New York pension ‘constrained’ by 25% alternatives allocation limit

Alternative asset classes were the $154bn New York State Common Retirement Fund’s top performers for the fiscal year, with private equity returning nearly 25 percent. State Comptroller Thomas DiNapoli has indicated legal limits on the pension’s alternative investments should be revisited.

The New York State Common Retirement Fund booked a nearly 25 percent return from its private equity investments for the fiscal year ended 31 March 2008 – up from a nearly 23 percent return the previous year.

Private equity was the $154 billion (€99 billion) pension’s top performing asset class, followed by real estate, which returned nearly 15 percent. That’s down from nearly 32 percent for the fiscal year ended 31 March 2007.

“Our strongest returns came from the private equity and real estate portfolios,” the state’s comptroller, Thomas DiNapoli, said in a statement. “We have some new, forward-looking investment strategies that will help keep us strong in the coming years. But our growth is limited by constraints on how we can respond to market forces. It’s time to revisit the basket bill and give the [Common Retirement] Fund more investment flexibility.”

Our growth is limited by constraints on how we can respond to market forces… It’s time to revisit the basket bill and give the [Common Retirement] Fund more investment flexibility.

Thomas DiNapoli

The New York public pension is currently limited to investing no more than 25 percent of its total portfolio in alternative asset classes. DiNapoli said he will launch a strategic asset allocation review in 2009.

The pension’s statement also noted it has allocated “an additional $1 billion to private equity emerging managers, who are often more entrepreneurial in seeking new investment strategies” in the past year. It added its emerging managers programme will likely hit $1.5 billion in coming years.

It also launched a green investment programme in April, and to date has invested about $290 million in green private equity and real estate opportunity funds.

The fund’s overall return for fiscal 2007-2008 was 2.56 percent, with its domestic equities portfolio, which accounts for 37 percent of its portfolio, returning -6.44 percent.

“There will always be up years and down years in the market, but the diversification of the Common Retirement Fund helped us weather the economic downturn,” DiNapoli said. “We’re perpetual investors. Our investment strategy isn’t day to day; it’s decade to decade, so we’re prepared to handle downturns in the market. But even in this down year, we outperformed the majority of our peers and generated a positive return.”