Pension Fund

A bill that would loosen investing restrictions placed on the $70 billion state pension fund could be heard in the Senate Finance Committee next week. Sen. David Hoyle, D-Gaston, a co-chair of the Senate Finance Committee and sponsor of the bill, said legislation eliminating a 5-percent cap on alternative investments may be taken up by the committee, but might also not be considered this year. The bill would put alternative investments -- venture capital, real estate trusts and hedge funds -- under the same investment cap as stocks. Currently, stock investments are limited to 65 percent of the portfolio. The legislation would also allow investments in derivatives, which are contracts tied to performance of interest, currency, credit or other indexes. Hoyle said that he filed the bill because of interest from State Treasurer Richard Moore's office. He added that previous efforts to diversify pension fund investing have been successful, producing higher returns. "It's not some! thing that I'm going to run without a lot of vetting. We're not going to do anything that is crazy," Hoyle said.
But the State Employees Association of North Carolina has expressed reservations about the bill, and derivatives have taken a hit lately on Wall Street and in the press. The Florida pension fund recently sued insurance giant AIG because of losses associated with its derivatives portfolio. And banks took $9.97 billion in derivative-associated losses, much of them associated with the mortgage crisis, in the fourth quarter of 2007, according to the federal Office of the Comptroller of the Currency. Financial managers use derivatives -- which are really just bets and not the actual ownership of a company or commodity -- to try to manage risk associated with an underlying investment. (THE INSIDER, 6/27/08).