NYC Pensions Seek Authority for Hedge Fund Investments

New York City’s five public pension funds, with assets of more than $150 billion, would be allowed to invest more in hedge funds, private equity and international bonds under a bill in the state senate.

The measure would increase the limit on such investments to 35 percent from 25 percent. It’s sponsored by Republican Senator John DeFrancisco of Syracuse and Democrat Diane Savino, who represents parts of Brooklyn and Staten Island. She is part of a group of breakaway Democrats that share control of the senate with Republicans.

A companion bill in the Democratic-controlled assembly says the change is necessary for flexibility to meet targeted annual returns. A swing in the value of the funds’ publicly traded stocks can push the pensions “dangerously close” to the investment cap, according to a memo accompanying the Assembly measure, which is sponsored by Herman “Denny” Farrell of Manhattan.

A new limit “will allow for a superior risk-adjusted portfolio and for additional flexibility to reduce portfolio volatility while maintaining superior returns,” according to the memo. The change would also better enable the funds’ advisers and trustees to “tactically manage the investments to take advantage of market trends, react to market shocks and potentially costly rebalances or unwinds at inopportune times.”

New York City and other public pensions have increased investments in hedge funds, private equity and real estate. They face more than $1 trillion of funding gaps for promises to retirees amid slow growth and record interest rates. Investments in alternative assets, which often are harder to value and sell, more than doubled to 24 percent of public-pension portfolios between 2006 and 2012, according to Cliffwater LLC, a Marina del Rey, California-based firm that advises institutional investors.

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