Treasurer Blames Lack of Hedge Funds for County Losses

April 23, 2003 ( - Timothy Cahill, Massachusetts' new state Treasurer is blaming losses in the Norfolk County Retirement System fund in part on the county's inability to hire hedge fund managers.

Cahill contends that under his tutelage, the Norfolk system twice petitioned the state’s public pension oversight board, the Public Employee Retirement Administration Commission (PERAC), in 2001 to allow hedge funds as an investment class. PERAC this year approved hedge fund use by public funds with at least $250 million in assets, according to a Boston Globe report.

”They tied our hands at a time when I wish they hadn’t been tied,” Cahill told the Globe. Had the Norfolk system been able to put 5% to 8% of its assets in hedge funds, ”we would have dramatically turned these numbers around,” he said.

In 2002, the Norfolk County Retirement System fund plunged 12.1%, worse than the 9%-drop suffered in the statewide fund, the Pension Reserves Investment Trust, which Cahill now oversees.   The loss was the worst in at least a decade for the Norfolk pension system and marked the only loss under Cahill’s six-year oversight of the $336-million retirement system.   This movement downward stands in stark contrast to the county’s performance in 2001 and 2002, which managed to post gains of 0.6% and 5.4%, respectively, compared to the S&P 500’s declines of 11.9% and 9.1%, respectively.

Weighing hard on 2002’s performance was the 31.7%-loss Norfolk’s stock managers recorded.   Overall, equity investments make up one-third of the county’s portfolio and two managers in particular took large hits:   the Boston Co Mid-Cap Value fund shedding 38.6% of its value and MFS’s Mid-Cap Growth style plummeting 47.4%.

When Cahill became Norfolk County treasurer in 1996, one of his first moves was to pull Norfolk out of the statewide system run by the Pension Reserves Investment Management Board (PRIT), saying Norfolk could do better on its own. His three-year record appears to confirm his assertion; Norfolk lost about 2.3% per year, on average, on his watch, while the state fund has fallen 5.2 % per year over the past three years.   However, Norfolk’s poor 2002 performance is likely to raise concerns, as Cahill grapples with how to produce a positive return in the state’s $25 billion pension fund in his first year at the helm.