This week on the podcast, I have another extra special guest.

Drew Warshaw is candidate for New York State Comptroller.

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 comptroller was fascinating.

And I think you will. Also, with no further ado, my

conversation with New York State Comptroller candidate Drew Warshaw.

Drew Warshaw, welcome to Bloomberg. Thank you, Barry.

Thanks for having me. I'm really excited to talk to you

because of not just your background but some of your ideas about the New York

state pension plan. Nearly $300 billion, it's one of the

biggest in the country, is. 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 in government from Cornell.

You're MBA from Columbia Business School.

Yes. Well, what was the original career plan?

The original path was public service. So that's I started my career in

government. I worked for governor many governors ago

and then moved up to Albany and worked for that governor.

And then when that governor resigned, his name was Eliot Spitzer, which you

may have remembered. Sure.

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. 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 Larry Silverstein.

That's right, Silverstein. 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.

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 six acre

hole in the ground. And to your point, it was peak

government dysfunction. Everyone was warring with everyone.

There was a private developer, their insurance companies.

There was, unfortunately the families of nearly 3000 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. And over the next four years, we got it

built and we opened the memorial. By the ten 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, a phased 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.

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 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.

Yeah, and much more mixed use to your point.

I mean, no one no one would recognize lower Manhattan today where it was, you

know, in 2000 or in the nineties. 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.

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.

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, 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 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. And let's talk 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?

It's as bad as it gets. But I think importantly in 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 is 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 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 we just need a battery.

We need 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 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 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, 1100 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 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 that 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. So.

So let's stay with housing for a bit. We're going to talk a lot about the

controller position 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 under built 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, where two, three, 4 million homes short.

That's right. Relative to 330 something million

Americans, that is very likely over the next 25 years to be 353, 63, 70.

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?

Yeah, So we have a massive undersupply 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 pushback. Try setting an affordable property.

And there's so many layers of bureaucracy and.

Whether it's from the financing side, the capital structures of these

affordable properties, you need a decoder ring to figure them out.

They're so complex, the building code, and you know, 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, the building code and the

gold plated nature and the outdated and so on and so forth, it is it is a

fortune to build. So whether it's the cost of construction

or the cost of capital and the costs of land, you have so many different things

working against you. And those are some of the roadblocks.

So we need to start clearing. 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 eight housing in

our area, that you're going to send property values down, How legitimate are

those concerns and how can they be addressed?

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 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 much, too much is

made from a very small but very loud group of people who, to your point, say,

not in my backyard. So let's talk a little bit about the

controller position. Most people don't really know what this

role is. We're going to go into a lot of details.

But essentially, this is one of the most significant financial roles in the

state. There are regular audits and oversight

of all sorts of tax and spending revenue, as well as overseeing the New

York State pension fund, which is almost $300 billion.

I think it's the third largest in the country.

Is that right? That's right.

That's right. So tell us a little bit about this role.

Yeah, you know, everyone's heard of the governor.

Everyone's heard of the attorney general.

There's a third statewide position in New York, and it's the New York state

comptroller. And, you know, put simply, the state

comptroller 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

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 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, 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 an 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.

So 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. Yes.

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? Don't say kick in, taxpayers.

They do. 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 your 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, meaning is not an investment committee.

And a lot of he does not and he does not report to a board of trustees.

The New York City comptroller reports to five different fiduciary boards.

Right. He he.

Who are those five boards? 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. 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?

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 in 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 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 to move in that direction.

But we have to do that thoughtfully and carefully.

Really interesting. 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 comptroller.

Yeah, I think what is extraordinary and unfortunate 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 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 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 way.

And I'm sure we'll talk about that absolutely incredible audit powers.

The fact that this person could audit anything that touches a state tax

dollar. A quarter of $1,000,000,000,000 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 City comptroller also

oversees this thing called the New York State Unclaimed Fund, which is all which

is where all of our money or on cash checks are, you know, health insurance

benefits that don't somehow find their way to our mailbox gets gets, you know,

goes. That's a pretty decent chunk of money,

isn't it? It turns out it is.

