Hevesi wants to alter the Empire State’s “legal list” – a document that outlines what can be invested in and the allowable quantity of certain holdings – and replace it with a “prudent investor” standard, according to the Associated Press (AP). He claims that the list, which limits the pension fund’s reliance on certain investments such as real estate and the stock market, has cost the fund $1.3 billion over the past decade.
An example of the list’s inhibiting effect came in 2001, when the stock market began to erode. With the fund’s net asset value falling, Hevesi and his predecessor were forced to liquidate some real estate holdings – which began to soar after the fall of the market – because the fund is not allowed to hold more than 5% in property, according to the AP.
“The best way to deal with the ups and downs of the financial markets is to diversify, but now our ability to achieve the optimum diversification is artificially limited,” Hevesi, a first-term Democrat, told the AP. “We should make investment decisions the way most other large pension funds do – based on the best views of financial experts, not predetermined legal limits.”
Hevesi said the “prudent investor” rule is in place in states such as Texas, California, New Jersey and Wisconsin. Comptrollers in New York have been trying to loosen the restrictions on investments for decades, according to the AP.
The New York fund manages approximately $120 billion with nearly one million current and former employees enrolled in the local and state government’s system.