The people who run the state’s $27.5 billion pension fund could be poised to invest a portion in hedge funds to help diversify its holdings after three years of stock-related losses.
James Hearty, executive director of the state’s Pension Reserves Investment Management board, touted the potential benefits of hedge funds for state pensions at a New York conference on Monday.
Hearty said he expects hedge funds – which allow for investing in a variety of ways, including betting on falling stock prices, but have limited oversight – will become increasingly popular for states in the next few years.
Bloomberg reported that Hearty said he expects to recommend that the board place about 5 percent of the pension fund in hedge funds.
But Hearty disagreed yesterday with the report, saying it’s too soon to tell whether he would recommend that the pension fund should invest in hedge funds.
The PRIM board is considering ways to change the pension fund’s mix of assets in the wake of its stock losses. The hedge fund issue could come up at a committee meeting next week.
“Hedge funds are going to be a larger part of the investment universe for public pension funds,” Hearty said. “It is possible that it would be the same case here.”
Massachusetts Treasurer Tim Cahill, chairman of the PRIM board, said he hasn’t made up his mind yet, but is open to the idea.
“By getting the right mix, you can actually take away risk by adding hedge funds to the portfolio,” Cahill said. “It may be one of the only ways to get positive returns over the next few years.”
Sen. Mark Montigny (D-New Bedford), chairman of the Senate’s long- term-debt committee, said that while the PRIM board should be cautious about hedge funds, he said it’s smart to consider them.
“They can be a very successful vehicle in a volatile market because they can jump so quickly to a broad myriad of investments,” he said.
