Eyeing His Next Target, Cuomo Goes after Sole Trustees

Moving his gaze from placement agents to the men and women who can exert uninhibited control over state pension systems, New York Attorney General Andrew Cuomo moves to curtail the power of sole trustees.

(October 15, 2009) – With placement agents firmly in their place, New York Attorney General Andrew Cuomo has turned his gaze toward the sole trustee structure of the Empire State’s Common Retirement Fund.

Cuomo has proposed replacing the head of the fund—an elected politician who is sole trustee of the pension—with a board of trustees, headed by an elected official. Currently, the $116 billion fund—recently racked by scandal when two of former Comptroller Alan Hevesi’s close associates were accused of taking kickbacks from investment management firms—is one of only four states with sole trustees at the helm. The other three are North Carolina, Connecticut, and Michigan.

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The move, Cuomo believes, would make it much harder for firms to unduly influence the investment manager selection process. While some say that the sole trustee creates a more accountable system, the trustee system has come under fire as of late—including in the pages of ai5000, which has attacked the SEC regulation of placement agents as misguided —for lacking appropriate checks and balances that can help avoid bribery and favoritism.

According to Reuters, Cuomo is suggesting that a 13-member board—made up of political appointees and representatives of different pension constituencies—replace the current structure. Reports indicate that the measure has bipartisan support from the State legislature.

“For decades, the state pension fund has been weakened and corrupted by the sole trustee model,” Cuomo is quoted as saying. “The model has allowed pay-to-play to flourish in a system meant to protect the retirement accounts of thousands of hardworking public employees. To put it simply: The model doesn’t.”

According to reports from Reuters, current State Comptroller Thomas DiNapoli, a Democrat like Cuomo, believes that Cuomo’s initiative is a step in the right direction and in line with reforms DiNapoli himself is undertaking.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

A recent survey shows that institutional investors from around the globe are happy with their hedge fund holdings, despite average losses of 19% in 2008.

(October 15, 2009) – Countering conventional wisdom, a recent study asserts that institutional investors are, in fact, more satisfied with their hedge fund holdings than they were a year ago, despite, on average, large losses.

London-based Preqin, surveying 50 global pension plans, endowments, foundations, and insurers, says that 40% of respondents were unhappy with hedge fund investments last October, a month after the collapse of Lehman Brothers and AIG caused global markets—and hedge funds with them—to collapse. The figure a year on, however, is only 27%.

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According to the survey, 62% of investors state that their hedge fund holdings have met their expectations, while 11% claim that investments have exceeded them. As a result, 80% of those surveyed plan to maintain their current hedge fund allocations, leaving 20% who plan to reduce exposure.

The past year, however, has caused a shift in hedge fund selection criteria among institutional investors. While 45% claim that they have made no change to their selection criteria, the remaining 55% largely are looking at liquidity and fund transparency when selecting fund managers. Surprisingly, lower hedge fund fees—long thought to be a bugbear of institutional investors—did not rank near the top of hoped-for changes.

The survey, conducted in September, comes on the heels of Shell UK’s US$14 billion pension fund’s prominent move into this asset class. According to reports, Shell plans to move upward of 5% of its fund into alternatives—which, within Shell, will not include real estate and private equity, which exist as standalone asset classes—bringing total asset allocation to 40% equities, 40% fixed-income, 10% property, and 5% private equity.

“Following the 2009 review, the Trustee is considering investing a small part (5%) of the fund in alternatives investments,” wrote Shell UK’s Trustee board in a newsletter to pensioners. “Well-chosen hedge funds can provide diversification benefits for the fund in volatile markets. The Trustee has agreed changes to the underlying asset in each asset class and to invest a larger proportion of the fixed income in assets that will give some protection from the effects of inflation.”

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>