For the last six or seven years we've chronicled* CalPERS' Adventures in Alt-land, often with barely disguised glee.
Here's the latest from FT Alphaville:
The message is starting to get through. Calpers, the largest US public pension fund, has said that it will stop investing in hedge funds.*There are so many posts that use of the search blog box is required. Here's one from 2009:
It took a while. The $300bn California Public Employees’ Retirement System rejigged its portfolio of hedge funds at least three times since it became one of the first pension funds to embrace the fee structure in 2002. The previous decision had been to halve exposure, rather than elimininate it entirely.
Still, public pension fund trustees now have a very visible example to follow. If the largest and best resourced US pension system found the cost and complexity of investing in hedge funds too much to make it worth while, why should they think they can do better?
Here is the explanation for the decision to exit 24 hedge funds and 6 fund of funds, investments worth $4bn.
“We are always examining the portfolio to ensure that we are efficiently and cost-effectively achieving our risk-adjusted return goals,” said Ted Eliopoulos, CalPERS Interim Chief Investment Officer. “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, the ARS program is no longer warranted.”Cost is very much part of the calculation. When in 2013 we spoke to the late Joe Dear, then chief investment officer for Calpers, he told us that the pension fund paid about $1.2bn a year in fees to third party investment managers. Of that, $1bn went to “alternatives”, private equity and hedge funds, even though the assets represented less than 15 per cent of the portfolio. That disparity was the starting point for the decision Calpers has now come to.
Complexity deserves a bit of unpacking because, returning to John Lanchester’s theme of how finance reverses the meaning of words, it has been one of the supposed selling points for hedge funds — they can use complex trading strategies that slow moving investors couldn’t hope to do themselves....MORE
CalPERS appears to be a willing victim
Following up on "Calpers Sues Over Ratings of Securities":
...The security packages were so opaque that only the hedge funds that put them together — Sigma S.I.V. and Cheyne Capital Management in London, and Stanfield Capital Partners in New York — and the ratings agencies knew what the packages contained. Information about the securities in these packages was considered proprietary and not provided to the investors who bought them....MOREGot that? We have a FIDUCIARY saying they bought stuff they didn't understand.
And weren't allowed to see.
"Hey Mister, I've got a magic box that will turn your dollar bills into C-notes!"I'm pretty sure a smart young paralegal could draft the brief against CalPERS in about fifteen minutes....
FAIL: CalPERS Posts 1% Return for Fiscal Year Ended June 30, 2012.
Pension
Funds Drive Growth Of Alternative Assets. And: CalPERS Up 68% on
Commodities; Down 31% on Real Estate. Action, Baby, Action!
