Wednesday, May 14, 2014

CalPERS Making Big Cuts to Hedge Fund Allocations

From Pension Pulse:
Randy Diamond of Pensions & Investments reports, CalPERS chopping hedge fund allocation:
CalPERS portfolio managers have begun cutting the system's $5.3 billion hedge fund allocation in half, signaling a shift away from the asset class for the nation's largest defined benefit plan, say multiple sources familiar with the pension plan's operations.

The $289.1 billion California Public Employees' Retirement System's hedge fund program has been under review by top investment staff since January, spokesman Joe DeAnda confirmed in an interview with Pensions & Investments.

But Mr. DeAnda said no decision will be made on the future of the pension fund's hedge fund program until recommendations are presented to the CalPERS board sometime in the third quarter. Asked how cuts could be made in the meantime, Mr. DeAnda just repeated no decision had been made about the program.

Nevertheless, Curtis Ishii, a senior investment officer for fixed income who is conducting the hedge fund program review, in late March ordered Egidio G. “Ed” Robertiello, CalPERS' senior portfolio manager for absolute-return strategies, to start making major cuts, said the sources, who declined to be quoted by name because they are not authorized to talk about the issue.

Neither Mr. Robertiello nor Mr. Ishii returned phone calls for comment for this story.

The pension fund board's investment committee was informed in closed meetings during March and April that the cuts were being made, said two sources familiar with the discussions.

Other sources said portfolio managers for the absolute-return strategy made phone calls to all 13 CalPERS hedge fund managers in the past several weeks, telling them about the reduction. Three hedge fund managers will be terminated, and the remaining 10 will see their allocations cut.

The process of redeeming hedge fund assets varies among managers and can take several months. But by September, the sources say, the CalPERS hedge fund program will be reduced to around $2.5 billion.

In addition, the hedge funds-of-funds program is being reduced to two funds of funds from five, the sources said. Mr. Robertiello already has terminated four other hedge funds-of-funds managers during his nearly two years at CalPERS.

The hedge funds-of-funds segment has been a particular drag on performance, the sources said. They said that portion eventually will be cut to 15% to 20% of the portfolio from about 30%....MORE