NY Comptroller Candidate Cool To Asset Class

Speaking at a recent event, the candidate said the New York State Common Retirement Fund should be lowering its return expectation to around 5 percent to 6 percent, down from 8 percent, and should take on a different risk profile, emphasizing fixed income and passive investments, and reducing the role of alternatives.

“The overall risk of the portfolio is too high, including the size of the equity allocation,” Wilson told Buyouts. “The risk taken needs to be consistent with the needs of the beneficiaries. Taking more risk is where people get into trouble. When people stretch for either yield or return, they end up getting hurt. There’s definitely a role for private equity and alternatives, but I’d like it to be lower than what it currently is.”

Wilson, a Republican, is taking on incumbent Democrat Thomas DiNapoli in the November election for New York State comptroller. Among the job’s responsibilities is managing the asset allocation at the $130 billion pension system. The New York State comptroller manages the retirement fund as sole fiduciary.

The New York State Common Retirement Fund’s target allocation for private equity is 10 percent, and, as of March 31, the actual allocation stood at 9.3 percent, according to a spokesperson.

The candidate also told Buyouts that the way to pare down the private equity allocation would be to “go through the entire portfolio and assess manager by manager…A lot of the investments are multiple relationships with one manager. When the manager comes back for their next fund, that would be a logical point to reassess.” Another natural re-evaluation point would be when managers ask their LPs for extensions of the investment period or some other type of modification to their terms and conditions, he said.

Wilson, who formerly held positions with Goldman Sachs; Clayton, Dubilier & Rice; The Blackstone Group; and Silver Point Capital, a distressed debt and credit-focused shop, said at the event that, net of fees, most private equity firms don’t outperform the S&P, that pension funds should not be paying for those kinds of returns, and that if you are going to commit to a private equity firm, you must make sure the firm is generating alpha.

What else would he would do differently if he became the sole fiduciary of the New York State pensions? Wilson said at the event that he would create a seven- to nine-member investment committee of retired world-class investors, “folks of stature and personal resources,” to professionalize the investment process. He also told Buyouts that it was very likely that at least one member of the committee would have a private equity background.

After leaving Silver Point Capital in 2008, Wilson joined then-car czar Steve Rattner, a co-founder of the private equity firm Quadrangle Group, as an adviser on the auto bailout task force.