New York City Pensions Consider First Hedge-Fund Investments

Date: Thursday, July 22, 2010
Author: Martin Z. Braun, Bloomberg

New York City’s pensions funds for police officers, firefighters and civil employees are seeking proposals from hedge fund consultants as they weigh whether to invest in the loosely regulated investment pools.

The three funds, with combined assets of $64.5 billion as of March 31, want advice from firms on formulating strategy, identifying new investments and monitoring portfolios, according to a request for proposals from the comptroller’s office.

The pension plans are considering investing in hedge funds even as money flowing into the pools, which hold $1.65 trillion in assets, slowed by 30 percent in the second quarter, according to Hedge Fund Research Inc. One of five tax dollars collected by New York City, about $7.6 billion, will go into the pension funds this year. The city fired six money managers earlier this year after “poor performance” of the funds.

“The pension funds have not historically invested in hedge funds,” said Mike Loughran, spokesman for Comptroller John Liu, in an e-mail. He declined to comment further.

The three-year contract would also include investment research. New York City has five public pension funds with assets of $103.8 billion as of May 31. None of the pensions have invested with hedge funds.

Investors added a net $9.5 billion to hedge funds in the three months through June, down from $13.7 billion in the prior period, the Chicago-based research firm HFR said yesterday, as concerns about Europe’s debt crisis and the possible slowing of economic growth pushed stock markets down.

Average Decline

Hedge funds posted an average decline of 2.5 percent in the three months ended June 30 as the Standard & Poor’s 500 Index of the largest U.S.-listed companies slumped 12 percent, the first quarterly drop in a year.

The city funds are asking firms to describe how they analyze hedge funds, including evaluating risk and conflicts of interest. It also asks firms to provide a track record of all investment recommendations they’ve offered.

Proposals to the city comptroller are due Aug. 9. A contract may be awarded as early as October.

--With assistance from Saijel Kishan in New York. Editors: Walid el-Gabry, Ted Bunker

To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.