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New York City Employees to liquidate hedge fund portfolio

Trustees of the New York City Employees’ Retirement System voted Thursday to stop investing in hedge funds and to liquidate existing hedge fund investments “as soon as practicable, in an orderly and prudent manner.”

Hedge funds accounted for $1.45 billion of NYCERS $51.2 billion in assets as of Jan. 31, 2016. NYCERS is one of five pension funds in the $154 billion New York City Retirement Systems. Each pension fund has a separate board of trustees.

On Thursday, the trustees approved a resolution that said a review by their consultant, Callan Associates, “demonstrated that hedge funds can be removed from the NYCERS asset mix to achieve targeted levels of return and maintain consistent levels of volatility.”

The trustees directed the Bureau of Asset Management — a unit of the city comptroller’s office that advises pension board trustees on investments and managers — to sell the current hedge fund investments.

Neither the resolution nor the trustees who voted for the resolution discussed a timetable for liquidation. NYCERS started investing in hedge funds in March 2011.

The NYCERS hedge fund portfolio’s annualized return for the three years ended June 30, 2015, was 6.54% gross of fees, compared to the benchmark 7.29% gross of fees, according to NYCERS’ latest annual report.

Two of the other four pension funds in the New York City system also invest in hedge funds. As of Jan. 31, the New York City Police Pension Fund had $1.04 billion in hedge fund assets out of a total $31.6 billion, and the New York City Fire Department Pension Fund had $335 million in hedge fund assets out of a total $10.36 billion.

Among the 11 NYCERS trustees, 10 voted to get out of hedge funds. These trustees included representatives of New York City Mayor Bill de Blasio and of city Comptroller Scott Stringer, the fiduciary for the five pension funds in the New York City Retirement Systems.

Letitia James, the New York City public advocate and the city’s second-highest ranking elected official, attended the meeting and seconded the resolution. At the meeting, Ms. James criticized what she said were “exorbitant” fees being paid for “high risk and opaque investments.” Ms. James said she saw “little evidence” that the NYCERS hedge fund portfolio added overall value via increased returns or decreased risk.

In a statement issued after the meeting, Mr. Stringer said the trustees believe an asset allocation mix without hedge funds will help NYCERS “construct a responsible portfolio that meets our long-term investment objectives.” The trustees did not vote on a revised asset allocation strategy.

“We have not seen the results that we had expected,” trustee Henry Garrido said at the meeting. Mr. Garrido, who offered the resolution, is executive director of District Council 37, American Federation of State, County and Municipal Employees.

The one dissenting vote came from Patricia Stryker, recording secretary, Local 237, of the International Brotherhood of Teamsters, representing Gregory Floyd, a NYCERS trustee and president of Local 237. Ms. Stryker said her union believes it would be “premature” for NYCERS to exit hedge funds now. Given NYCERS strategy of investing for the long term, “we haven’t been in hedge funds that long” to make a comprehensive assessment, she said.

As of June 30, the pension fund had hedge investments with Brevan Howard, Brigade Capital Management, Carlson Capital, Caspian Capital, Cantab Capital Partners, D.E. Shaw, Fir Tree Partners, Luxor Capital Group, Perry Capital, Pharo Management, SRS Investment Management, Standard General and Turiya Capital.