New York City pension boss shuns stocks as interest rates rise

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The pinnacle of one of many largest pension schemes within the US says it’s planning to chop again investments in fairness markets, within the newest signal that rising rates of interest have introduced an finish to the “Tina” period that drove the previous decade of inventory worth positive factors.

Steven Meier, chief funding officer for the $250bn New York Metropolis Retirement System, stated rising rates of interest “adjustments the dynamic by way of what you’ll want to put money into — you actually don’t have to have as a lot fairness publicity now”.

Rock-bottom rates of interest, first launched in response to the 2008 monetary disaster and which reappeared in the course of the coronavirus pandemic, created a mantra amongst many traders that “There Is No Various” to shares, with even historically cautious cash managers similar to pension funds compelled into riskier property looking for returns as bond yields tumbled.

Nonetheless, rate of interest rises throughout the developed world have triggered what Meier described as a “dramatic repricing” in fixed-income markets. The yield on what are in impact “risk-free” two-year US Treasury notes has risen from a low of 0.1 per cent in 2021 to five.1 per cent this week, whereas high-yield debt is paying a median of 8.8 per cent, in line with the Ice BofA high-yield index.

“My hope is we don’t return to zero-interest fee coverage any time quickly if ever as a result of I believe it does present some degree of disruption within the market, and suboptimal selections getting made based mostly on the actual fact there’s free cash out there,” Meier stated in an interview with the Monetary Occasions. “I believe the repricing in fastened revenue has been wholesome.”

NYCRS, which incorporates 5 separate funds for various teams of metropolis staff, is reviewing its long-term asset allocations. Meier stated the ultimate outcomes would range throughout the funds, however he anticipated to see a discount within the proportion of property invested in equities and a rise in fastened revenue, high-yield bonds and personal property together with personal credit score and infrastructure.

NYRCS at present goals to take a position about 65 per cent of its portfolio in private and non-private equities. On the finish of 2022, round 31 per cent of its funds — $73bn — have been invested in public fastened revenue, down from 35 per cent on the finish of 2018. 

The change in strategy echoes latest statements from huge cash managers similar to BlackRock, which declared in its mid-year evaluate late final month that “revenue is again” because the world enters a brand new long-term regime of upper rates of interest and macroeconomic volatility.

NYCRS’ $250bn of property places it roughly degree with the New York State Widespread Retirement Fund and behind solely California’s Calpers and Calstrs among the many nation’s largest public pension funds.

Meier stated he additionally anticipated to extend NYCRS’ investments in personal fairness, at the same time as many different establishments wish to scale back their publicity to the sector.

He stated NYCRS had not turn out to be overexposed due to native legal guidelines limiting how a lot it might put into sure asset courses, and the withdrawal of different establishments may create extra alternatives.

“If I’m a non-public fairness agency, I don’t need shoppers which might be right here at this time, gone tomorrow and again in three years — you wish to see a constant relationship,” Meier stated. “When volatility picks up in public markets it spills over into the personal asset sector . . . it’s the fitting time to proceed to purchase property, offered you’ve gotten sufficient liquidity in your portfolio.”