So far, the $160 billion pension fund of New York City has avoided serious operational failures, according to an independent report commissioned by Scott Stringer, New York City comptroller.

The report applauds “heroic efforts” by staff, the extensive use of investment consultants, and the five city retirement systems and the comptroller for the continued operation. However, the report recommends a substantial revamping of the Bureau of Asset Management—and says the organization’s current investment strategy “presents a very high level of operational risk.”

Through the bureau, the comptroller is in charge of the assets for five retirement systems in the city, as well as 11 related supplemental funds. The retirement systems are: two separate pension funds for the city’s police department and its fire department; two separate funds for New York City teachers and for the Board of Education retirement system; and the New York City Employees’ Retirement System.

These systems provide retirement security for more than 700,000 New Yorkers. According to Stringer’s report, the value of the systems’ investment portfolio has nearly doubled, to $162.9 billion in assets, since 2001. At the same time, the program to manage these assets has become more complex with the addition of new asset classes for diversification and expected risk-adjusted returns, sparking Stringer to conduct an outside assessment of the bureau and its processes.

Stringer’s system reform began in 2014, with the appointments of a chief investment officer, an internal auditor, a chief risk officer and a chief compliance officer for the bureau. Stringer has previously voiced his concern about retirement for New Yorkers and the behavior of financial advisers when giving investment advice.

Instead of 54 individual investment committee meetings a year among the five systems, Stringer and the retirement systems agreed in 2015 to hold a single Common Investment Meeting at a minimum of six times a year, scheduling additional meetings as necessary to process investment recommendations in a timely way.

The current assessment, “Setting a Course for the Future,” a management and operations study conducted by Funston Advisory Services, continues Stringer’s initiative to bring the bureau up to date. As well as the analysis of the bureau, it surveys best practices for the city’s asset management.

Funston found gaps in staffing, organization, policies, procedures and information infrastructure, given the size and complexity of the city’s current portfolio. To close these gaps, Funston made a number of recommendations, including in-house finance, budgeting, HR and IT planning capabilities; staff training; and modernizing policies, procedures and information systems. The report also noted “key person dependency”— institutional knowledge resides in a few key people who are increasingly eligible for retirement— and a lack of formal succession planning.

Other recommendations: The operations of the bureau should be restructured to raise it to the standard of its peer pension systems. For example, in 2014, staff who invested cash holdings and those that administered the movement of cash reported to the same individual, an inherent conflict. Oversight of the cash management group was subsequently moved to the Bureau of Accountancy. The report recommends restructuring operations areas to improve timeliness and reliability of reporting, eliminate repetitive clerical tasks, enhance external vendor oversight, and improve the quality and quantity of data available by the bureau staff for analysis.

The bureau needs to formalize its risk and compliance assessments in regular reports using documented policies. At the start of 2014, the bureau had no formal risk management department, but depended on consultants for most portfolio-level risk analysis.

The bureau’s organizational structure hits bottlenecks in decision-making because it is too dependent on senior management and limits the ability to respond quickly. Most actions require formal approval of the chief investment officer or the assistant comptroller, or both. The report recommends adding one or more deputy CIOs and the formation of an internal investment committee to review investments, along with other operational changes.

Funston examined the bureau’s investment management systems and recommended several changes to improve investment risk management. Working with the investment strategy asset class heads, risk management should identify appropriate quantitative tools for each asset class. The quantitative tools should be robust enough to assess total fund risk and perform performance and risk attribution. Set due diligence and monitoring strategies that are coordinated between the compliance and investment strategy units.

The bureau should review its performance benchmarks, especially those that are tailored specifically to the bureau, and which have not been changed in decades—such as fixed income. Also to be scrutinized are those that contain hurdles or are expressed as absolute returns—real estate, private equity, opportunistic fixed income, infrastructure—to judge whether they are reasonable in the current market environment.

The report recommends that the bureau urge each of the five retirement systems to adopt a total fund benchmark designed to reflect progress against offsetting pension liabilities. That would be in addition to the current benchmarks, which are designed to measure relative performance.

The current assessment, “Setting a Course for the Future,” a management and operations study with best practice review for the city’s asset management, continues Stringer’s initiative to bring the bureau up to date. The report was conducted by Funston Advisory Services, which provides of governance, operations and risk intelligence research and support to public retirement systems. A link to the report is on the comptroller’s website.