The California Public Employees' Retirement System (Calpers), the country's largest pension fund, is cutting its investment risk profile.

Already Calpers decided to exit the hedge fund space last year, and this year it decided to trim the number of private equity managers its uses, though not its commitment to the asset class.

Calpers is working on a plan in which it would "begin slowly moving more money into safer investments such as bonds" from riskier assets like stocks, according to Melody Petersen of the Los Angeles Times.

That would bring Calpers' investment style closer to that of defined-benefit plans in the private sector.

Calpers faces serious cash shortfalls—$5 billion last year. And it's concerned about potential market losses. "We know another recession is coming," Eric Stern, a finance department analyst told the Times. "We just don't know when."

California isn't the only state facing a pension crisis for its government employees. A new study from the Pew Charitable Trusts shows that the nation’s state-run pension systems had a $968 billion shortfall in 2013, a $54 billion increase from 2012.

Calpers probably doesn't regret its decision to jettison hedge funds, particularly this month. The 11 percent plummet by the S&P 500 index between Aug. 17 and Aug. 25 put a major hurt on hedge funds that were bullish stocks.

Among the losers from the global stock plunge are star managers Leon Cooperman, Raymond Dalio and Daniel Loeb. Cooperman’s Omega Advisors suffered a 12 percent slide for August through last Wednesday, according to The Wall Street Journal.

Loeb’s Third Point and William Ackman’s Pershing Square Capital Management also have endured significant losses, putting them in the red for 2015.

“We’ve struck out this month so far,” one hedge-fund manager told the paper.

Journal reporter Rob Copeland notes the irony that as hedge fund managers have underperformed the stock market during its 6 ½-year rally, they offered the excuse that they were hedging the move, just as hedge funds were meant to do. It looks like many didn't hedge it too skillfully.


Related Stories:

• Financial Times: Calpers' Private Equity Problems Mount
• Singer: Calpers Decision to Dump Hedge Funds 'Off-Base'
• Calpers' Weak Investments Produce $233 Billion Pension Shortfall