Aggressive Investment Strategy Gives MA Pension Trust Good Results

January 30, 2008 ( - The main Massachusetts pension fund returned 11.9% in 2007, posting strong returns under an aggressive diversification strategy for the fifth year, officials reported.

The Boston Globe said the returns by the Massachusetts trust last year were better than 95% of all public funds with assets of more than $1 billion, among those who have reported their 2007 performance so far, according to Wilshire Associates, a California consulting firm. The performance of the Massachusetts Pension Reserves Investment Trust also was notable despite the markets declining sharply at the end of the year over fears about investments tied to risky subprime mortgages.

State Treasurer Timothy P. Cahill, chairman of the board that oversees the fund, told the Globe the trust had virtually no investments tied to subprime instruments except for holdings in companies such as banks whose value fell due to their own exposure. “The market’s gone down, but we haven’t gotten burned,” he said in the news report.

The year’s results support a strategy Cahill has pursued since taking office in 2003 to move more capital into hedge funds, private equity, and other vehicles once seen as too risky for public investments. Total trust assets stood at $53.7 billion at the end of 2007, more than double the $25.9 billion it held at the end of 2002, before Cahill’s term began, according to the Boston Globe.

Even though the trust lost roughly $30 million in the collapse last year of local hedge fund Sowood Capital Management, gains in other hedge funds more than made up for the losses, and investments in private equity, foreign stocks, and timber companies did well, a report from Cahill’s office showed.

The trust has received scrutiny over the large amounts it pays to outside managers who handle many of its investments. In all, according to the news report, the trust’s fees are scheduled to be $273 million in 2008. However, Robert Dennis, investment director of the Public Employee Retirement Administration Commission, a Somerville agency that oversees state pension systems told the Globe that paying for the outside managers provides an extra layer of oversight.

Cahill said the fees are the price of the diversification the trust needs to avoid being severely harmed by things like the Sowood case.

According to the Globe, Cahill said the fund’s investment committee will recommend changes to the trust at a board meeting next week, and that based on the current economic outlook that suggests a rising threat from inflation later this year, the committee would like to shift money from timber holdings to other natural resources such as oil or gas assets, and increase the share of certain hedge fund holdings to 6% from 5% of total assets.