This isn’t the first time a basket clause bill was approved by the legislature and sent to New York’s governor. In 2014, a bill expanding the basket clause to 30% of pension fund assets was vetoed by then-Gov. Andrew Cuomo.
“The existing statutory limits on the investment of public pension funds are carefully designed to achieve the appropriate balance between promoting growth and limiting risk,” Mr. Cuomo said in his veto message. “This bill would undermine that balance by potentially exposing hard-earned pension savings to the increased risk and higher fees frequently associated with the class of investment assets permissible under this bill.”
In 2014, as in 2022, the New York City Retirement Systems advocated greater flexibility in asset allocation. “The current 25% limit on alternative investments prevents the city pension funds from creating an optimal investment portfolio,” a spokesman for then-City Comptroller Scott Stringer, said at the time. The comptroller is the fiduciary for the five pension funds in the city’s pension system.
Eight years later, Comptroller Brad Lander presented the same message. “The law…fails to reflect the realities of the modern investment world and hampers our ability to prudently diversify our portfolio, maximize our risk-adjusted returns, and save money in the long term,” Mr. Lander said in February testimony before a joint State Senate-General Assembly hearing on the state’s propose fiscal 2023 budget. “The basket clause allocation of 25% has not been adjusted since 2006, when it was adjusted from 15% to 25%.”
Raising the basket clause asset allocation will help city pension funds “prudently diversify” their portfolios and “obtain potentially greater returns while maintaining a consistent, prudent level of risk,” he added.