Interview – New York City Retirement System


What stands out in your portfolio? We are pleased with the performance of private assets. Perhaps in the next 12 to 24 months we will have more public equity than private equity with less leverage, given that the cost of borrowing has gone up. Perhaps this is an opportunity to re-leverage when interest rates normalise. Some of our private assets, such as core real estate and infrastructure, are good hedges for inflation and continue to gen- erate positive returns.


Are you achieving your investment objec- tive of 7%?


Last year was challenging. We were una- ble to achieve those returns. It was an unusual year with a significant sell-off in equity and fixed income, but things have become a lot cheaper. And importantly, the pension funds remain well funded relative to their obligations. In 2021, for example, we saw returns top 25%.


So, how did you fare in the tumultuous market conditions of 2022? Across all five pension funds, we saw an investment return of -8.65%. What was most challenging about last year is we did not have the usual ballast benefit in the diversification between bonds and equities. The traditional 60/40 portfolio is down 16%, year to date, but we are positioned to weather market volatility over the long term. Going forward, we are looking at inflation sticking at 4% to 5%, which means the Fed is going to have to be more restrictive for a longer period than the market is pricing in.


We don’t overreact to headline risk. We are not nimble by design.


What do you think about the Fed’s performance? The Fed was late [on rates] and they underestimated the inflationary pres- sures and the persistent nature of those pressures on the economy. They recog- nise that they were late and have now acted aggressively.


What they are trying to do is slow the economy, reduce inflation, address the labour shortage and restore the bal- ance in the economy, which is hard thing to do.


So, you see the inflationary picture as problematic? Inflation is going to be more persistent. Looking back at the global financial crisis, the main concern was operating in a dis- inflationary environment, with the Fed having a 2% inflation target and coming in south of that.


Climate change is going to be expensive. Then there is the issue of demographics in the United States. A lot of people are retiring, a lot of people are leaving the job market. These are going to be big challenges for the US economy for years to come.


NEW YORK CITY RETIREMENT SYSTEM Pension Scheme


Teachers Retirement System of the City of New York New York City Employees’ Retirement System New York City Police Pension Fund NYC Fire Pension Fund


NYC Board of Education Retirement System


How would you describe your investment approach? We are disciplined, long-term investors. We don’t overreact to headline risk. We are not nimble by design. We have a thoughtful approach to asset allocation, looking at it every three to five years. My role is to think longer term – seven to 10 years out. What are the implications of climate change? What are the implica- tions of inflation? What are the implica- tions of monetary policy, here and abroad, on certain sectors? We have to position ourselves around all of that.


I also look at issues around supply chain management, which are inflationary.


How important is ESG within your portfolio?


It is really important. In the climate space, you need to be aware of some real risks. Physical locations, for example, so look at your properties. Mitigating some of the risks connected with climate change is going to be expen- sive, which will, of course, be inflationary.


Assets


$100bn (£82.3bn) $75bn (£61.7bn) $46bn (£38bn) $17bn (£14bn) $8bn (£6.5bn)


So “greenflation” could be a problem? Yeah, but we are making some good strides by investing in alternative energy sources – in the equity space as well as in private equity and infrastructure. So, as a global economy, we are making headway.


How do you see your investments develop- ing over the next year and beyond? A new law just passed by the Governor of New York gives us an opportunity to allo-


16 | portfolio institutional | February 2023 | Issue 120


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