It should be zero because it's New Yorkers money and it is the state

controller'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 it 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 assembly members?

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. So let me let me defend the sitting New

York control or a gentleman named Tom DiNapoli.

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 waste and savings.

It's not like he's, you know, doing nothing.

What do you credit him doing Right? And where do you think the biggest areas

he's fallen short. Sure.

Well, look, I think and this is not nothing.

And he he leads with this. Now, my problem is,

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. Now, in New York, that's a pretty big

thing. Eliot 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.

Yeah. For my part, though, the bar has to be a

bit higher than that. So no sex scandals is not just I don't

think that could be the definition of success in a position of this

consequence. And unfortunately, that is what we have

heard. So, look, I think he is not corrupt.

I don't know of any sex scandal, 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.

So I think whether it's the public pension fund, the fact that he hasn't

been able to get $20 billion from New Yorkers back into their pockets in the

middle of an affordability 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 audit audits.

And if you audited 2000 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 can talk about some of the ideas and some of the areas that I would

audit 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.

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.

Yes. We'll 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? Yeah, So I think Drew four.

And why is what you're talking about in terms and by the way, is lower Broadway

near Wall. Right.

So if you go to Drew friend Y 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 why 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 pocket.

Say whatever you want. Okay.

I call on the fact that our New York State

comptroller 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 and out of their fees, they did not even come close.

In fact, they underperformed his own market benchmarks by 39% and $11.3

billion in fees. And we got this all off of the

comptroller. And he said how you got to 50 plus

billion dollars was the underperformance.

The underperformance would have had to be made up by taxpayers.

Now, the state comptroller 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 it's funded

through taxpayers. It's funded because 11 million New York

taxpayers over the last eight 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 ensured that not the stewardship in 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

comptroller, and they 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

DiNapoli tax, has had to subsidize that 39% underperformance over the last 18

years. 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 data?

Is that what I'm to understand 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, ten of the 13 towns on Long Island blew through their property tax

cap. The reason they blew through it is

because Thomson aptly 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.

And these guys continue to get paid and paid and paid.

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 ALZ

and just simplify. What do you think we should do with this

$300 billion pension fund? How should it be positioned?

So the state controller right now pays 664 different investment managers to

actively invest the fund and their promises.

We will beat the market and out of our fees.

And as we've established, they have not even come close.

And what I would do is I would replace the 6664 investment 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.

So let's spend our time and resources on getting that right and making sure that

asset allocation matches that. The job description of the fund right as

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. 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 ten years and over 20 years.

It's virtually nobody. You know, the handful of names Warren

Buffett, Peter Lynch, etc.. But the vast majority, vast, vast

majority don't. 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.

Yeah, it's just really hard to pick them consistently over time.

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 than

the market. So you're getting a worse risk adjusted

rate of return and you are underperforming the market by 39%.

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 $291 billion fund 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 664 of them.

So I don't know how selective you could be.

Basically hiring everyone anyway. Hey, someone has to be pretty good in

that group, right? Exactly.

But how do I know which one? And I'm not arrogant enough to think I

do. 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. 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 correlated 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.

To me, that is not that. 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'm 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.

Right. I mean, to me, that doesn't mean that

we've diversified. It just means we've changed the

ownership structure. Not not 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 that volatility. Washing your channeling cliff business

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 private 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.

Yeah, that's a bad reason. Right.

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 insure 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 in 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. 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.

That's right. That's right.

Well, 15 or $16 billion. So that's that's that's not a

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 illiquid assets?

Does this mean we steer towards fixed income?

How do you think about that asset allocation?

I think it's but 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 officer, former chief

investment officer of one of the largest public pension funds in United States.

And and he was the one 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 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 3000 municipalities that

are paying into the public pension fund that are funded by those property taxes.

So to me, that is first principles. 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 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, 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.

The state of New York is not going away any time 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 public employees and the public

school teachers who just enter the workforce, who are teaching my two sons

are are going to have the benefits paid out, you know, 30, 35, 40 years from

now. And for sure, 90% of the assets don't

need to be liquid each year, even if most of them will be.

