Alternative Investment

New York public pension funds can add more alternative investments under new law

New York Gov. Kathy Hochul signed into law an expansion of the so-called basket clause, allowing large public pension plans to raise their alternative investment allocations to 35% from 25%.

The governor signed the law Dec. 23.

State law had provided a series of approved investments, known as a “legal list,” covering 75% of pension funds’ asset allocations. Any investment not mentioned in the law belongs to the “basket clause,” the nickname for various asset categories such as private equity and hedge funds that aren’t mentioned in the “legal list” as part of Section 177 of the state’s Retirement and Social Security Law.

The “legal list” includes public equities, certain conventional mortgages, bonds, certain co-investments in mortgages, certain real estate investments, mutual funds and collective investment trusts, among other investments.

The basket clause law affects the state’s largest public pension funds: the $233.2 billion New York State Common Retirement Fund, Albany; $233.5 billion New York City Retirement Systems; and $132 billion New York State Teachers’ Retirement System, Albany.

The basket clause expansion is a “critical piece of legislation” that will “grant public pension funds the flexibility we need to make investment decisions in the best interest of our members and beneficiaries,” said Brad Lander, the New York City comptroller in a Dec. 28 news release.

“Amid a challenging market environment, we believe this is the most significant long-term adjustment we can make to safely maximize returns, said Mr. Lander, the fiduciary for the five pension funds within the New York City Retirement Systems.

Representatives of the New York State Teachers’ Retirement System and the New York State Common Retirement Fund declined to comment.

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