NY state pension cuts its FoF

New York state’s pension fund has cut its fund of funds investments to about $500 million from $5 billion since January 2008, after deciding direct investments were preferable, a spokesman said last week.

Fund of funds helped the state gain access to “blue chip” funds when former Comptroller Alan Hevesi began using them in 2005, said Robert Whalen, a spokesman for the current Comptroller Thomas DiNapoli.

But DiNapoli determined after a review that the strategy of investing in 184 funds through seven fund of funds was “suboptimal” due to redundant investments, unwanted correlations between the funds’ results and the stock market’s performance, and costly fees, Whalen explained.

Clipping some of these fund managers has a side benefit. Placement agents who have been hired by them and who have been swept up in the State Attorney General Andrew Cuomo’s pension kickback probe can no longer collect ongoing fees.

DiNapoli is still reviewing all transactions that took place under former Comptroller Alan Hevesi, a list that includes private equity funds. The spokesman said the review includes issues like conduct: “Are their hands clean, was there some measure of culpability?”

Both New York state and New York City’s pension funds voted to block new capital investments with private equity firm Quadrangle due to its ties to the pension probe, but were overruled by other investors. The pension has not yet decided if it will exit its Quadrangle investment, the state comptroller’s spokesman said.

Other hedge funds DiNapoli axed that also have links to Cuomo’s probe include Memphis, Tenn.-based Consulting Services Group and Pequot Capital Management. —Joan Grallam, Reuters