The $27 billion New York City Employees' Retirement System hired a consultant that will help trustees broaden the fund's economically targeted investing program.
Pacific Corporate Advisors Inc., La Jolla, Calif., was hired following a search for an ETI consultant with experience in alternative investments, said Jon Lukomnik, deputy comptroller. There is an option to broaden Pacific Corporate Advisor's mandate to include alternative investments, although the fund has not invested in that asset class.
The retirement system will work with Christopher Bower, chief executive officer of the firm, said Mr. Lukomnik.
The system's ETI program now has assets in mortgages with principal guaranteed by government agencies, said Mr. Lukomnik. The staff created and monitored the program 10 years ago, but it does not have the internal expertise to do other types of investments, he said. "We are buying the expertise."
The allocation to ETIs is part of a $1 billion commitment by the pension fund for city teachers, firefighters and police officers; $500 million to $600 million is invested, said Mr. Lukomnik.
Investing the money and keeping it invested hasn't been easy because of the program's stringent investment criteria and the repayment of principal by borrowers, according to Mr. Lukomnik.
"We don't provide below market financing," said Mr. Lukomnik. "We are not the lender of last resort.
"There are the risk/reward requirements.
"Hiring them (Pacific Corporate) was part of broadening this in a prudent and conservative manner."
The broadened ETI program could go beyond guaranteed fixed income, said Mr. Lukomnik, although he declined to discuss specifics or the amount of money to be committed, saying it was premature.
"On the minimum, you don't want to do it for less than a percent or two," he said. "On the maximum, you want to be careful of geographical concentration.
"The main thing here is we are trying to do this proactively rather than to be in a position of responding to outside political pressure."
For the eight-year period ended March 31, the system's guaranteed mortgage portfolio returned 11.6% vs. 9.2% for its customized benchmark; for the five-year period ended March 31, the portfolio is up 11% vs. 8.6% for the benchmark.
The three-year return for the period ended March 31 is 9.3% vs. 7.8% for the benchmark. The portfolio is trailing the benchmark for the one-year period, 9.6% vs. 11%.