wealth transfers that no one knows anything about.
44:29 Speaker 04 From ordinary taxpayers, $59.1 billion, to hundreds of Wall Street bankers who didn't do their job. And if they were to do their job, if they were to beat the market net of fees, great. Then it's a win-win. Then everyone wins. Then we are living in a world in which we can have our cake and we can eat it too. But I live in the real world. 19 million New Yorkers live in the real world. It hasn't happened over the last 18 years. And that's why I think we need a fundamental change.
44:58 Barry Ritholtz? Coming up, we continue our conversation with Drew Warshaw, candidate for New York State Comptroller, talking about what most New Yorkers don't understand about the position. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.
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46:50 Barry Ritholtz? I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Drew Warshaw. He is a candidate for New York State Controller in New York. Really, the primary is the whole thing, and that will be held in June of 2026. So we've talked a bit about the pension. Let's talk about some of the other roles within the New York State Controller's office. You mentioned the office does 2,000 audits a year. What areas are they auditing? What's the purpose of it? And how do you want to change that? What areas do you think they should be auditing but are not?
47:34 Speaker 04 Sure. So their remit, their job jar is they are allowed to audit anything that touches a state tax dollar, which, if anyone understands, public finance is basically everything, because our taxes go up to Albany and then they get redistributed all across the state. So he, in theory, is able to audit anything he wants. These are audits, I think importantly to understand, these are not only financial statement audits, which they are, they do do those, but these are auditing the efficacy of how our tax dollars are spent. Are they spent well? Are they getting the results that the legislature and these laws intended? If not, how should we improve them? So this is, you know, also not just chief auditor, but sort of chief efficiency officer
48:19 Speaker 04 of the state of New York. And one of the things that, you know, and there are nearly 3,000 employees who work for the state comptroller, which, you know, I hear, and that's, that seems like a lot. That seems like an extraordinary resource to be able to deploy over a quarter of a trillion dollars of spending. But when you dilute those resources over thousands of different audits and you don't focus your finite resources, I think, on the things that matter most, then you don't get to the root cause of so many of the challenges.
48:48 Barry Ritholtz? Give us a few examples.
48:49 Speaker 04 So let me give you three, let me just give you three examples. And everyone, you know, would, would start with the MTA. And of course, we're going to audit the MTA.
48:56 Barry Ritholtz? Was the first thing I was thinking of is why is it so expensive to build subway or roads and tolls and things like that?
49:03 Speaker 04 But one of the things, and I want to get to some of the other things, because the state comptroller actually does audit the MTA. And one of the things that I would want to do is because there have been so many audits of the MTA, I would first initially just do an audit of the audits. I would want to truly understand what have been the findings, make sure that those findings make sense, and then just simply cross-reference to what have they implemented and what are still outstanding. And like literally just simplify it from that point. And then we can get in the weeds once you've gotten smarter on that. But, but for my part, before we like launch into some, some new MTA audit, there have been so many MTA audits, let's just understand what of the findings have actually been addressed and what, what remain outstanding. But I want to talk about three audits, three things that I think we should concentrate
49:48 Speaker 04 this authority on. One is, I think we, we should audit the Department of Financial Services. What is the Department of Financial Services? It turns out the State Department of Financial Services is the largest regulator of insurance companies in the country. Companies are not regulated by the federal government. They are regulated on a state by state basis. And the Department of Financial Services in the state of New York happens to be the largest among them. How are they doing? We have no idea. Because we have never done a top to bottom audit on the way in which they regulate this massive sector of our economy, whose business model these days seems to be to take our money and make it really, really hard to get it back, whether it's on the health side
50:31 Speaker 04 and the health insurance, you know, gauntlet that you have to run, or in my old world, in the housing world, with property insurance premiums skyrocketing, with deductibles going up, you know, to the point where you basically are self-insuring anyway. So you need to start asking, you know, questions like that. We are going to get to the bottom of this insurance industry, and we can from this position of state controller. A second area, the New York State Public Service Commission and the Department of Public Service, another sort of mouthful of bureaucratic sounding things. Well, it turns out this bureaucratic sounding thing is the largest regulator of our electric and gas utility monopolies. This is the one thing that ensures
51:15 Speaker 04 that these monopolies actually serve the public interest. And I was in the electricity business for eight years, building renewable energy power infrastructure all across the country. And I had to deal with these utility monopolies. And these utility monopolies are broken. And their regulator is not doing anything about it. And what I would do is go in and we would audit the regulator. The one thing that's standing in between the public interest and these monopolies, why aren't we laser focused on that when electricity rates are going up by double digits? I was up in Rochester, New York, and Rochester Gas and Electric, one of those utility monopolies, proposed a one-year 36% increase to your electricity rates. That is an admission of failure.
