NYSLRS | Pension360

Report: New York Common Fund Picks Above Average Hedge Fund Managers

Some observers have openly questioned the manager selection habits of pension funds. But a recent analysis shows that at least one fund, the New York Common Retirement Fund, picks “above average” hedge fund managers. From Pensions & Investments:

An analysis of public holdings shows that equity hedge fund managers in the New York State Common Retirement Fund‘s absolute-return strategy exhibit “above average” skill as stock pickers, but are outside the top 25th percentile of the fund universe as a whole.

Symmetric Information Technologies analyzes 13F filings of hedge funds and calculates security selection skill based on funds’ long positions, and their relative performance to overall sector returns. The most recent analysis notes the “accomplishment is still impressive given the restrictions pension funds operate under and shows they are able to pick managers that produced for them better than average skill compared to what is available in the HF universe. This is no easy task.”

Symmetric says three New York State Common Retirement Fund managers – HighFields Capital, ValueAct Capital and Viking Global Advisors – ranked in the top 25th percentile in terms of stock selection.

The Common Fund makes investments for the New York State and Local Retirement System (NYSLRS) as well as other major systems.

The Common fund allocated 3.2% of its assets or $5.6 billion, toward hedge funds.

New York Common Fund’s Hedge Fund Target Is “Under Review”

New York’s Common Retirement Fund says it is “reviewing” its hedge fund investments, including the allocation targets for such investments as set in its investment policy.

The Common Fund makes investments for the New York State and Local Retirement System (NYSLRS) as well as other systems. Pension360 previously covered the fund’s investment policy, which allows for higher allocations towards hedge funds.

Now, the Common Fund is reviewing those allocations. From Business Insider:

“We are currently reviewing our asset allocations with the goal of maximizing our risk-adjusted return on investments,” a spokesman for state Comptroller Tom DiNapoli told Business Insider on Tuesday.

[DiNapoli] stressed that only a small amount of their investments are tied up in hedge funds, however — only about 3.2% or $5.6 billion for the DiNapoli’s fund, for example.

“The target allocation, which is currently under review, was set at 4% in 2009,” DiNapoli’s office added. If he decides to maintain that target, he would actually have to move more money into hedge funds.

[…]

Scott Evans, the chief investment officer of New York City’s retirement system, said the Big Apple’s pension fund has no plans to divest from its investments in hedge funds. He pointed to the relatively small size of the city’s hedge fund investment in his explanation for why he had no plans to eliminate it.

“Hedge funds are an alternative asset class that can help improve the balance between risk and return. They are optional,” Evans said in a statement. “Two of our five systems have opted to pass on those allocations. The other three have allocated 4-5% of assets to hedge funds. We have no current plans to recommend changes to this program.”

A spokesman for the fund later clarified to Business Insider that the review was routine and scheduled, and not connected to CalPERS’ decision to end its hedge fund program.

Photo by: Christopher Chan via Flickr CC License

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.