The Phaserl


Toxic Mix Eats into Hedge Funds

from Wolf Street:

The wrath of investors: worst capital outflows since 2009.

Big public pension funds are slow-moving apparatuses. So dramatic shifts in investment decisions take a long time to be discussed and decided, and even longer before they’re felt by the investment community. But now they’re being felt – painfully.

In September 2014, the $300-billion California Public Employees’ Retirement System, the nation’s largest pension fund, announced that it would liquidate over the following year its investments totaling $4 billion in 24 hedge funds and six funds-of-funds; they were too complicated and too expensive.

Calpers interim CIO Ted Eliopoulos said at the time that, “at the end of the day, when judged against their complexity, cost and the lack of ability to scale at Calpers’ size,” the hedge fund program “doesn’t merit a continued role.”

And this ended pension funds’ post-financial-crisis love affair with hedge funds.

Hedge funds were supposed to help pension funds fill in their funding holes with higher returns. They were supposed to help pension funds fulfill their lofty promises to the retirees. Instead, hedge funds have deepened those holes with below-par returns – and some with spectacular losses. And to make the bitter fare go down better, they’ve decorated it with dizzying fees.

Calpers is the model for many pension funds. And its decision soon began to reverberate through the industry. Other pension funds chimed in. For example, last Thursday, the New York City Employees Retirement System voted to liquidated its entire $1.5 billion hedge fund program, a trustee toldReuters, “as soon as practicable in an orderly and prudent manner.”

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