Giant NYC Pension Fund Expected to Divest from Hedge Funds

April 14, 2016 Debbie Jacobs Hedge Fund News

The country’s largest pension fund for municipal employees, the New York City Employees’ Retirement System, is preparing to vote on Thursday to divest its investments out of hedge funds. It is expected that a majority of the pension fund’s trustees will choose move its money out of risky and high-fee-burdened hedge funds to funds which pay better risk-adjusted returns with more modest management fees.

“Hedge funds are charging exorbitant fees for high-risk and opaque investments,” said Letitia James, the city’s public advocate, and one of the trustees of the pension fund. “As financial stewards of public employees’ money, we must invest in responsible and secure assets,” she said.

Other public employee pension funds have also begun to review their stakes in hedge funds. In California and Illinois large pension funds have already divested out of hedge funds. In New York the funds which represent teachers, firefighters, police and the board of education are considering similar action.

The giant fund represents 300,000 city employees with $55 billion in assets. Close to $1.4 billion of that total is invested in hedge funds. Thursday’s vote comes in the wake of a study done by the American Federation of Teachers which found that of the 11 public pension plans examined, including the one in NYC, each fund paid, on average, $81 million in annual fees. The study also found that the portion of the investments staked in hedge funds performed poorly compared to the investments made to other vehicles other than hedge funds.

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