NY State Pension Fund Cuts Fund-of-Hedge Funds Investments

May 26, 2009 (PLANSPONSOR.com) - New York state's pension fund has cut its fund-of-hedge funds investments to about $500 million from $5 billion since January 2008, a spokesman told Reuters.

Robert Whalen, a spokesman for the current Comptroller Thomas DiNapoli said DiNapoli determined after a review that the strategy of investing in 184 funds through seven fund-of-funds was “suboptimal” due to redundant investments, unwanted correlations between the funds’ results and the stock market’s performance, and costly fees, Reuters reported. Clipping some of the fund managers also means placement agents who have been hired by them and who have been swept up in the state attorney general’s pension kickback probe can no longer collect ongoing fees.

As an example, Reuters noted that former hedge fund manager Barrett Wissman, the first of two individuals to plead guilty in Attorney General Andrew Cuomo’s kickback investigation, was formerly associated with Texas-based Hunt Financial Ventures. New York’s pension fund invested a total of $100 million with Hunt Financial Ventures, which only produced a $7 million return from January 2005 to December 31, 2007, when the investment was ended, according to the comptroller’s data.

DiNapoli is still reviewing all transactions that took place under former state comptroller Alan Hevesi, a list that includes private equity funds (see DiNapoli Sues Aldus over Pay-to-Play Scheme ).

Both New York state and New York City’s pension funds voted to block new capital investments with private equity firm Quadrangle due to its ties to the pension probe (see Report: Auto Czar’s Investment Firm Focus of Pay-to-Play Probe ), but were overruled by other investors. The state’s fund has not yet decided if it will exit its Quadrangle investment, the state comptroller’s spokesman said, according to Reuters.

Other hedge funds DiNapoli axed that also have links to Cuomo’s probe include Memphis-based Consulting Services Group and Pequot Capital Management, the news report said.