MA Pension Hedge Fund Investments 'Like Gambling'

March 21, 2006 (PLANSPONSOR.com) - Massachusetts Secretary of State William Francis Galvin says too much state pension fund money is going into risky hedge funds.

On the other hand, state treasurer Timothy Cahill is praising the investment’s strong returns, the Boston Globe reports.

Galvin criticized the Massachusetts Pension Reserves Investment Trust (PRIT) which now keeps 5% of its $40.2 billion invested in hedge funds, and plans to bring that number to 10%, or $4 billion, by the end of this year. According to the Globe, Cahill, who chairs the PRIT board, says the hedge funds helped the fund return 12.7% last year while actually lowering its risk.

“I just think as a long-term strategy, it’s like gambling,” Galvin said in the news report.   However, Cahill countered that, in order to meet the state’s 8.25% return mandate, some risks must be taken.   Other tactics the pension board has pursued probably present more risks, such as its private equity investments, he said.   Private equity and venture capital investments represent about 6% of the fund’s portfolio.

State funds in New Jersey, California, and Pennsylvania have also turned to hedge funds to boost returns (See NJ Turns to Hedge Funds to Overcome Pension Deficit).

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