Illinois Eyes Pensions' Hedge Investments

Mar 23 2012 | 11:28am ET

A shakeup at Illinois' state pension plans—prompted in part by one's enormous allocation to hedge funds—may imperil the hedge fund investments of all five.

A new investment committee will review the pensions' hedge fund portfolios, HFMWeek reports. "There are legitimate questions about whether or not some investment strategies used by some of our pension funds have been overly aggressive, and with a pension unfunded liability well above $80 billion, the last thing we need to incur is additional liability," investment committee Chairman Tom Cross, the Republican minority leader of the Illinois House of Representatives.

Cross was likely talking about the Illinois Teachers Retirement System, which faces a 53% shortfall and has about 28% of its assets invested in hedge funds.

Another committee member, Marc Levine of the Illinois Policy Institute, called that allocation "worrisome."

"Trying to fix our overwhelming pension deficits by taking more risk makes no sense," he said. "Higher risk may bring higher returns during good times, but at the cost of larger losses. Further, gaining an extra percentage point or so over time is negligible relative to the scale of the problem."

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