New York State Common Retirement Fund Backs Out From Morgan Stanley

Following news of expected losses, the New York State pension reneged on a $300 million commitment to Morgan Stanley’s real estate investing group.

(October 15, 2010) — The $125 billion New York State Common Retirement Fund has reportedly extricated itself from a $300 million pledge to Morgan Stanley’s real estate investing group after the firm revealed losses and managers left.

“It’s highly unusual for investors to pull out,” Steve Kaplan, a finance professor at the University of Chicago’s business school, told Bloomberg news. “They must figure the amount they had to forfeit is less than they’d lose by continuing the relationship.”

The move by New York’s pension, the third-largest in the US, follows its commitment made in 2008 to the $4.7 billion Morgan Stanley Real Estate Fund VII, part of a group that manages $43.6 billion, Bloomberg reported. According to minutes from a June 2008 meeting, Morgan Stanley had planned to raise about $10 billion for Fund VII, yet it fell short of its target by more than half.

New York’s pension, which covers about 1 million current and retired government workers, additionally made an investment of $500 million in 2007 to $8.8 billion international Fund IV, which revealed to investors earlier this year that it expects to lose $5.4 billion. The pension, overseen by Comptroller Thomas DiNapoli, began negotiating an exit from Fund VII last year, and is in the process of completing an agreement with Morgan Stanley.

According to the pension plan’s annual report, the New York plan paid Morgan Stanley $6.3 million in the year ending March 31 in real estate management fees. Its investment in Fund VI, which cost the pension plan $465.8 million, had a market value of $85.4 million as of March 31.

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