The Empire State may be striking back at allocation volatility and the laws that govern its pension investment. A bill recently proposed in the state senate would alter the rules governing pension investment and free the state to increase its pensions’ private equity allocations.
For instance, if passed, the bill would eliminate the alternative investment allocation cap from the New York State Common Retirement Fund (CRF), which is currently 15 percent.
In a memorandum accompanying the proposed bill, New York State Comptroller Alan Hevesi notes that the fund was forced to reduce its PE commitments in 2002 or risk violating its allocation cap as public equities fell in value.
In the five years between 1999 and 2003, the CRF would have generated between $4 billion and $5 billion more in returns had it been able to allocate more to alternative investments.
In the past, the CRF’s alternative asset cap has been moved up instead of eliminated. In 1987, it was moved from 5% to 7.5%; in 1997, it was moved to its current 15% allocation.
“It has been the Comptroller’s position that we should not have caps but go by the principal of the prudent investor,” says John Chartier, a spokesman for the comptroller’s office. “We’re asking that these caps be removed and the investment mangers be allowed to make decisions.”
New York joins other states in moving towards a standard method of pension fund alternative investment management of using outside managers and less rigid allocation rules. Late last month, Mississippi’s governor signed into law a bill that allows the $16 billion Public Employees Retirement System of Mississippi to invest in alternative assets. Meanwhile, the New Jersey State Investment Council approved a plan to invest 13% of its $66 billion in assets into alternative investments. The plan would allocate five percent, or about $3.3 billion, of its assets going to private equity.
The New York bill is still in its early stages and as of April 18 had advanced to its third reading. A companion bill will have to pass in the state assembly before being sent to the governor. A spokesman from Gov. George Pataki’s office declined to comment on the bill.