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By Suzanne Barlyn

(Reuters) – High fees paid to hedge fund managers whose strategies underperform have together cost New York’s public pension system $3.8 billion since 2008, the state’s financial regulator said in a report on Monday.

While pension fund managers across the country have cut exposure to overpriced, underperforming investments, the New York State Common Retirement Fund, the nation’s third-largest public pension fund, has spent pension system funds chasing performance that continues to fall far short, said Maria Vullo, New York State Department of Financial Services (NYDFS) superintendent, in a statement.

The regulator is considering regulatory reforms for the pension fund’s hedge fund investments as well as reforms to address a lack of transparency in private equity investments.

The NYDFS, in a 20-page report, blames New York State Comptroller, Democrat Thomas DiNapoli, the sole trustee overseeing the pension fund, for “letting outside managers rake in millions of dollars in fees regardless of hedge fund performance, and tolerating large private equity fees and expenses without obtaining necessary transparency.”

A spokeswoman for DiNapoli could not be reached for comment.

“Just last week, in fact, the Comptroller’s Office admitted that hedge fund compensation has been excessive and unfair to pension fund beneficiaries,” the state’s financial regulator wrote in the report. “And while it now appears that the Comptroller’s Office may be seeking to limit hedge fund fees, this is too little too late.”

New York State’s Common Retirement Fund is the investment arm of the New York State and Local Employees’ Retirement System and the New York State and Local Police and Fire Retirement System.

New York City’s largest public pension is exiting all hedge fund investments in the latest sign that the $4 trillion public pension sector is losing patience with these often secretive portfolios at a time of poor performance and high fees.

(Reporting by Suzanne Barlyn and Nikhil Subba; Editing by Nick Zieminski)

Photo: via stockmonkeys.com

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