Three of New York City's five public pension funds are seeking to add as many as 15 hedge funds for direct allocations to reduce price swings in stocks and improve investment returns.
The New York City Employees' Retirement System, New York City Police Department and New York City Fire Department, which have a combined $70 billion in assets, are searching for event-driven funds, commodity trading advisers, and global macro and relative value managers, according to Seema Hingorani, head of public equities and hedge funds at the city comptroller's office.
The focus is on event-driven strategies as the pension funds now have more allocated to global macro funds and CTAs, Ms. Hingorani said.
“We're meeting as many event-driven managers as we can,” Ms. Hingorani said in a telephone interview.
New York City's main goal is to reduce equity volatility, Ms. Hingorani said. Assets at the five pension funds fell to about $74 billion from $115 billion after the 2008 global stock market plunge before rebounding to $127.8 billion as of the end of this September.
The New York City pension funds will probably have “very little” in long-short equities in the hedge fund portfolio, Ms. Hingorani said.
About $1.7 billion of the pension funds' approved allocation of about $3.5 billion has been invested, Ms. Hingorani said. New York City devoted $450 million to fund of funds Permal Asset Management in 2011. Earlier this year, New York City made five direct hedge fund investments — in Brevan Howard Asset Management, D.E. Shaw, Brigade Capital Management, Caspian Capital Advisors and BlueCrest Capital Management's BlueTrend fund — with the help of consultant Aksia.
New York City seeks to post an 8% to 10% net return with 5% to 7% volatility a year in its hedge fund portfolio, Ms. Hingorani said. It plans to invest all $3.5 billion directly in hedge funds over the next few years across a total of 15 to 20 managers.
Initial allocations will typically range from $100 million to $350 million, Ms. Hingorani said. The approval process for managers involves three boards, one each for the three pension funds.
New York City will mostly consider hedge funds with more than $1 billion in assets, while also looking at building investments in emerging managers, Ms. Hingorani said. The pensions have about $6 billion invested in smaller, newer managers outside of hedge funds.
“Smaller managers can be more nimble,” Ms. Hingorani said. “We're out there meeting much smaller managers, much smaller than our ticket right now has been. We're trying to do all of our due diligence and get comfortable.”
John Liu, city comptroller, is the investment adviser and custodian of New York City Teachers' Retirement System and New York City Board of Education in addition to New York City Employees' Retirement System, New York City Police Department and New York City Fire Department.