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Bloomberg - Public pension funds in the U.S. are increasing bets on high-risk hedge funds and real estate in an attempt to fill deficits in retirement plans and make up for their worst performance in six years.

New York Comptroller Thomas DiNapoli is asking lawmakers to increase a cap limiting the amount of so- called alternative investments in the state’s Common Retirement Fund, the third-biggest U.S. public pension at $153.9 billion. South Carolina’s retirement system adopted a plan in February to invest as much as 45 percent of its $29 billion in hedge funds, private equity, real estate and other alternatives, from nothing 18 months ago.

“We need some more flexibility,” DiNapoli said at an Aug. 4 press conference in Albany. The Common Retirement Fund, whose 2.6 percent gain in the year ended March 31 was its worst since 2003, is authorized to invest as much as a quarter of its assets in alternative investments. DiNapoli declined to say how much he wants the limit increased. The fund doesn’t have a deficit.

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New York (HedgeCo.Net) - At a time when most investors are becoming increasingly weary of high risk hedge funds, public pension funds are upping their stake, hoping to make up for recent lackluster performances.

New York State has a cap that limits the amount of alternative investments in the state’s Common Retirement Fund, valued at $153.9 billion.  Comptroller Thomas DiNapoli is urging lawmakers to increase that cap, saying that “we need more flexibility.”

The Common Retirement Fund has followed in the footsteps of other lagging pension funds, posting only a 2.6 percent gain for the year ending March 31.  As of now, the fund may allocate up to 25 percent of its capital to alternative investments.  DiNapoli did not state how much he wanted that number increased. 

Public funds manage over $2 trillion in assets and are actively seeking ways to garner larger returns.  However, some argue that market conditions are not favorable enough to start taking wild risks with taxpayer money.  Alternative Investments may include hedge funds, private equity funds, or anything that invests in real estate and/or commodities such as oil or gold. 

One of Amaranth Advisor’s major investors was the state of Massachusetts, who allocated a substantial amount from its Pension Reserves Investment Trust Fund.  When the fund imploded thanks to some bad bets magnified by massive amounts of leverage, followed by the closing of Sowood Capital Management the following summer, the state fund was out $80 million. 

In Orange County, the Employees’ Retirement System has invested 7% of their assets into the reputable BlackRock, as well as to Pacific Alternative Asset Management Company.  The fund of funds will handle over $200 million of assets.  In addition, South Carolina may invest over $13 billion of their total assets worth $29 billion in hedge funds and other alternative investment vehicles. 

 
Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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