New York's Pension System Has $US5.6B In Hedge Funds -- And It's Currently 'Reviewing' Whether To Keep Them

A major New York State pension fund is “reviewing” whether it should follow California’s lead and pull out of its hedge fund investments.

“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.

California Public Employees’ Retirement System, the nation’s largest pension fund, unexpectedly announced on Monday it would eliminate hedge fund investments. The system’s chief investment officer said hedge funds are “certainly a viable strategy for some” but, “at the end of the day, when judged against their complexity, cost, and the lack of ability to scale” were an impractical investment for the state.

Business Insider subsequently reached out to both DiNapoli and New York City Comptroller Scott Stringer to find out if they would follow the Golden State’s example. The consulting firm Towers Watson in 2012 ranked the city’s and state’s retirement system the 16th-largest and 14th-largest pension systems in the world respectively. DiNapoli’s office says he oversees almost $US177 billion; Stringer’s office says he oversees about $US140 billion.

Both New York comptrollers stressed that only a small amount of their investments are tied up in hedge funds, however — only about 3.2% or $US5.6 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.”

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