Sources said the lure for hedge fund managers is obvious. A modest 3% allocation by each of the large public pension plans would total $10.6 billion. Nudging the allocation up to 5% would create a nearly $18 billion demand for transparent hedge funds and funds of funds.
The biggest hedge fund managers are calling us about the legislation, mostly to find out whats going on, I think, said Anthony Fischli, chief executive officer of Finch Asset Management, New York, which manages hedge funds and funds of funds. Mr. Fischli declined to say how much the firm manages.
Assemblyman William F. Boyland Jr., who introduced the bill, enlisted Mr. Fischlis help in drafting it.
None of the public pension systems affected by the bill currently invests in hedge funds, but sources predicted that officials at each system likely will consider an allocation sooner rather than later, given the prospect of poor long-only stock and bond market returns, funding challenges and the brisk pace of institutional investment in hedge funds globally.
New York City Comptroller William C. Thompson Jr. and his staff may soon recommend initial investments by the five New York city plans (Pensions & Investments, Jan. 22), but John Cardillo, a spokesman for the New York teachers plan, and Dan Weiller, a spokesman for the Common Retirement Fund, both said there are no immediate plans to invest in hedge funds.
Mr. Boyland said he sponsored the bill as a result of chairing the pension subcommittee of the assemblys Bank Committee. Mr. Boyland said hes been talking about hedge funds in meetings with retirees, unions, hedge fund managers, state agencies and New York Comptroller Thomas P. DiNapoli, who is sole trustee of the Common Retirement Fund.
I want to protect retirees and to help the state pension funds to grow, through investment in hedge funds. My bill is designed to welcome hedge funds to managing pension assets, Mr. Boyland said in an interview.
Mr. Boyland said that public plans require a change in state law in order to invest in hedge funds. But Mr. Weiller said pension staff in the comptrollers office believe New York law already permits public pension plans to invest in hedge funds.
Mr. Fischli said the level of transparency was not specified in the bill, although that might change later in the legislative or implementation process. Theres a long way to go before this bill becomes legislation.
Mr. Fischli said its reasonable for institutional investors to insist on transparency from hedge fund managers, provided confidentiality agreements are understood and respected.
If a manager wants to invest for a New York state or city fund, they will have to cooperate and play by a set of reasonable rules. Some may find the hurdles too high, but we think, on reflection, most players will end up wanting to become part of the process, Mr. Fischli predicted.
David Shukis, director, hedge fund research and consulting group, at Cambridge Associates LLC, Boston, said he and his team review hedge fund managers quarterly. He said he has seen a rise in the number of hedge fund managers willing to provide a reasonable glimpse into their portfolios, especially newer managers. I think some of the older, more established firms with a lot of money and loyal followers may never become more open. But I think it would be hard for a Paul Tudor Jones to start today and be successful with (that) level of opacity, Mr. Shukis said.
Hedge fund-of-funds manager David C. Saunders disagreed with Mr. Shukis about the biggest, most established hedge funds. Mr. Saunders is founding managing director of K2 Advisors LLC, Stamford, Conn., which manages $5.5 billion in hedge funds of funds for institutional investors.
Ive seen a marked willingness on the part of hedge fund managers to become more transparent, either through a third-party risk aggregator or through managed (separate) accounts. Hedge fund managers recognize that these are institutional investors, with a long-term perspective, and that they can be trusted. I think even the biggest of hedge funds will come around on the issue of transparency eventually, Mr. Saunders said.