Pension Fund Adds Certain Hedge Fund/ Private Equity Investments to Ban

September 4, 2007 ( - A clause under a new investment policy recently approved for the Montgomery County, Pennsylvania, pension program bars the county's investment managers from investing in hedge funds or private equity firms that take part in hostile takeovers of public companies.

The Times Herald newspaper reported the county controller said he inserted the clause to the new policy which also bans investments with companies in nations that are on the U.S. Department of State’s list of terrorist sponsors. The county is just another on the list of governments that have implemented such bans recently, some of which have raised legal concerns (See Kansas Jumps on Sudan Divestiture Bandwagon ).

The ban on certain hedge funds and private equity firms, however, is a new twist on the investment ban. “I believe that takeovers and consolidations can be good for the market and shareholders, but invariably people lose jobs as part of these takeovers,” said Controller Eric S. Kretschman, the secretary of the retirement board who is responsible for the day-to-day administration of the program, in the news report. “I don’t think the county should be subsidizing that or profiting from it.”

The county has about $470 million in the pension program at the end of July, county Communications Director John A. Corcoran told the newspaper.

The county included other changes in its new policy, including hiring four investment management firms, each with its own area of expertise, to manage investments in certain segments of the market. It has also now indexed a number of its large cap equity investments, which coupled with other changes should save the program more than $100,000 a year in manager fees, according to Kretschman.