New York City's pension funds are setting a remarkable precedent by increasing their investment in emerging managers, particularly those owned by minorities and women. This strategic shift follows an impressive track record of emerging managers outperforming traditional benchmarks across various asset classes since 2015.
Impressive Growth and Future Goals
The city's retirement system reported a significant growth in the participation of Minority and Women-owned Business Enterprises (MWBE) managers. From $16.82 billion in 2021, their involvement rose to $19.5 billion by June 2022, accounting for roughly 13% of the total portfolio. The Comptroller's Office anticipates that by 2029, these firms will manage 20% of the pension funds' U.S.-based, actively managed assets.
Emerging Manager Program Expansion
The city plans to expand its Emerging Manager Program in response to this success. Key focus areas include:
- enhancing the direct emerging manager program in private equity
- creating similar programs in real estate and alternative credit
- enlarging the fixed-income emerging manager program
This expansion aligns with the city's goals of achieving long-term financial stability for pension beneficiaries, ensuring prudent diversification, and leveraging dynamic asset management strategies.
Diversity Driving Performance
Diversity is not just a social goal but a strategic advantage. Steven Meier, CIO of the New York City Retirement System, highlights the role of a diverse set of asset managers and strategies in achieving portfolio diversification and objectives. Hedge funds, private equity, and alternative credit have seen significant representation by emerging managers, leading to a diversified and robust investment portfolio.
Historical Performance and Future Commitments
Since 2015, MWBE managers have consistently generated alpha, i.e., returns above the benchmark, for New York City's retirement systems. Their performance has been strong in public and private markets, with a high Public Market Equivalent (PME) Spread, which measures the opportunity cost of investing in public markets. The report underlines the city's commitment to identifying emerging and diverse managers who offer risk-adjusted solid returns.
Supporting Social Equity and Financial Stability
New York City's decision to increase allocations to emerging managers, particularly those owned by minorities and women, is a testament to the value of diversity in investment strategies. This move supports social equity and aligns with the city's objectives of financial stability, portfolio diversification, and dynamic investment approaches. The continued success of these managers in various asset classes underscores the potential and efficacy of this inclusive investment strategy.
