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Massachusetts may put 5% of pension assets

in hedge funds

Boston Business Journal, May 15, 2003

As a move to diversity after three years of losses on stocks, Massachusetts may invest as much as 5 percent of its $28 billion public-employee retirement system in hedge funds, according to a state official.

The Massachusetts Pension Reserves Investment Management Board, which oversees the retirement fund for public employees, late last year began reviewing its allocation of the funds it puts in stocks, bonds and real estate.

James B.G. Hearty, the investment management board's executive director, told Bloomberg Business News that he expects to recommend to the board that it place about 5 percent in hedge funds because it would diversity the fund's holdings.

The Pension Reserves Investment Trust, as the Massachusetts fund is known, invests in stocks, bonds, timber, real estate and such alternatives as venture-capital funds.

The trust has yet to put money in hedge funds, which are high-risk, high-reward investment vehicles that have little government oversight and often use such strategies as short-selling stocks.

The Massachusetts fund's current long-range allocation targets include a 55 percent allocation to stocks, 24 percent for bonds, 6 percent for real estate and 10 percent for venture capital or leveraged-buyout funds, 3 percent for emerging markets and 2 percent for timber, Bloomberg reported.

Massachusetts would join other public pensions that are seeking investment alternatives after the longest bear market in stocks since World War II.

Hedge funds "are going to be very appealing,'' Hearty said. "We've had three large state funds make commitments in the last year, and I think that, in the next year, you'll see five to 10 more.''