DiNapoli’s first snag at NY State fund as markets sour again

After three tumultuous years of reforms including a raft of new policies and procedures at the third-largest pension fund in the US, culminating in a 25.9 per cent return last year, Thomas DiNapoli, the New York State Comptroller, has hit a snag in the last quarter.The New York State Common Retirement Fund (CRF) returned  -4.38 per cent in the June quarter, it was announced last week, ending the period with $124.8 billion invested. This is the first bad news for the fund, which attracts a lot of politically inspired commentary, for more than a year.

The reformist DiNapoli, who oversees all audits of state government agencies as well as acting as sole trustee for the CRF, introduced quarterly reporting as part of his policy on greater transparency. He also commissioned an audit, by Mercer Sentinel, of his own compliance at the fund, going through investment decisions back to the start of his term in February 2007. The report this year found one small mistake, when a management fee was disclosed separately from a contract.

Throughout the global financial crisis, DiNapoli, a former state legislator, stood by his staff’s decisions on allocations to alternatives and direct investments, as the fund’s total value dropped from over $150 billion, while also tilting the equities portfolio towards New York-resident companies and stepping up a program to invest in mortgages for affordable housing.

The 25.9 per cent return for the year to March, compares with solid but less spectacular returns for the (admittedly different periods) two larger pension funds, CalPERS and CalSTRS. CalPERS earned 11.6 per cent in the year to June, while CalSTRS earned 12.2 per cent.

The CRF annual result was helped by returns of just over 50 per cent each for domestic and international broad market equities. In June the CRF terminated a $600 million global ex-US mandate with Goldman Sachs Asset Management. It made its first investment in emerging managers within its absolute returns strategy, giving $200 million to a fund-of-funds called Rock Creek Empire Fund. It also invested another 20 million euro ($25.75 million) through an existing European buyout manager, Gilde Buyout Fund.

DiNapoli also introduced a policy banning the use of placement agents in mandate appointments; forbidding the fund from doing business with anyone who made a political donation to the Comptroller’s Office in the past two years and introduced monthly reporting of manager hirings and firings.