52:00 Speaker 04 That is literally an admission that the company in charge does not know what it is doing and is not up to the task. We need to fundamentally change the utility business model. I think we can. I think there are a financial incentive structure that was built for 100 years ago, not for today and for the next 100 years. And I think that that would ultimately be good for ratepayers, good for consumers, and fundamentally good for the investors and the developers of these power infrastructures in the first place. And the third thing that I would audit. Is I would audit the New York City and New York State Building Code. And people say, well, wait a minute. You can audit agencies. You can't audit something like the Building Code. But my authority extends to anything that touches a state tax dollar.
52:45 Speaker 04 And if you had energy, imagination, and urgency, you would recognize that the silent killer of not just housing, but of anything in this town or all across New York State is the Building Code. This thing kills projects before they start. And it is gold-plated and it is outdated. And what I would do is propose a model building code that we estimate will strip 15% of the cost to construct anything, not just housing, which obviously I care a lot about, and New Yorkers need more of, but anything. And I would literally do, the audit would be a track change version from the model building code to the existing two codes that govern construction in New York. And we would show precisely what would need to be changed to get to that lighter, simpler, easier,
53:30 Speaker 04 and more cost-effective to build Building Code. We would do the work for them. And then we would go to the mayor, and we would go to the city council. And they have talked a lot about affordability. And we would say, if you are serious about this, go adopt this code. And we would go to the governor and the legislature, and they talk a lot about affordability, as they should. And we would give them a concrete way to be able to deliver that. And that is how I think we need to be thinking of leveraging the power of this audit.
53:57 Barry Ritholtz? So is the code passed by a city or state legislature? Or is it administratively passed?
54:03 Speaker 04 That's right. No, it's adopted by the city of New York and then the, basically, rest of state. The state adopts a building code. Different municipalities can add on. But that's one of the challenges, Barry, is we always add. We never subtract to these things, right? And no one has done a top-to-bottom audit of the thousands of pages of code that drives up the cost to build anything. And that's the type of creativity and energy and experience-driven audits that I think we need to bring.
54:36 Barry Ritholtz? So you're talking, to a large degree, about making
54:41 Barry Ritholtz? This position, much more public, much more visible, much louder than it's been. What's been going on with the incumbent? I don't think most people, and in fact, the data point that you've shared before, 62% of Democrats don't know who he is, 20% of them view him favorably. This has kind of been a stealth position. You're really proposing, if not elevating this, well, certainly making it much more visible and public. Tell us about that and your thoughts in that space.
55:21 Speaker 04 Yeah, I mean, look, the job cannot be keeping the job. That's not what this job is. And we are in a moment where if you are sitting on money and you are sitting on power and you are not using that really, really well, you have got to step aside. When one out of every seven New York City public school students do not go home at night because they don't have one, and you are sitting on the third largest pool of public capital in the United States of America, and none of that money is invested in homes that people can afford. By the way, while earning a reasonable risk-adjusted rate of return, which is what we did for a living, then that is a massive problem. And so, for my part, the fact that no one has ever heard of this office is a problem.
56:06 Speaker 04 That is not an asset of the last 18 years. That is a massive liability. That is red blinking lights, that the fiscal watchdog of the state of New York, no one has ever heard of them. And if you were to ask, if you were to make up a name and you were to poll it, you know, it is human behavior for at least one out of every three people to say, "Yeah, yeah, sure, I've heard of that person." And so, the fact that 62% of New Yorkers and New York Democrats have never heard of this guy, to me, is an indictment of the performance of this job. And in terms of definitions of success, we need to address this cost crisis. But after four years... You better have heard of the New York State Comptroller, right? Because that means we are actually using this power and this money for the people who
56:51 Speaker 04 don't have it.
56:52 Barry Ritholtz? So, so let's talk about some things that I think have worked out pretty well. And they tend not just to be New York City or New York State programs, but Port Authority and bigger programs. Also, as a lifelong New Yorker and a long time, I lived in the city for a long time. I've been really impressed with, I think LaGuardia is, could be the best airport in the country now. I don't know, was that six or eight billion dollars? Later, they should have done it 20 years ago. Adding, moving part of Penn Station to Grand Central, as well as the, the new facility,
57:34 Barry Ritholtz? a huge win, the extension of the Second Avenue subway. And then, as I drive around New York State, we seem to be repairing everything. I know a big infrastructure bill passed a couple of years ago, and the Long Island Expressway, and the Interstate 95, the New York State Thruway, and it seems everywhere I look, new roads, new bridges, new tunnels are, are being laid. Are these, are we getting the best bang for our buck with these projects? And what other projects? There's talk about a very expensive project to protect Southern Manhattan from climate change and, and rising sea levels.
