New York Retirement System Is Prepared To Increase Its Allocation to Hedge Funds, Alternatives

CalPERS is running away from hedge funds, but, as Pension360 has covered in the past, most pension funds aren’t following. In fact, some are running in the opposite direction.

Case in point: the New York State and Local Retirement System (NYSLRS). The fund hasn’t made any decisions yet, but it is open to the possibility of expanding its allocation in hedge funds and other complex investments. From Public Sector Inc:

A bill passed by the New York State Senate and Assembly at the end of their session in June would expand, to 30 percent from 25 percent, the share of pension fund investments that can be allocated in “baskets” of assets not otherwise specifically permitted by law. These include hedge funds and private equity funds, which involve more complex financial risks and are more difficult to value and monitor than traditional stocks and bonds. The change has been supported in the past by Comptroller Thomas DiNapoli, NYSLRS’ sole trustee, although the lobbying effort for the bill this year appears to have been spearheaded by the New York City pension funds.

The bigger-basket pension bill hasn’t yet been sent to Governor Andrew Cuomo for his signature. If his approval or veto message contains so much as a single sentence’s worth of substantive explanation, it will exceed the sum total of all public comment devoted to the subject by state lawmakers this year. (The issue has also gone virtually unnoticed by State Capitol news media.)

In fiscal 2007, when DiNapoli became comptroller, NYSLRS paid out $162 million of investment management fees, including $27 million for alternative investments. By fiscal 2013, the latest year for which data are available, investment fees had risen to $454 million, including $163 million in the “absolute return” category alone, which includes hedge funds.

The NYSLRS has ramped up its allocation towards alternative investments in recent years. It the fund’s official investment policy is any indication, it is planning on devoting an even higher percentage of its assets towards such investments. From Public Sector Inc:

Total NYSLRS assets in the alternative category came to 11.8 percent last year, including 3.2 percent invested in absolute return strategies. However, according to its annual report, the fund’s long-term goal is to increase its alternative allocation to 21 percent, including 10 percent in private equity and 4 percent in absolute return assets including hedge funds, plus 4 percent in the newer category of “opportunistic” investments and 3 percent in “real assets” including commodities, infrastructure and timberland meant to create “inflation hedging strategies,” the annual report said.

The pension funds also announced recently a partnership with Goldman Sachs. Sachs will receive $2 billion to manage.