CalPERS To Pull Back 40% of Hedge Fund Investments

There is a growing desire by funds around the country to avoid large investment fees, and that trend has led many funds to reduce their investments in hedge funds. Now, CalPERS has hopped on that train. From MarketWatch:

[CalPERS’] hedge-fund investment is expected to drop this year by 40%, to $3 billion, amid a review of that part of the portfolio, said a person familiar with the changes. A spokesman declined to comment on the size of the reduction but said the fund is taking more of a “back-to-basics approach” with its holdings.

CalPERS’ decision comes on the heels of a similar move by the Los Angeles Fire and Police Pensions fund. The difference is, the LA fund separated itself from hedge funds altogether. From MarketWatch:

The officials overseeing pensions for Los Angeles’s fire and police employees decided last year to get out of hedge funds altogether after an investment of $500 million produced a return of less than 2% over seven years, according to Los Angeles Fire and Police Pensions General Manager Ray Ciranna. The hedge-fund investment was just 4% of the pension’s total portfolio and yet $15 million a year in fees went to hedge-fund managers, 17% of all fees paid by the fund.

The HFRI Fund Weighted Composite Index, which measured hedge fund performance, indicated hedge funds returned 3.2 percent in the first six months of 2013, compared to a 7.1 return for the S&P 500 index.