The largest pension fund in the US, Calper (the California Public Employees’ Retirement System), has decided to put an end to its hedge fund investments due to investments becoming expensive and complex.
The fund, in charge of over $300 billion, will liquidate its $4 billion investment across 24 hedge funds. Calper oversees the retirement benefits and investments of more than 1.6 million people. Hedge funds, which market themselves exclusively to wealthy investors, operate with very little regulation from the authorities.
The decision to pull the plug from investing in hedge funds is happening following uncertainty about its exposure to hedge funds.
In a public statement, Ted Eliopoulos, the Calper’s chief investment officer, said that although hedge funds are a viable option for some investors, the nature of its complexity and the difficulty scaling Calper’s size makes them an inappropriate option for the pension fund.
Ted Eliopoulos said:
“Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost and the lack of ability to scale at Calpers’ size,”
He added that that investing in hedge funds “doesn’t merit a continued role.”
It is becoming more commonplace for pension funds to be skeptical about investing in hedge funds. Although this mainly comes down to the high fees and lackluster performance by the hedge fund industry.
Over the past few years hedge funds have not been performing that well compared to the S&P 500 index, with a 9.1% return versus a 32.4 increase respectively.
Calpers has been subject to the lackluster performance of hedge funds, with its investments in hedge funds only increasing the firm’s total returns by 0.4% over the fiscal year that ended in June.
The relationship between pension funds and hedge funds
After the Great Recession many pension funds invested in hedge funds to make up for losses and many have seen high returns. However, Calpers has expressed its concern about their investment strategies. It is not the only pension fund to speak about about this, with Rhode Island and Pennsylvania state pension managers also expressing their doubts.