While hedge funds might make the headline, the bill would also have allowed a larger investment in international bonds, and private equity.
The New York legislature approved a bill in June of this year that would have allowed pension funds to raise their investment levels in areas deemed “riskier” from 25% to 30%. According to Federal Reserve data, U.S. state and local retirement plans are short no less than $1.3 trillion do to losses from the financial crises, subsequent recession and a downturn in contributions.
Investments in hedge funds: States heading in different directions
In September of this year the largest U.S. pension, the California Public Employees’ Retirement System, announced that it would completely divest itself from hedge fund citing risk, fees and limited return. New Jersey went the opposite direction earlier this year when it announced in June that the $77.8 billion pension fund had added $1.1 billion to hedge funds in the first six months of its fiscal 2014.
In his first-quarter letter to investors of Greenlight Capital, David Einhorn lashed out at regulators. He claimed that the market is "fractured and possibly in the process of breaking completely." Q1 2021 hedge fund letters, conferences and more Einhorn claimed that many market participants and policymakers have effectively succeeded in "defunding the regulators." He pointed Read More
Cuomo’s veto lies somewhere between New York’s neighbor and the decision made across the country in California.
“The existing statutory limits on the investment of public pension funds are carefully designed to achieve the appropriate balance between promoting growth and limiting risk,” Cuomo wrote in a letter he attached to the veto. “This bill would undermine that balance by potentially exposing hard-earned pension savings to the increased risk and higher fees frequently associated with the class of investment assets permissible under this bill.”
Affected by the veto are New York City’s five retirement plans as well as the teachers pension and the fund for state and local workers outside the city.
Cuomo’s thinking behind the veto may very well have sprung from a “if it ain’t broke, don’t fix it” mentality. For the fiscal year that ended in June, given the growth of U.S. stocks, New York City’s five pensions saw an annual return of 17.5%. The New York State Teachers Retirement System returned 18.2% for the year ended June 30 while the state fund returned 13% for its fiscal year that ended on March 31.
New York City pension custodian displeased
The bill’s veto came much to the chagrin of New York City Comptroller Scott Stringer, the guardian of the city’s five pension funds who argued that the bill would allow trustees and advisers to “tactically manage the investments to take advantage of market trends, react to market shocks and potentially costly rebalances or unwinds at inopportune times,” according to a memo that was attached to the bill.
The memo also argued that changes in value of funds’ stocks could push pensions “dangerously close” to the investment cap and argued for more flexibility.
“We will continue to work with our partners in the legislature and Governor Cuomo to pass this bill,” Eric Sumberg, a Stringer spokesman, said in an e-mailed statement to Bloomberg following the veto.