DiNapoli: Pension Fund Posts Positive Return in Down Year
New York State Common Retirement Fund Remains Fully Funded
Despite a prolonged downturn in the financial markets in which many of the major U.S. equity indices had negative returns, the New York State Common Retirement Fund realized a positive return of 2.56 percent for the state’s 2007-08 fiscal year, New York State Comptroller Thomas P. DiNapoli announced today.
“There will always be up years and down years in the market, but the diversification of the Common Retirement Fund helped us weather the economic downturn,” DiNapoli said. “New York’s pension fund remains strong and the benefits for our one million members remain secure.
“We’re perpetual investors. Our investment strategy isn’t day to day; it’s decade to decade, so we’re prepared to handle downturns in the market. But even in this down year, we outperformed the majority of our peers and generated a positive return for the Fund. And we still have one of the best funded ratios of any public pension fund in the nation.
“Our strongest returns came from the private equity and real estate portfolios. We have some new, forward-looking investment strategies that will help keep us strong in the coming years. But our growth is limited by constraints on how we can respond to market forces. It’s time to revisit the basket bill and give the Fund more investment flexibility.”
The $153.9 billion Fund saw positive returns in seven of its eight asset class categories, with private equity (24.84 percent) and equity real estate (14.75 percent) realizing the best overall returns. Reflecting performance of the broader marketplace, the Fund’s domestic equity (-6.44 percent) investments had negative returns for the year. Domestic equity investments comprise more than 37 percent of the Fund’s total portfolio.
By comparison, the median return for U.S. public pension funds during New York’s fiscal year was 0.5 percent, according to Wilshire Associates’ Trust Universe Comparison Service (TUCS), a peer comparison for institutional asset performance. The Fund also outperformed the Standard and Poor’s 500, which had a negative 5.1 percent return for the fiscal year.
Even with a 7-percent increase in benefit payments to retirees and lower contributions from state and local governments during the 2007-08 fiscal year, the Retirement System remains fully funded. Strong performance in prior years has provided the Fund with sufficient assets to cover its liabilities to more than one million members, beneficiaries and retirees participating in the New York State and Local Retirement System.
DiNapoli noted that the Fund continues to be constrained by limitations on its asset allocation. Under New York’s legal list system, investments in assets classified as alternative, such as private equity, real estate and absolute return strategies, are limited to 25 percent of the total portfolio.
DiNapoli said he directed his staff to explore undiscovered or undervalued opportunities. In the past year, DiNapoli has allocated an additional $1 billion to private equity emerging managers, who are often more entrepreneurial in seeking new investment strategies. The Fund’s commitment to private equity emerging managers is expected to approach $1.5 billion in the coming years.
In April, DiNapoli launched the Green Strategic Investment Program, which will increase commitments to environmentally focused investment strategies by $500 million over the next three years across the Fund’s entire portfolio. The Fund has invested roughly $290 million in green private equity and real estate opportunity funds and $425 million through the New York Instate Coinvestment Fund. Additionally, the Fund’s real estate portfolio has committed $200 million to a fund focused on brownfield remediation and redevelopment.
DiNapoli is launching a strategic asset allocation review in 2009 to re-examine the long term investment policy for the portfolio. He also has directed his staff to re-evaluate the Fund’s relationships with our consultants, advisors, brokers and other contracted professionals through a series of competitive RFPs.
About the Common Retirement Fund
The $153.9 billion New York State Common Retirement Fund is the third largest public pension plan in the United States with more than one million members, retirees and beneficiaries from state and local governments. Comptroller DiNapoli is the sole trustee of the fund and manages a diversified portfolio of public and private equities, fixed income, real estate and alternative instruments.