CalPERS Plans Big Cuts To Hedge Fund Portfolio

Jul 24 2014 | 10:35am ET

The country’s largest public pension fund is poised to slash its hedge fund investments by almost half.

The California Public Employees’ Retirement System plans to cut its hedge-fund portfolio by 40% this year, pulling some $2 billion from the industry. CalPERS will continue to have about $3 billion invested in hedge funds, The Wall Street Journal reports.

Public pension funds across the U.S. are cutting back on hedge funds in an effort to reduce costs amidst a period of weak returns for the asset class. The Los Angeles Fire and Police Pensions last year decided to redeem its entire $500 million hedge-fund portfolio. All told, public pension funds have cut their hedge-fund allocations by one-third, to 1.21%, according to Wilshire Trust Universe Comparison Service.

But no other pension has the totemic value of CalPERS, which with $301 billion in assets is not only the largest public pension fund in the U.S., but was also among the earliest adopters of hedge funds and among their most enthusiastic investors. That has changed in recent years, with CalPERS complaining that hedge funds have “not made enough concessions” in terms of fees while it also brought more and more money back to be managed in-house.

CalPERS would not comment on the hedge-fund cut but told the Journal that it was taking a “back-to-basics approach” to managing its billions following an examination into its hedg-fund strategy thatbegan in March. A formal recommendation is expected this fall, but CalPERS’ hedge fund investments have already fallen by at least $700 million to $4.5 billion.

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