Connecticut Pension to Enter Hedge Funds After $5 Billion Loss

The US State of Connecticut is proceeding with a plan to invest in hedge funds after market turmoil wiped out $5 billion of pension assets. State Treasurer Denise Nappier will begin allocating up to 8 percent of the $20 billion she oversees for public sector employees and teachers into hedge funds after the state’s investment advisory council approved the plan recently. Connecticut, which claims to be the world hedge fund capital, is one of the few states that doesn’t invest its public pension in the asset class.

“This is the time to position our portfolio for the long term,” Nappier said today after a monthly meeting of the pension fund’s advisory council in Hartford. “I need that exposure as a diversifier,” she said, referring to hedge funds.

Public pension funds face record drops in assets this year as the worst financial crisis since the Great Depression caused almost $1 trillion of bank losses and dragged the world’s largest economies into recession. The declines may be compounded in states such as Massachusetts where lawmakers are cutting pension contributions to offset budget deficits.

The three retirement funds Nappier controls are heading for the worst annual performance since at least 1991, according to treasurer’s office data. Asset values fell 19.5 percent to $20.7 billion from $25.9 billion between July 1 and the end of October, officials said.

The pension fund’s advisory council began considering hedge fund holdings a year ago. The state already invests in private equity funds, another type of alternative investment that became popular among state funds in recent years.

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