It's less than 10% 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 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 answer some email

answers, his own phone, has lunch and goes home.

Yeah, this isn't really radical what you're proposing.

This is BlackRock. Half of their $12 trillion is is passive

or I should say index even more of Vanguard's 11 trillion is indexed.

This is fairly state of the art thing. 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 say, come close.

We're going to we're going to 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. And so focus on asset allocation.

Think about diversification, think about that job description.

But once you do, don't worry about the the last 6% or whatever it is with which

a lot of people argue, you know, may not be skill, could 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 eight years it has

crushed taxpayers in the process in the middle of an affordability crisis.

And what we've seen vary and what this basically amounts to is our state

comptroller over the last eight years has overseen one of the largest wealth

transfers that no one knows anything about 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 in that

office, 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.

90 million New Yorkers live in the real world.

It hasn't happened over the last eight years, and that's why I think we need a

fundamental change. So we've talked a bit about the pension.

Let's talk about some of the other roles within the New York State Comptroller's

office. You mentioned the office does 2000

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 sure?

So their remit, their job here 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 audience, 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 of the state of New York.

And one of the things that, you know, and there are nearly 3000 employees who

work for the state comptroller, which, you know, I hear and that's that seems

like a lot that seems like extraordinary resource to be able to deploy over a

quarter of $1,000,000,000,000 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, such as so many of the challenges.

Give us a few examples. So let me give you three.

Let me just give you three examples. And everyone you know would start with

the MTA. And of course we're going to audit the

MTA. But it was the first thing I was

thinking of is why is it so expensive to build subway or roads and tolls?

But one of the things that I want to get to 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 into 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 this authority on.

One is I think 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.

Insurance 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 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 and the health insurance, you know,

gauntlet that you have to run or in 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 comptroller, 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 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 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.

That is literally an admission that the company in charge does not know what it

is doing. It is not up to the task.

We need to fundamentally change the utility business model.

I think we can. I think there a financial incentive

structure that was built for 100 years ago, not for today and for the next

hundred 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 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 cellar. And if you had energy, imagination and

urgency. See, you would recognize that the silent

killer of not just housing, but if 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, 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 and more cost effective effectively to build building

code. We would do the work for them and then

we would go to the mayor and we go to the city council.

And they have talked a lot about affordability.

And we would say if you were 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 order.

So is the code passed by city or state legislature or is it administratively?

That's fine. No, it's 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,

Barrie, 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 costs to to build

anything. And that's the type of creativity and

energy and experience driven audits that I think we need to bring.

So you're talking to a large degree about making this position much more

public, much more visible, much louder than it's been

what 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 will certainly

making it much more visible and public. To tell us about that and your thoughts

in that space. 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 were sitting on money and you were sitting on

power and you were 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 that is not an asset of the last

eight 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, 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 don't have it. 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.

When I was at six or $8 billion later, they should have done it 20 years ago,

adding Penn moving part of Penn Station to Grand Central, as well as the new

facility. A huge win, the extension of the Second

Avenue subway. And then as I drive around New York

State, we seem to be repaving 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

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 rising sea levels.

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 do you see the next five or ten years looking like?

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 and 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 these pieces of infrastructure, where are those service

level standards, You know, in in in the world that I used to occupy, we would

have service level agreements, right? We the 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.

You should not have to hire an expediter to have an expedited project.

That seems to be the same layer of cost. Right.

That is a layer of costs 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

thruway 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

Paul government back in that mindset that they should just be able to do

their core job. 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 this is how it should be run?

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 eight 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.

We talked about the audit side in terms of 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 proposed the largest housing fund

in the United States of America, a $10 billion housing fund to invest in homes

that 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.

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's and Applebee's 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.

We have access to all the data in the world.

And we are in 2026. My 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. 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 comptroller 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 comptroller 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 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. Shawn Rousseau is my researcher and Luke

is my podcast producer. I'm Barry Ritholtz.

You've been listening to Masters in Business on Bloomberg Radio.