New York seeks ‘prudent’ change

The sole fiduciary of the giant New York Common Retirement Fund is backing a new state law that would allow the $120m pension greater leeway in making alternative investments through a prudent investor model.

A bill working its way through the New York state legislature aims to update the way the New York Common Retirement Fund allocates investments, with the stated goal of directing a greater share of the pension to alternative investments.

The $120 billion (€100 billion) pension system currently is allowed only a 15 percent allocation to an “other” category, meaning investments other than stocks, bonds and real estate, as reported by the news service NY Fiscalwatch.

The bill is backed by state comptroller Alan Hevesi, an official appointed by the governor of New York and the sole fiduciary of the pension.

If enacted, the law would switch the state pension from a “permitted investment” model to a “prudent investor” model, the latter being more prevalent in the US at such institutional investors as the California Public Employees’ Retirement System.

According to a memo from two state senators who introduced the bill, the pension should “achieve the highest return obtainable within the limits of a prudent benefit and risk analysis” and “[t]he current statutory framework undermines the achievement of that goal.”

The bill’s backers point to hedge funds and private equity funds as having a smoothing affect on the volatility of the overall portfolio as well as the potential for higher returns.

The New York State Common Retirement Fund is already a major and long-time investor in private equity. The pension has a 6.4 percent allocation to the asset class. David Loglisci is director of alternative investments at the pension’s head office in Albany, New York.