Pension Investment Advisor: Ignore CalPERS’ Lead on Hedge Fund Exit

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An investment expert and member of the Alaska pension system’s investment board is calling CalPERS’ hedge fund exit a “perfect contrary indicator”.

Dr. Jerrold Mitchell sits on the Alaska Retirement Board’s Investment Advisory Council, which makes recommendations and reviews pension investment decisions. Dr. Mitchell was also formerly a CIO at the Boston Foundation and the Massachusetts Pension Reserves Investment Trust.

He encourages investors to ignore CalPERS’ lead on hedge fund investments.

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“CalPERS is close to being a perfect contrary indicator, meaning as long as decisions are opposite CalPERS decisions, all will be just fine,” he was quoted as saying in a report for Alaska Retirement Management Board of Trustees meeting, first reported in Bloomberg Briefs.

But Mitchell didn’t just stop there. Not only should they keep alternative allocations steady, ignoring CalPERS lead, but “it may be appropriate to increase the absolute return investments, since the time to hedge is when everything is going well and asset prices are high.”

Many quantitative investment professionals consider the length and consistency of the stock market run-up in a stimulative environment and note that, if markets are allowed to operate freely, they often revert back to the mean. For his part, Mitchell is already there. “There have been six consecutive years of gratifying stock market returns,” he was quoted as saying, indicating that now, with valuations near all time highs and quantitative easing being withdrawn from the U.S. market environment, now might not be the best time to go all in long stock market investments.

Is Mitchell making a prediction on the future? Not likely. Rather, he is probably looking at probability itself and noting that at some point we might see a serious pullback, which could be a natural market occurrence.

“Dr. Mitchell believes neither governments nor private economists can forecast the economy at turning points with accuracy or consistency,” the Alaska Retirement Board report noted. “That does not mean we should give up trying, but when economic forecasts are expressed from managers, actuaries, consultants, or members of the IAC, we should realized just how fallible those forecasts have been.”

Like the boy who cried wolf, the “investment world has been consumed by discussion of risk ever since 2009,” Mitchell was quoted as saying, noting he believes the simplest and best approach to risk is to be long-term, and long term risk could be on the horizon. “Steady investing leads to steady results and is also beneficial from a physiological point of view of lower levels of cortisol.”

Alaska Retirement Management Board manages $25 billion in pension assets for the state’s retirement systems.

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