Rough Quarter for Hedge Funds As Big Investors Pull Back Most Since 2009

In the last quarter of 2015, institutional investors pulled more money out of hedge funds than they put in.

That’s the first time that’s happened in four years, and it encapsulates a growing trend of institutions and pension funds wondering aloud whether their hedge funds portfolios are working.

From the Wall Street Journal:

Marc Levine, chairman of the $16 billion Illinois State Board of Investment, had a provocative question this month during a board meeting about hedge funds.

“Why do I need you?” Mr. Levine asked. A lot of big investors are asking the same question.

Investors globally asked for more money back from hedge funds than they contributed in the fourth quarter of 2015, according to HFR Inc.—the first net quarterly withdrawal in four years. They pulled an additional $15.3 billion in this year’s first two months, according to eVestment.

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Overall, big investors pulled an additional $19.75 billion out of hedge funds in January, according to eVestment. That was the largest outflow for the year’s first month since 2009.

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Hedge-fund commitments as a percentage of U.S. public pension-plan portfolios have dropped from a peak of 2.31% in 2012 to 1.37% at the end of 2015, according to Wilshire.

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The proliferation of lower-price alternatives is one reason the Illinois Municipal Retirement Fund decided last month to end its $500 million hedge-fund program.

The commitment was expensive, said Dhvani Shah, the plan’s chief investment officer.

“So do I really want to scale up?” she said. “The answer is no.”

The article notes that some investors are happy with their hedge funds portfolios – including the Florida State Board of Administration, which has nearly $4 billion in hedge funds commitments and has no plans to reduce that number.

Photo by  Dirk Knight via Flickr CC License