NY and NJ Pensions Sticking with Hedge Funds ... For Now

Calpers, the California pension fund, says it will end its investments in hedge funds because they're too complicated and charge too much.

But New York and New Jersey aren't following suit.

Spokespersons for the city and state funds say the investments are part of a broader strategy to earn the best returns for public sector retirees.

In New York City, three of the five pension funds have invested 4 to 5 percent of their money in hedge funds (the city's other pension funds have no hedge fund investments).  New York state has just over 3 percent of its pension money invested in hedge funds. And New Jersey has nearly 11 percent of its pension money in hedge funds.

Keith Brainard, research director at the National Association of State Retirement Administrators, said public pension funds have increasingly looked to hedge funds as a way to increase returns and reduce risk, particularly following the financial crisis. "Allocation by public pension funds to hedge funds has been growing, and the number of public pension funds invested in hedge funds has also been increasing," he said.

But Eileen Norcross, senior research fellow at the Mercatus Center at George Mason University, said these investments can actually increase risk. "They're chaining their certain pension payment to an uncertain investment strategy," she said.

Meanwhile, critics — including some labor unions — say these investments tend to enrich Wall Street managers at public employees' expense. And, in New Jersey, labor leaders recently said they're looking at legal or legislative options to exercise more control over how pension money gets spent.