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NY Common to increase investment staff

The $160.4 billion pension plan intends to add more senior investment professionals, particularly in alternatives, and rely less on outside consultants for due diligence and underwriting in the future.

The New York State Common Retirement Fund has begun the process of reorganizing its investment operations, which includes streamlining its management structure, hiring additional staff and reviewing its use of external consultants.

“We want to add people across the asset classes, but particularly in the alternatives areas,” said Vicki Fuller, New York Common’s chief investment officer, during a conference call yesterday to discuss the pension system’s fiscal year-end results. “The real focus for the alternatives strategy is to add additional senior investment staff so that we hopefully can reduce costs by looking less at investing in funds and more at separate accounts or funds-of-one.” While the investment shift has been a focus area for some time, having a small staff has made it challenging to conduct the underwriting required to execute such investments successfully, she explained.

In addition, as it makes more investment hires, New York Common plans to conduct more due diligence and underwriting internally over time. “That will not mean that we will not use consultants, but it will mean that we will use them less or more judiciously,” Fuller added. “That is the goal: to make sure that we’re driving the due diligence and the underwriting and we’re using consultants as an important addition.”

Ultimately, the pension plan will cease to use some of its existing consultants while using others in a more targeted way. Still, New York Common issued a request for proposals in January for a real estate consultant and currently is in the process of completing its review. The selection of a consultant is expected to be made “as soon as possible,” Fuller said.

New York Common, the third-largest public pension plan in the US, posted an all-time high portfolio value of an estimated $160.4 billion for the fiscal year ending March 31 and an estimated 10.38 percent overall rate of return on its investments. Real estate, which accounts for 6.8 percent of the pension plan’s portfolio, generated a return of 11.08 percent during fiscal year 2013, beating the NCREIF benchmark of 10.54 percent. The asset class, however, earned a return of 17.6 percent the previous fiscal year and was the strongest-performing asset class during that time period.

During the past fiscal year, Fuller noted an increased ability by the pension plan’s general partners to obtain financing to return capital to investors, as well as more value-added properties stabilizing to core. Additionally, “we’ve seen a somewhat more positive environment for the opportunistic GPs we have,” she said, adding that opportunistic has been one of its largest allocations within real estate and one of the reasons for the drag on the asset class’ performance over the last three years. 

“It would have been hard for us to forecast previously that we might even be able to get full principal back,” said Fuller. “Now, we’re feeling very comfortable that’s a real possibility, with maybe some additional return in the offing.”