NYC Police pension debates hiking private equity or fixed income

New York City Police Pension Fund is considering increasing its private equity allocation target from 8 percent to 10 percent, but its consultant and investment staff believe fixed income to be a better bet.

NYC Police joins the city’s two biggest public pension plans in potentially increasing their private equity targets to 10 percent. NYC Police’s potential hike to its PE target is minor compared with possible increases to fixed income as the system looks to benefit from rising interest rates.

NYC Police discussed changes to its asset allocation plan at the system’s investment committee meeting held on October 3. Buyouts watched a broadcast of the meeting.

Robert Appling, a managing director with NYC Police’s consultant Wilshire, said he and the pension’s staff considered allocating more to illiquid assets but instead chose to reduce their risk by investing more in fixed income.

“When you have bonds and money market funds with around a 5 percent interest rate, we think there’s a better opportunity to reduce risk than to reach for returns,” said Appling.

According to Wilshire’s presentation, NYC Police would increase its target to core fixed income from 13.5 percent to 20 percent pending board approval. The $50.5 billion system is also considering slight increases to other fixed income asset classes.

All of New York City’s five separately managed pensions can allocate up to 35 percent of their total fund to alternatives, thanks to a New York State law instituted at the end of 2022 that raised the cap from 25 percent cap, Appling said.

With the proposed changes, the system would target a 28 percent allocation to alternatives, which include private equity, opportunistic fixed income, hedge funds, real estate and infrastructure, according to Wilshire’s presentation.

Wilshire and investment staff over the years have tried “to get a more meaningful allocation to private equity,” said Appling.

But the system remains cautious about increasing its alternatives exposure due to the attractiveness of fixed income, Appling said.

“If we were doing this study three years ago, we would be maxing out to alternatives since interest rates [were] so low,” said Appling.

NYC Police is expected to vote on the proposed changes to its asset allocation mix at its November investment committee meeting.