State Treasurer Tim Cahill expects to ask his colleagues on the state’s pension fund board today to place a piece of the $28 billion retirement account in hedge funds for the first time.
Cahill said the dive into hedge funds will be one of the recommendations to be discussed by the Pension Reserves Investment Management board as part of efforts to diversify the pension fund.
Cahill and others on the board’s investment committee also want the pension fund to increase its holdings in real estate and timber, and shave its holdings in U.S. stocks and bonds, Cahill said.
The board started reviewing its investment strategy in December – a month before Cahill took office – after suffering huge losses in the recent bear market.
Cahill, the pension board’s chairman and a member of its investment committee, said he expects the new allocation should get at least an 8.25 percent return for the fund – a goal mandated by the Legislature. He said he wants to bring more stability to the fund, instead of seeking eye-popping returns.
“I’m not looking to shoot the lights out,” Cahill said. “I don’t think that’s wise, especially when you’re investing the public’s money.”
While some hedge funds can be extremely volatile because they employ aggressive investing strategies, Cahill said he plans to pick hedge funds that typically offer more stable returns.
Cahill declined yesterday to specify what kind of funds he would recommend, except to say he wants less than 5 percent of the pension fund to go to hedge funds.
Cahill said he wants to cut back on U.S. stocks, even though some experts say we could be in the beginning stages of a bull market. He said he wants to shield the fund against another possible downturn in the next few years.
The fund currently has about 61 percent of its assets in stocks, with 41 percent in U.S. stocks. Cahill said he still wants more than half of the fund’s assets in stocks.
Richard Goldman, a lawyer who specializes in hedge funds at the Boston firm of Nutter McClennen & Fish, said hedge fund managers have more flexibility than mutual fund managers. For example, hedge fund managers can bet stocks will fall in price through “short selling.”
“A growing number of institutional investors, such as pension funds, are starting to take advantage of this investment vehicle, particularly because they can provide some protection in a down market,” Goldman said.
