Tags: Calpers | hedge | funds | fees

FT: Calpers' $4 Billion Hedge Fund Pullout Isn't Start of Trend

By    |   Tuesday, 16 September 2014 12:51 PM

The decision by Calpers (California Public Employees' Retirement System), the country's largest public pension plan, to eliminate its $4 billion investment in hedge funds won't cause a mass exodus by other investors, hedge-fund industry participants say.

Calpers cited the complexity of hedge funds and their hefty fees as the reasons behind its departure.

Given the fees — often 2 percent of assets and 20 percent of profits after a certain level is reached — and frequently mediocre returns, why wouldn't others follow Calpers' example?

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"Hedge fund investing has now become mainstream for pension funds," Alper Ince, managing director at Paamco, a fund of hedge funds, told the Financial Times.

Of course that could just mean it will take pension funds a while to realize it might be in their best interest to dump hedge funds.

Still, Arno Kitts, head of U.K. institutional at BlackRock, told the Times, "people do pay attention to Calpers, but there are plenty of hedge funds that have delivered consistent long-term performance with good risk-adjusted returns, which are uncorrelated with other assets."

Public pension funds in the United States make up approximately 14 percent of hedge fund assets owned by institutions, according to data provider Preqin, the Times noted.

Amy Bensted, head of hedge fund products at Preqin, told the Times that Calpers' action might indicate that public pension funds aren't impressed with the hedge fund industry anymore.

"But I don't think this is the start of a trend. The majority of U.S. public pension schemes remain committed," she stated.

Keith Brainard, research director of the National Association of State Retirement Administrators, offered a mixed assessment of the ramifications of Calpers' move.

"I would expect their decision to divest from hedge funds will cause some public pension funds to re-evaluate their hedge fund strategy, although many public pension funds consider hedge funds to be a vital part of their diversified portfolios," he told Bloomberg.

For the fiscal year ended June 30, Calpers paid $135 million in hedge fund fees. The investments earned 7.1 percent, constituting 0.4 percent of the fund's total return, according to Calpers figures cited by Bloomberg.

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The decision by Calpers (California Public Employees' Retirement System), the country's largest public pension plan, to eliminate its $4 billion investment in hedge funds won't cause a mass exodus by other investors, hedge-fund industry participants say.
Calpers, hedge, funds, fees
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2014-51-16
Tuesday, 16 September 2014 12:51 PM
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