Poor Returns are Causing Public Pension Funds to Flee from Hedge Funds

July 29, 2014 James Heinsman Hedge Fund News

High fees and low returns are frightening some public pension funds away from hedge funds in recent days.

Among those having second thoughts about hedge funds are officials from America’s largest public pension fund, the California Public Employees’ Retirement System, known as Calpers. Analysts believe that Calpers stake in hedge funds will shrink by 40 percent, down to $3 billion this coming year. One spokesman refrained from commenting on the exact size of the downgrade, but did say that Calpers will be taking a “back-to-basics” approach to its investments.

The trend to get away from hedge funds has been building steam over the past few months and years. Officials who deal with pensions for Los Angeles’s police and fire department employees divested completely from hedge funds last year.  The decision was made after a 7-year investment of $500 million yielded a very disappointing 2 percent, explained Los Angeles Fire and Police Pensions General Manager Ray Ciranna. Part of the low yield was attributed to the high fees paid to hedge fund managers. The hedge fund investment represented only 4 percent of the pension’s total portfolio, but the $15 million per year in fees paid to the hedge fund managers was 17 percent of the total fees paid by the pension fund.

“We were ready to move on,” Mr. Ciranna said.

Calpers, Hedge Funds, Los Angeles Fire and Police Pensions, Ray Ciranna,

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