58:19 Barry Ritholtz? And I recall after Sandy, there was just every Superstorm Sandy, there was a brief discussion about, gee, look at the towns that had buried power lines. They didn't lose electricity, as opposed to half the state lost electricity for two weeks or longer. How do we look at all these projects? How do we manage the expenses of them? Are we getting a bang for our buck on any of these? Tell us about these big public works projects. What, what do you see the next five or 10 years looking like?
58:50 Speaker 04 Sure. So, the short answer is no, we are not getting. The best bang for the taxpayer buck in these projects. And there are any number of reasons why. I talked about the building code as one of those reasons. Another reason, and you know, I think listeners will appreciate this, is you look at the Department of Buildings and where are their service level standards? Right? Where are their turn times? Where are the things that they need to be doing to ensure that the people out in the world who are investing the capital and putting that capital to use and all the workers who are trying to build these projects and build these infrastructures, these pieces of infrastructure, where are those service level standards?
59:34 Speaker 04 You know, in the world that I used to occupy, we would have service level agreements. Right? Our counterparty would have to perform based on a number of different metrics. And this is, you know, goes back to that audit authority. These are the things that the state comptroller can do, both by proposing those service level standards and making sure that they are adopted. And if they aren't adopted, that's okay. We can, we can still measure them anyway and we can come back every single year and see how they're doing. So the Department of Buildings is one of those places where, again, sort of projects go to die. And I think there, there just is a lack of discipline and focus around metrics to just make sure that they are doing their legally required job.
1:00:18 Speaker 04 You should not have to hire an expediter to have an expedited project.
1:00:23 Barry Ritholtz? That seems to be the standard.
1:00:24 Speaker 04 That's a layer of cost, right? That is a layer of cost and a layer of friction that basically admits that the status quo makes no sense. And so we're going to have this off ramp for people who can afford it and only those people who can afford it. And they will somehow get special treatment. And to me, that is like the exact wrong thing and the wrong direction. And we have to show that the regular throughway works, that you don't need the Lexus lane that only certain people can afford. And that's where we have to kind of pull, pull government back in that mindset, that they should just be able to do their core job.
1:00:59 Barry Ritholtz? So let's zoom out and ask you to imagine four years or eight years into the job. What does success look like? How do you define being able to look back after a term or two and saying, This is where we succeeded. This is how it should be run.
1:01:17 Speaker 04 Yeah, great question. So a few very concrete examples. One, hopefully, property taxpayers and state income taxpayers aren't bleeding because they're paying a bunch of fees to a bunch of bankers who just are not doing their job. So, one, we have pivoted the investment strategy away from that sort of beat the market idea that has failed utterly over the last 18 years. And we are moving away from that, and we are taking pressure off of taxpayers. That is part of the cost crisis that we are facing in New York and why New Yorkers cannot afford to live here. So that's one thing. The cost of housing. I think the state comptroller has an ability, both on the capital side and on the audit side, to address it.
1:02:02 Speaker 04 We talked about the audit side in terms of addressing this building code issue, and I hope that that can lower, or at least, you know, keep neutral the cost of construction. And on the financing side, I think we could bend the cost curve of the cost structure, the capital structure, and the cost of capital for affordable housing by making available, and I propose the largest housing fund in the United States of America, a $10 billion housing fund, to invest in homes that New Yorkers can afford. Definition of success, that is deployed in what we estimate to be 100,000 homes that New Yorkers can actually afford. That is something that is absolutely concrete.
1:02:43 Speaker 04 And then, this $20 billion fund of New Yorkers' own money in the New York State Unclaimed Fund, that we actually start getting that money back. And you have to go to some dopey website right now that is complicated and hard to use, and if you have money, they don't even tell you how much because they don't even really want you to get it back, right? It sounds like you're trying to, you know, issue a health insurance claim or something like that. We are going to get rid of this website. We are going to decommission it. We won't have a website because we won't need it, because we're automatically going to send New Yorkers their money back because it's their money. It is not Tom邓APOLIS. It is not the state of New York's. It is New Yorkers. We have your name. We have how much you're owed. We have your last known address.
1:03:24 Speaker 04 We have access to all the data in the world, and we are in 2026. My phone knows more about my personality than I do. My phone knows where I live. Why can't we figure out how to get you your money back automatically? We can, and we will.
1:03:39 Barry Ritholtz? Drew, really interesting. Thank you so much for coming in. And I'm going to extend an invitation to Tom DiNapoli. If you want to come to Bloomberg and talk to us about what you've been doing as Controller and what your plans are for the future, we would love to have you. I'm going to have my producer reach out. Really, really interesting stuff. Thank you for a thought provoking conversation. We have been speaking to Drew Warshaw. He is a candidate for New York State Controller in the Democratic primary in June 2026. If you enjoyed this conversation, well, check out any of the 600 we've done over the previous 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you
1:04:23 Barry Ritholtz? get your favorite podcasts. I would be remiss if I not thank our crack staff who helps me put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.
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