"Shockingly, CRF has paid out $1 billion in fees to hedge fund managers over the last eight years, while these assets have woefully under-performed, costing the system $3.8 billion in excess fees and underperformance. Hedge funds are the worst of the six asset allocation classes with a 10-year record," said the department. 

The report also faulted the comptroller for nearly doubling its hedge fund investments, increasing asset allocation by 86 percent, despite experiencing these hedge funds underperforming for three years in a row, with the report saying that hedge funds are the government's worst performing investment. This was compounded in 2014, when the system's commitment to hedge fund investments cost a further $862 million from underperformance and fees. Instead of paying hedge fund managers to boost returns, the report said that the same effect could have been achieved using broad index funds. 

“Pension fund managers across the country have cut or eliminated exposure to these overpriced and underperforming investments, while the Office of the New York State Comptroller has stood still and spent pension system funds chasing performance that continues to fall far short,” said Financial Services Superintendent Vullo.  “Just last week, the Comptroller admitted that hedge funds are not delivering the returns to even come close to justifying the sky-high fees that these fund managers have been charging the pension system for years.  Hedge fund managers continue to reap hundreds of millions of dollars in fees, regardless of their performance, which is a rip-off at the expense of pensioners.  DFS examiners are looking at the issues raised in today’s report, as well as several others, as we examine all of the pension systems under DFS’s jurisdiction. ”

Comptroller DiNapoli, for his part, vigorously disagreed with the report's conclusions, according to a statement released in response. 

"It's disappointing and shocking that a regulator would issue such an uninformed and unprofessional report. This report was emailed to our office five minutes before it was provided to the press. If the agency had reached out to our investment professionals, it would have known the aggressive steps that Comptroller DiNapoli and CIO Vicki Fuller have taken to reduce hedge fund investments and limit fees, including lowering the hedge fund allocation to 2 percent of assets from 3 percent and paying below average fees. In fact, the Fund has not put money into a hedge fund in well over a year. Unfortunately, the Department of Financial Services seems more interested in playing political games, so remains unaware of actions taken by what is one of the best managed and best funded public pension funds in the country. We will provide a full response after a thorough review."

The New York Daily News said that DiNapoli and NY Governor Andrew Cuomo have long had tensions between them, as when Cuomo was attorney general he suggested that DiNapoli should no longer serve as the pension funds's sole trustee, and declined to endorse the comptroller in his 2010 campaign. DiNapoli, meanwhile, has issued several audits critical of Cuomo's economic programs, and has argued for tighter procurement controls on the governor's administration.