By Michael Quint – Jun 1, 2010
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The New York State Common Retirement Fund, the third-largest U.S. public pension plan, reported a 26 percent investment gain in fiscal 2010, the most in six years.

The $132.6 billion fund adjusted its targets to reduce the share of investments in domestic and international stocks and hedge funds, increase private-equity holdings and add new categories, such as “real assets” for gold and timberland, said Robert Whalen, a spokesman. Asked if the fund was selling stocks, Whalen said the state is making “gradual, orderly adjustments to get to the target.”

The gain followed a 26 percent loss last year. The fund covers about 1 million current and retired government workers. New York City employees have their own pension plans. Domestic and international stocks, which each rose 52 percent, were the best-performing categories, according to Comptroller Thomas DiNapoli, who oversees management of the pension.

“We’ve come through one of the toughest recessions in modern times, and now the fund is well-positioned to benefit from the national economic recovery we hope is taking hold,” DiNapoli said in a statement.

DiNapoli, the fund’s sole trustee, decided to adjust investment allocations in November and is still modifying them, Whalen said.

The target for domestic equities shrank to 30 percent of assets from 35 percent, while international stocks fell to 13 percent from 16 percent, and hedge funds dropped to 4 percent from 5 percent, Whalen said.

Private Equity

Private-equity funds’ share of investments rose to 10 percent from 8 percent. As much as 3 percent is allocated for assets such as gold. “Opportunistic alternatives” may get as much as 4 percent. The category encompasses the Public-Private Investment Program, where the federal government offers to assist investors who buy loans and commercial mortgage-backed securities whose values plummeted during the recession.

Investment targets for bonds and real estate were unchanged at 30 percent and 6 percent respectively, Whalen said.

Changes in asset-allocation objectives are intended to create “the right mix to match up with the fund’s long-term obligations,” Whalen said. “To carve out room for the new asset categories, we had to reduce somewhere,” he said.

Indexed Equity Investments

About 75 percent of the domestic equity portfolio will continue to be indexed, with passive management aimed at matching the overall stock market, according to Whalen.

In the fiscal year that ended March 31, private-equity holdings returned 12 percent, following a 22 percent loss the previous year, while hedge funds rose 15 percent after losing 19 percent, according to the comptroller’s announcement and last year’s financial report. Real estate lost 28 percent after a 33 percent decline in the prior period. Holdings of U.S. stocks lost 38 percent in fiscal 2009, and international shares dropped 46 percent.

The fund assumes an 8 percent return in calculating future contribution rates for state and local government employers to fully finance the pension plan, according to its annual report.

Over the past five years, the fund’s average annual investment return was 4.6 percent, down from 8.8 percent over 20 years, Whalen said.

Government employers face a 61 percent jump in pension costs in February to the highest rate in six years, as the fund rebuilds following investment losses.

Fiscal-year 2011 employer payments, due in February, will amount to almost 12 percent of payrolls, up from 7.4 percent, DiNapoli said in September. For police and firefighters, employer contributions will rise to about 18 percent of pay from 15 percent.

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