New York Governor Kathy Hochul signed a bill on Friday that allows the state’s and New York City’s pensions to increase allocations to more expensive and opaque asset classes like private equity that could potentially deliver higher returns.

The bill raises the cap on alternative assets — which also include hedge funds, private real estate and direct loans to companies — as well as foreign stocks, to 35% from 25%. Boosting the limit will allow pensions, including the $233 billion New York State Common Retirement Fund and five New York City pensions with more than $230 billion in assets combined, to better diversify holdings, officials have said.

“Amid a challenging market environment, we believe this is the most significant long-term adjustment we can make to safely maximize returns,” said New York City Comptroller Brad Lander in an email. “I look forward to working in collaboration with each of our City’s public pension boards to deliver strong returns for New York City’s pensioners”

U.S. state and local-government pensions, which count on annual investment gains of about 7% on average, piled into alternative assets in recent decades when a slowdown in economic growth and low interest rates made it harder to meet long-term targets.

Such private offerings accounted for abut 70% of new capital raised in 2019, according to the U.S. Securities and Exchange Commission.

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