New York Maintains ‘Conservative Approach’ With 5.3% Third Quarter Return

The New York State Common Retirement Fund on Monday posted a 5.3% return for its third quarter, rebounding from weak gains in the first half of the year thanks to a boost from the broader markets.

But New York State Comptroller Thomas P. DiNapoli said the fund will maintain a “conservative approach,” as state pension plan leaders, concerned by historically low interest rates and slowing economic growth, worry about excessive risk. The Common Retirement Fund, with a funded ratio of 96.1%, boasts one of the strongest pensions in the nation.

“Volatility remains the defining characteristic of the investment landscape,” DiNapoli said in a statement. “As we approach the fund’s fiscal year end, we will maintain our conservative approach and keep a close eye on investment returns.”

As part of its risk-averse strategy, the third-largest state pension in the nation lowered its target rate of return to 6.8%, from 7%, for the current fiscal year starting in April. That puts the Common Retirement Fund, up 7.3% to an estimated $225.9 billion in December from an audited $210.5 billion in April, on track to meet the new target.

More state pensions are adjusting their forecasts and retreating into conservative strategies. The California Public Employees Retirement System (CalPERS), which is the largest pension fund in the nation, said in 2016 that it would reduce its assumed rate of return to 7%, from 7.5%, by next year. In October, trustees of the Ohio Public Employees Retirement System decided to lower that fund’s assumed rate of return for two of its five pension plans.

Meanwhile, experts forecast that returns at public pensions will be more than a full percentage point lower over the next 20 years, according to a report from the Pew Charitable Trusts. Even small percentage drops can have a “significant impact” and increase liabilities across US plans, the research group said.

Reducing return estimates is not the only change the Common Retirement Fund is making. Since the start of its fiscal year, the pension fund has incrementally increased its exposure to fixed income—cash, bonds, and mortgages—to roughly 24%, up from 18% of its total portfolio in March.

The fund currently has roughly 39% in US stocks and 16% in non-US equities. It also has about 9% in private equity, roughly 9% in real estate and real assets, and nearly 4% in absolute return strategies and opportunistic alternatives.