The New York State Common Retirement Fund has lost $3.8 billion since 2008 on under-performing hedge funds, according to a 20-page report from New York State Department of Financial Services.
The report claims that hedge funds are the worst-performing asset class in the pension fund’s portfolio, and a combination of management fees and under-performance have cost the fund billions.
The New York State Common Retirement Fund, which oversees $178 billion in assets and is the third-largest U.S. pension fund, paid $1 billion in fees to hedge fund managers over the last eight years, the regulator said in the report. The funds underperformed to the tune of $2.8 billion, said the regulator, which oversees banks and insurance companies in the state.
Hedge funds, according to the 20-page report, are the “worst of the six asset allocation classes” in which the pension fund invests. Many hedge funds are now making the same types of bets, and the state’s Common Retirement Fund arrived late to an asset class where a small number of investors made eye-popping returns years ago, the report said.
Hedge funds that the New York State Common Retirement Fund has invested in lost nearly 5 percent in fiscal 2016, according to the report. The state made investments with some of the industry’s most highly respected hedge funds, including Nelson Peltz’ Trian Fund Management, John Paulson’s Paulson & Co, Daniel Och’s OZ Advisors and Ray Dalio’s Bridgewater Associates.
The regulator, in the report, blames New York State Comptroller Thomas DiNapoli, the sole trustee overseeing the state pension fund, for “letting outside managers rake in millions of dollars in fees regardless of hedge fund performance, and tolerating large private equity fees and expenses without obtaining necessary transparency.”
The Comptroller’s Office responded to the report by calling it “unprofessional” and untrue. From Reuters:
DiNapoli’s spokeswoman, Jennifer Freeman, responded in a statement that “It’s disappointing and shocking that a regulator would issue such an uninformed and unprofessional report.” The report was emailed to the comptroller’s office five minutes before it was provided to the press, Freeman said.
The comptroller’s office has taken “aggressive steps” to reduce hedge fund investments and limit fees, Freeman said. Those measures include reducing the pension fund’s hedge fund allocation to 2 percent of assets from 3 percent and not putting money into a hedge fund for more than a year, Freeman said.